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China Export Gains Understated on Fake-Data Distortions

October 11, 2013
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China is poised to post its first slowdown in export growth in three months, a result that may understate the strength of demand after fake reports inflated figures in the year-earlier period.

Growth from last month through April 2014 will be "depressed" because of a high basis for comparison, Credit Agricole CIB says. Overseas shipments probably grew 5.5 percent in September from a year earlier, according to a Bloomberg News survey ahead of tomorrow’s customs-administration report in Beijing, down from August’s 7.2 percent and 9.8 percent in September 2012.

The comparisons will complicate investors’ ability to gauge the strength of any economic rebound after two manufacturing gauges trailed projections in September, limiting a recovery that began earlier in the quarter. Additional skepticism over trade figures builds on broader questions about the quality of Chinese data from gross domestic product to jobs.

"The trade numbers in the next couple of months, especially on the export side, will not be a good reflection of demand for Chinese products abroad or overall economic activity, because they will be artificially depressed from what happened a year earlier," said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole in Hong Kong.

Citigroup Inc. and Everbright Securities Co. researchers also said September’s gains may be understated because of last year’s data distortions. Kowalczyk estimates 1 percent growth in China’s exports for September, putting him at the low end of 46 projections ranging as high as 8.2 percent. He sees a "small contraction" in October, citing over-reporting of export gains.

The General Administration of Customs didn’t respond to a faxed request for comment from Bloomberg News.

 

Import Growth

 

The agency will also report tomorrow that imports rose 7 percent last month from a year earlier, equal to August’s pace, with a trade surplus of $26.2 billion after $28.5 billion in August, based on the median estimates of analysts surveyed by Bloomberg News.

The customs administration has no plans to revise January- April trade figures, Zheng Yuesheng, an agency spokesman, told reporters in July. The data for those months reflect arbitrage- related trade, and current figures with respect to Hong Kong trade are true to facts, he said at the time.

Bilateral trade data reported by China and Hong Kong showed widening differences over 2011 and 2012, with Hong Kong passing the U.S. in November to become the biggest export market in China’s figures. Since June, Hong Kong has returned to third place behind the U.S. and European Union.

 

Verify Documents

 

The customs administration may have no intent to revise data because it’s too difficult to verify documentation, said Ding Shuang, senior China economist at Citigroup in Hong Kong. "The customs agency can say that all its numbers have documents to back them up, although some documents are in fact forged."

Even with the distortions, weak exports aren’t a "major drag on growth, as domestic demand, not external demand, will decide China’s growth performance," said Xu Gao, chief economist with Everbright Securities in Beijing, who previously worked at the World Bank.

China’s National Bureau of Statistics is due to report third-quarter growth data Oct. 18 along with figures for September industrial production and retail sales and January- September fixed-asset investment. The bureau will report last month’s data on consumer and producer prices on Oct. 14. The People’s Bank of China will provide September numbers for money supply, credit and foreign-exchange reserves by Oct. 15.

 

Defend Goal

 

Premier Li Keqiang has rolled out fiscal support measures such as spending on railways and tax cuts to defend a goal of 7.5 percent economic expansion this year. Li said in a speech in Brunei yesterday that growth exceeded 7.5 percent in the first nine months of the year, a sign the government will next week report success in arresting a two-quarter slowdown.

Elsewhere today in the Asia-Pacific region, New Zealand said food prices were unchanged in September from the previous month, while India may say industrial-production gains slowed in August, based on an analyst survey. In Europe, Germany said consumer prices rose 1.4 percent last month from a year earlier, matching a preliminary figure.

A report on consumer confidence this month will be released in the U.S., as congressional Republicans entered talks with President Barack Obama about avoiding default and ending a partial government shutdown.

In China, the distortions may focus attention on other parts of the customs administration’s report, such as month-on- month changes, which would be free from any comparisons to last year’s figures. In addition, the agency publishes breakdowns by countries and markets, and exports to the U.S. and European Union didn’t exhibit the kinds of irregularities seen in the Hong Kong figures.

 

Too Early

 

Steve Wang, Hong Kong-based chief China economist with Reorient Financial Markets Ltd., said it’s too early for the effects of inflated data to show in September or October. The inflated figures mainly occurred with a few trading partners including Hong Kong and Taiwan, so the effects "should be visible for these partners if there is any," Wang said.

He said he sees "fairly stable" export gains of about 8 percent in the coming months.

While China’s exports may now start to show some effects from last year’s inflated figures, the influence will become clearer in early 2014, Citigroup’s Ding said. "It’s very likely that Chinese exports will show year-on-year declines in the first quarter," he said.

 

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