China’s data distortions will muddy analysis of the nation’s trade until at least June, making it harder to assess the strength of the world’s biggest exporter and second-largest economy.
That’s when China will provide figures that compare with what Royal Bank of Scotland Group Plc economist Louis Kuijs says are “pretty clean” numbers from May 2013 that followed a crackdown on inflated invoices used to disguise capital inflows. Government data yesterday that showed March exports unexpectedly fell 6.6 percent from a year earlier marked the peak of distortions, RBS said.
China’s reluctance to revise figures it’s acknowledged were inflated has left the job of explaining why the trade numbers are better than they appear to analysts like Kuijs, as the nation endures its worst economic slowdown since the global financial crisis. The distortions add to investor and analyst concerns that the quality of data from jobs to gross domestic product isn’t good enough for a country that’s driving commodity prices and Asian growth.
The Taste of Mystery Meat
“It’s frustrating because you have to do a lot of explanation,” said Kuijs, Hong Kong-based chief Greater China economist, who formerly worked at the World Bank. “People see a very weak number and then you need to explain that the reality is not so bad because of very complicated reasons that included fake invoices and stuff. It makes all of us doubt more about what the reality really is.”
The decline in exports compared with the median estimate for a 4.8 percent increase from 47 analysts. Imports dropped 11.3 percent from a year earlier, compared with the median projection of a 3.9 percent advance.
Taking into account the distortions from inflated data in 2013, RBS estimated “underlying export growth” at 3.7 percent in March. Nomura Holdings Inc. said exports may have increased by 5 percent to 8 percent in March from a year earlier, improving from an estimated pace of about 3 percent in the first two months of 2014.
The yuan was little changed at 6.2119 per dollar at 10:37 a.m. in Shanghai. The currency weakened 0.2 percent yesterday, the most in two weeks, after the data fueled concern that a slowdown in Asia’s largest economy is deepening.
Premier Li Keqiang said yesterday that the nation will roll out more policies to support growth while avoiding stronger stimulus. The government is taking steps including railway spending and tax relief to support growth while avoiding monetary measures such as cutting banks’ reserve requirements or the scale of actions used to counter the financial crisis in 2008.
Data today showed factory-gate prices fell last month by the most since July, while consumer inflation stayed below the government’s target.
The customs administration said yesterday that imports (CNFRIMPY) and exports will resume year-on-year expansion in May and enter a period of “stable, modest growth.” The first-quarter drop in foreign trade from a year earlier “is temporary and short-lived, as the impacts of some special factors will significantly diminish starting in mid-April,” Zheng Yuesheng, a spokesman for the agency, said in a statement.
China’s exports fell 3.4 percent in the first three months of the year, while imports rose 1.6 percent, customs data show.
Brian Jackson, China economist at IHS Inc., said the data from May on should be free from the effects of the previous year’s over-invoicing.
“The distortion adds noise, and is naturally taken as a negative signal by much of the market and media,” Jackson said in an e-mail.
Hu Yifan, chief economist at Haitong International Securities Group Ltd. in Hong Kong, said it’s difficult for the government to make revisions to the numbers because the distortions didn’t stem from a statistical or methodological error.
China’s GDP figures have attracted skeptics including analysts at Capital Economics Ltd., who said in 2012 that third-quarter growth that year was about 6.5 percent, rather than the 7.4 percent reported by the government. Premier Li said in 2007, when he was party secretary of Liaoning province, that GDP figures were “man-made” and unreliable, according to a diplomatic cable published by WikiLeaks in 2010.
Economists pay little attention to China’s main unemployment gauge, the quarterly urban jobless rate, which excludes migrant workers and has barely budged from 4.1 percent for more than three years. Its impact on markets is minimal compared with the U.S. government’s monthly jobs report.
The discrepancy between Hong Kong data for imports from China and Chinese figures for exports to the city in early 2013 highlighted the practice of over-invoicing that inflated China’s export data. Regulators started a crackdown in May, leading to a slump in reported overseas shipments.
“From May onward, Chinese exports to Hong Kong will rebound significantly to push up overall exports and trade growth,” customs spokesman Zheng said. The second quarter will show “modest” acceleration in exports from the previous three months, the administration said.
Liu Xuezhi, an economist with Bank of Communications Co. in Shanghai, said the March import figures reflect “lukewarm” domestic demand, as well as a slowdown after companies increased stocks of imported materials in the previous two months. Import numbers were also affected partly by commodity price declines.
Understanding distortions in China’s export data is easier than making sense of imports, said Yao Wei, an economist at Societe Generale SA in Hong Kong.
The correlation in China between commodity imports and growth has been small and there is “clear evidence” showing import figures overstate the strength of domestic demand, she said. Some Chinese companies may have used imported goods as collateral to borrow funds last year, distorting the picture of demand, she said.
“I really don’t put much weight on import data,” she said.
Zhang Zhiwei, Nomura’s chief China economist, joked to reporters in Beijing yesterday that the data distortions are good for him personally because they highlight the value that economists add in interpreting the data.
“The Chinese economy is changing quickly on a massive scale, making it difficult for its statistics machine to catch up with the reality,” Zhang said.
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