China's trade data, released Wednesday, would be great news for global growth if economists believed it was accurate.
China's National Bureau of Statistics reported a 10.6 per cent jump in exports for January, well ahead of the 0.10 per cent growth expected by economists. Experts immediately expressed skepticism regarding the validity of the numbers.
"We find this strong level of export growth puzzling", wrote Nomura economist Zhiwei Zhang. "Our leading index of Asia ex-Japan's exports points to robust 20per cent-plus [year over year] growth in Q1, but actual Asian export growth in December was only 4.6 per cent, the largest gap between the two series in a decade."
RBS economist Louis Kuijis was more direct."We are … left with a nagging feeling that perhaps issues such as over-invoicing have risen sharply in intensity early this year."
Over-invoicing or fake exports have been blamed for distorting Chinese export statistics before. According to the International Review of Law and Economics, companies have been reporting more exports than actually occurred as a form of tax fraud. The government rebates a 15 per cent value-added tax for all goods reportedly shipped abroad.
The practice became so popular in 2013 that IHS senior China economist Alistair Thornton described Chinese official trade data as "absurd."
The Chinese government vowed to crack down on over-invoicing but December's numbers suggest that it remains popular. Bloomberg reports that Chinese companies reported 70 per cent more exports to Hong Kong than Hong Kong companies reported they received.
China's export numbers are simply not reliable at this point. Unless verified by another source – such as the import data from countries receiving Chinese goods – investors should not use them as a basis for investment decisions.
Scott Barlow