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Can Anyone Trust China's Trade Data?

NEW YORK ( TheStreet) -- Chinese export data report for the month of April, released May 8, is being met with skepticism from cross-sections of the market.

The data showed that exports rose by roughly 15%, even though product shipments to Europe and the U.S. actually dropped during the month. Another problematic factor is that most of the trade increases are based on a 57% rise in shipments to Hong Kong, in a period which saw a major port worker strike that closed many shipping ports in the region.

The questionable strength in these numbers has raised concerns that China is "cooking its books," and reporting its economic data inaccurately.

One argument for the apparent discrepancies comes from the idea that export companies are functioning as a conduit for currency speculation. Some estimates show that between 5% and 9% of April's 15% growth in exports can be attributed to activities related to expected changes in the value of the Chinese yuan.

These arguments rest on the idea that exporter companies have found ways to avoid capital restrictions by overstating business activity and sneaking funds back into China in anticipation of rising values in the yuan. Because of this, exporters have an incentive to over-invoice and report transactions as exports when, in fact, they are not exports. If this is the case, it would go far in explaining the questionable export inflation seen in the month of April.

Reporting Trade Data

There are other factors at work. When dealing with trade data, long lags can be seen in the processing of invoices going in and out of the system. In this way, trade data is similar to cash flow statements rather than income statements. Companies might choose to hold back their invoices if there might be beneficial changes in expected currency values.

In many cases, trade data are not a completely accurate snapshot of the reporting period, and this can complicate the validity of the reported numbers. In the longer term, trade data smooth out and more accurate assessments can be made when looking at the historical averages.

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