Skip to comments.China exports hobbled by data distortions
Posted on 03/08/2014 2:08:20 PM PST by mgist
Chinese exports appeared to collapse in February but the weaker than expected number was mostly due to timing of the Lunar New Year holiday and the effect of rampant over-invoicing by exporters in the first months of 2013.
Chinas total exports fell 18.1 per cent in February from the same month a year earlier in US dollar terms, following a 10.6 per cent increase in January, the Chinese customs administration said on Saturday.
But both figures were distorted by the fact that Chinas Lunar New Year holiday, when most of the country shuts down for at least 10 days, fell in January in 2013 and February this year.
To adjust for the distortion, Beijing usually compares figures from the two months combined and on that basis Chinas exports decreased by only 1.6 per cent in the first two months compared with the same period a year earlier.
Imports in the first two months rose by 10 per cent from a year earlier. Officials have acknowledged that trade data in the first few months of last year appeared to be heavily distorted by capital flows disguised as exports to evade Chinas capital controls.
This has become an increasingly common practice as international investors move money onshore into renminbi to take advantage of relatively high interest rates and an appreciating currency in China. The government vowed to crack down on this practice early last year and in recent weeks the Chinese central bank has engineered the greatest volatility in the value of the renminbi in a decade in an attempt to discourage such speculation and cross-border hot money flows.
A measure of how successful the bank has been can be seen in Chinas trade figures with Hong Kong, the favoured port for round-tripping, which dropped more than 20 per cent in February from a year earlier. At the height of the over-invoicing phenomenon last year Chinas reported trade with Hong Kong exceeded the figures published by Hong Kong authorities by a huge margin.
This provided strong evidence that much of the trade between the mainland and its separately-administered territory was only taking place on paper as a way of transferring funds in and out of the country.
China has intensified efforts, especially by introducing two-way fluctuation in enminbi exchange rate, to curb the suspicious capital inflows embedded into the foreign trade via export over-invoicing and round-tripping, said Liu Ligang, an economist at ANZ bank. We expect that the trade figures will be more real in the coming months as the renminbi has become much more volatile and less predictable than before.
Surveys in Chinas manufacturing industry have shown some weakness in the last few months and the overall economy slowed in the fourth quarter of last year to 7.7 per cent from a year earlier, compared with 7.8 per cent growth in the previous quarter.
Last week, the government set a growth target for 2014 of about 7.5 per cent, a figure that most economists think can only be achieved with the help of a rebound in exports from last years pace of 7.6 per cent, which missed Beijings full-year target of 8 per cent growth.
As Chinese manufacturers become forced into accepting automation in order to compete, look for unemployment to creep up. But it will go unreported.
Wonder where they learned that?