Early Saturday, China posted trade figures that were massively below expectations.
Export growth of 1% was far below the 14.7% in the previous month.
What happened? Did the economy suddenly come off the rails?
No. Basically the old numbers were a sham.
From BofA/ML’s Weijan Hu, Ting Lu:
In “The secrets of arbitrage and China’s inflated trade data” published on 10 May, we argued that “export growth in Jan-April 2013 was just around 5.0%, a far cry from the headline growth at 17.3%.” Export growth in May confirms our estimates that China’s “true” export growth so far this year could just be lower single digit. In that report, we list three evidences for inflated export growth caused by hot money inflows: exports to HK, exports to bonded area and exports of high unit-value goods such as IC products. In May, all of them slowed down sharply, suggesting these usual channels for hot money inflows were hit heavily by the regulatory storm in May. Export growth to HK slumped to 7.7% yoy from 57.2% in April. Export growth to bonded area and IC products also dropped to 45.8% and 99.0% yoy from 249.4% and 286.8%, respectively.
Basically, there’s a lot of faux trade that happens, solely for the purpose of companies getting outside cash into the country, circumventing capital controls, which are designed to prevent a flood of money. One way companies have been gaming the system is by “exporting” to Hong Kong. These exports aren’t real trade, just efforts to move goods offshore and move cash onshore. So China is cracking down on that, either the practice, or the inclusion in the statistics. So the numbers are unimpressive, but not indicative of total collapse.
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