China’s trade numbers still don’t add up.
A discrepancy between Hong Kong and Chinese figures for bilateral trade remains even after a crackdown last year on Chinese companies’ use of fake export-invoicing to evade limits on importing foreign currency. China recorded $1.31 of exports to Hong Kong in June for every $1 in imports Hong Kong tallied from China, for a $6.4 billion difference, based on government data compiled by Bloomberg News.
Analysts offered at least three possible explanations for the gap, including differences in how China and Hong Kong record trade in goods that pass through the city, as well as a persistence in fraud at a lower level. Any discrepancies make it tougher to gauge the impact of global demand on a Chinese economy that’s projected for the slowest growth in 24 years.
“It’s still a bit of a mystery,” said Stephen Green, head of Greater China research at Standard Chartered Plc in Hong Kong. Regarding fraudulent invoices, “the fact that the ratio is like that would suggest that some of that is still going on,” he said.
Distortions in China’s trade data have abated since the State Administration of Foreign Exchange started a campaign in May 2013 to curb money flows disguised as trade payments.
While the China-Hong Kong data ratio is below the $2.35 at the peak of distortions from fraud in March 2013, it compares with an average $1.23 in 2011, $1.10 in 2010 and $1.03 in 2009.
The initial crackdown may have failed to eliminate deception. SAFE said in December that it would boost scrutiny of trade financing and that banks should prevent companies from getting financing based on fabricated trade. The State Administration of Taxation said earlier this month that it found instances of fraudulent exports used to obtain tax rebates by some companies.
“You can’t exclude the possibility that capital flows are being disguised as exports” in the China-Hong Kong figures, said Yao Wei, China economist at Societe Generale SA in Paris. “As the capital account becomes more open, the flows will show up in the places they should.”
While there isn’t a “big problem with the quality of trade data” any more, more time is needed to judge if the gap between China and Hong Kong figures is structural, Yao said. “Usually it’s good enough if the year-on-year growth data are in the same direction.”
Those figures may be drawing closer together. China’s data show a 6.5 percent increase in exports to Hong Kong in June from a year earlier, while Hong Kong’s numbers indicate a 7.8 percent jump in imports from China. In April, Hong Kong’s imports from China fell 1.7 percent and China’s exports to Hong Kong dropped 31.4 percent, as inflated figures from 2013 distorted the comparison.
More broadly, China’s exports worldwide expanded 7.2 percent in June from a year earlier, trailing the 10.4 percent median estimate of analysts, data showed July 10.
China’s General Administration of Customs, which publishes the trade data, didn’t respond to questions faxed July 25.
Hong Kong’s Census and Statistics Department said in an e-mail that because its compilation method and law on trade declarations are different from China’s, the two sets of data can’t be directly compared. Goods in transit through Hong Kong are excluded from the city’s statistics, the department said.
The disparity between China and Hong Kong figures has persisted as the yuan has weakened about 2.1 percent this year against the dollar, the worst performance among 11 major Asian currencies tracked by Bloomberg. The currency rose 0.7 percent in June, the most since April 2013.
Another possible explanation is in different methods of pricing shipping costs, according to Yao and Xu Gao, chief economist at Everbright Securities Co. in Beijing. “A lot of things can explain” the disparity, said Xu, who formerly worked at the World Bank.
Hong Kong isn’t the only export market where China’s figures differ from those of the destination’s government.
The U.S. and China have issued joint reports on their bilateral discrepancy in trade data, saying in 2012 that the differences stem from the treatment of trade flows through Hong Kong and markups after export from China.
Interest rates in China and Hong Kong still differ by several percentage points, providing incentives to disguise trade as capital flows, said Li Xiaoyang, an economics and finance professor at Cheung Kong Graduate School of Business in Beijing.
“As long as the interest-rate gap exists, this arbitrage disguised as trade won’t disappear,” Li said.
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