Another Reason Not to Trust China's Economic Data

The Kwai Tsing Container Terminals in Hong Kong on April 28 Photograph by Brent Lewin/Bloomberg

The numbers don’t match. In September, China exported $37.6 billion to Hong Kong, according to government data compiled by Bloomberg. For the same month, Hong Kong’s government  says imports from the mainland amounted to only $24.1 billion. That’s this year’s biggest gap between Chinese and Hong Kong figures.

Where did all those billions of dollars go? Julian Evans-Pritchard, Capital Economics’ China economist, called the results “very suspicious,” especially since the discrepancies are largely related to the trade of precious metals and stones. “It seems the Chinese customs are basically overvaluing these gems [and] these precious metals,” he told Bloomberg Television on Tuesday. Meanwhile, “Hong Kong customs are valuing them more accurately.”

The China-Hong Kong discrepancy is just one example. Evans-Pritchard points to similar discrepancies regarding Chinese imports from South Korea. “What appears to be happening [is] we have some round-tripping,” he said. Companies may be claiming to import the stones from Korea at a certain price and then export them to Hong Kong at a higher price, pocketing the difference. That helps companies evade Chinese government currency controls at a time when there’s renewed pressure to strengthen the yuan. With such conditions, “it makes a lot of sense” for Chinese companies to borrow money cheaply abroad and find ways to get that money into the country.

The Chinese government is not blind to the problem. China has found almost $10 billion in fraudulent trades nationwide since April of last year ,and companies have “faked, forged, and illegally re-used” documents for exports and imports, Wu Ruilin, a deputy head of the State Administration of Foreign Exchange’s inspection department, told reporters in Beijing in September.

The faked invoices are additional reasons not to take at face value the economic statistics coming from China. “This is definitely another important piece of evidence of over-invoicing exports to Hong Kong to facilitate money inflow into China,” Shen Jiangugan, chief economist at Mizuho Securities Asia, told Bloomberg News. “So we shouldn’t be too optimistic about recent export data from China.”

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