Cooking the books on China's exports--the growth isn't what it seems

05/08/2013 6:10 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

This morning’s export numbers from China are even fishier than usual.

Officially China’s exports rose 14.7% in April, easily beating the 9.2% increase expected by economists surveyed by Bloomberg, the General Administration of Customs reported today, May 8. Imports climbed 16.8% in April against expectations for a 13% gain. Chinese and Asian stock markets were up on the news with the biggest gains coming in shares of exporters across the region.

At the same time the report shows a 0.1% drop in exports to the United States and a 6.4% decline in exports to the European Union.

So how did exports climb 14.7% when China’s two biggest export markets showed decreases?

Shipments from China to Hong Kong, which show up in this report as “exports,”  climbed by 57.2%. That comes on top of a 92.9% increase in shipments to Hong Kong—officially—in March.

Suspicions are that the huge surge in shipments to Hong Kong reflects massive cheating on invoices designed to avoid regulations on the flow of China’s currency. Speculators have been using faked trade records to disguise illegal currency speculation as the yuan has climbed against the U.S. dollar. Reporting higher exports allows a company to justify higher currency exchanges, which is a way to disguise speculative currency trades.

Last month that led the General Administration of Customs to announce an investigation into trade figures from Hong Kong.

Economists and China analysts say that judging from trade reports from neighboring economies and the appreciation of yuan (and the depreciation of the yen) the official April figures as reported could easily be 9 to 12 percentage points above actual exports.

In other words, these numbers aren’t evidence that China’s export engine is back at full speed—although it is an open question if the current What me worry? market will care.

The famous quotation from “The Man Who Shot Liberty Valance” comes to mind: “When the legend becomes fact, print the legend.”

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