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Chinese Trade Data Manipulation: Innocent "Excel Glitch" Or Something Far More Sinister?

Tyler Durden's picture




 

There was a time when talking about fabricated Chinese data was relegated to the darker corners of polite society, along the lines of saying that the Fed was manipulating stocks or that the BLS was fudging employment data upward: everyone knew it was happening, but nobody dared to say it in public - after all suggesting such things happened discredited the entire status quo system built on a pyramid of lies (and if China does it, the US and everyone else likely does it too) and exposed one to being labeled a conspiracy theorist. That is no longer the case. Following the last three months of far stronger than expected Chinese trade data, the fact that China's data is openly manipulated is no longer disputed by anyone - either the press, or the analyst community. Case in point, last night's surging Chinese imports and exports. On the surface: great news. Below the surface: fabricated mumbo jumbo, like virtually everything else derived from the goalseek function in China_Econ.xls, or US_seasonal_adjustments.123.

Incidentally China is not even trying any more: as we pointed out over a year ago, catching trade data fudging is the easiest to spot, as one's nation exports have to equal another nation's imports, period. It is a zero-sum game. Yet over the past several years, this has not happened (and certainly not at the global level, considering the entire world was somehow a net exporter). The discrepancy has gotten especially bad in recent months however in the mainland, especially when trying to reconcile Chinese trade data with that from Hong Kong or Taiwan.

First to debunk the Chinese random numbers was SocGen:

China’s export growth reaccelerated to 14.7% yoy in April from 10% yoy in March, well above expectations (Cons. 9.2%; SG 7%). Import performance was even more stellar, rising 16.8% yoy (Cons. 13%; SG 9%). Both figures were again at odds with the unambiguous  disappointment in Korean and Taiwanese data as well as in China’s own purchasing managers’ indices from the same month.

 

Head-scratching discrepancies in bilateral data comparison persisted on both sides of the ledger. Compared with the data from Taiwan – the only economy besides China that has published the complete set of April data – growth of mainland exports to Taiwan was 57.7ppt faster based on China’s data (+49.2% yoy vs. -2.7% yoy) and that of mainland’s imports from Taiwan was 58.6ppt faster (+55.7% yoy vs. -2.9% yoy)! The gaps narrowed only marginally from March. In previous months, the most notorious data inconsistency was with Hong Kong.

 

 

Although Hong Kong has not published its April data, the reported export growth of 57.2% yoy by China’s customs continued to look too good to be true.

Aside from outright fraud, is there any justification for the data "drift"?

our observation from the trips to the mainland led us to believe that there is indeed a large amount of speculative capital flows. Nearly all corporates we met admitted that they were conducting some forms of interest rate arbitrage on the expectation of further yuan appreciation. We estimate the distortion to headline trade growth (both exports and imports) to be about 3-8ppt.

Another way to visualize how China is using Hong Kong as a capital flow sieve is the following chart from Diapason showing net exports to Hong Kong and export to the rest of the world ex-HK. In short - it is all Hong Kong.

 

This should raise some red flags because while China manipulating data is nothing new, there appears to be a far more sinister play at hand here, especially with the data manipulation so overt nobody can ignore it any longer: namely an attempt by China to hide blistering "hot capital" inflows generated by the global printing press behind the manipulated trade data. Reuters is on the beat:

China's central bank signaled on Wednesday it was prepared to change its monetary strategy to fend off inflows of speculative capital, as Beijing struggles to control a tide of cash washing in from overseas markets.

 

The move came as April exports blew past expectations, which appeared on the surface to indicate that both China's economy and global demand were on the mend. But economists were quick to suspect the figures were artificially inflated by investors who were disguising speculative bets on the yuan currency as trade payments.

 

Faced with the risk that such inflows could cause the yuan to appreciate so quickly that it destabilizes exports and the broader economy, the People's Bank of China (PBOC) has begun intervening heavily in the domestic currency market this year, buying up dollars and selling yuan.

 

This leaves the question of how to keep the yuan it has sold from distorting domestic markets.

As a reminder, it is the broken dam of Chinese runaway inflation, which can no longer be moderated by any means: legitimate or manipulated, that sends the Politburo scrambling and demanding an end to QE out of the US or anywhere else: this is precisely what happened in 2011, but not before soaring Chinese inflation sent demand for gold through the roof and hitting a record over $1900.

For now, China appears to be at the "manipulated" stage of covering capitlal inflows. Soon, however, these will no longer be sufficient.

The move suggests that the PBOC is preparing to make systematic longer-term cash drains from the money supply to blunt the impact of hot money flows, with a potential knock-on impact on interest rates, market sentiment and economic growth.

 

The announcement came days after the country's foreign exchange regulator released new rules to crack down on inflows of hot money disguised as trade payments.

 

The last time the government made technical adjustments to its money management methods in February, domestic equity markets swooned as investors bailed out of stocks, worried that the changes heralded a wider monetary tightening that would constrict growth.

 

But the PBOC must balance the risk that the change will negatively impact markets against the distorting effect the inflows are having on the wider economy, in particular on exports, and by signs that capital is once again being misrouted internally into speculative channels like property instead of the real economy.

So just how big of a "hot money" problem are we talking. Big:

A Reuters estimate of hot money flows based on official data indicates that as much as $181 billion in speculative cash may have entered China in the first quarter, fueled in part by loose monetary policy from the United States and Europe. And that estimate likely understates the true figure, since it doesn't account for inflows disguised as trade payments.

$181 billion per quarter is some $60 billion per month - that's nearly the entire amount of liquidity injected by the Fed in the Q1! And that was before Japan joined the printing fun

So how does this tie in to manipulated Chinese trade data again? Simple:

While China's capital account is tightly restricted, it is not hermetically sealed, and some of the speculative inflows are conducted through legal channels.

 

But there are two major points of concern. One is that domestic trading companies are betting too much on further yuan appreciation, to the extent that they are borrowing the dollars they need for trade with foreign companies in order to increase their yuan stockpiles, which most economists see as unsustainable.

 

The other is that companies are falsifying trade transactions to get their hands on even more yuan, muddying macroeconomic indicators and embarrassing regulators.

 

Official data showed that April exports grew by 14.7 percent from a year earlier, well above expectations of 10.3 percent, but the numbers only fueled skepticism that financial maneuvering by exporters and speculative inflows are masking weakness in real demand.

 

Particularly suspicious were figures in both March and April showing explosive growth in exports to Hong Kong and bonded trading zones, that appeared completely disconnected from export growth to ultimate destination markets in the U.S. and Europe - and from tepid export figures for neighboring Asian economies.

For now Reuters does not see all of the above as a reason to panic:

Liu Junyu, a bond and money market analyst at China Merchants Bank in Shenzhen, said that the market did not read the PBOC's move as a portent of more drastic tightening measures like interest rate hikes or increases to reserve requirement ratios at banks, both of which would make more profound and durable adjustments to base money supply that might choke off China's economic recovery.

 

"Given so much weak economic data and recent dubious trade data, the PBOC will probably keep monetary policy unchanged and neutral," he said.

Perhaps: but if all it took was just one Fed for China to be forced to use all channels to mask the true latent inflation imported courtesy of insolvent "developed" G-7 nations, what will happen when the full impact of Japan's $75 billion per month washes ashore month, after month, after month? And what happens when the BOE joins the party?

If indeed the PBOC is stuck and unable to tighten conditions (which would also backfire as the global credit carry trade suddenly sniffs out higher Chinese yield), look for simmering Chinese inflation to finally spill over. When that happens, keep an eye on gold, which incidentally is now at the same level it was at time in late 2010 and early 2011 when China could no longer mask that it has a big inflation problem, and which, despite what clueless sellside analysts will tell you, is and always will be the best inflation hedge.

Just ask 1+ billion Chinese and a like amount of Indians.

 

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Wed, 05/08/2013 - 08:10 | 3540404 jbvtme
jbvtme's picture

sir, will you have some melamine with your stats?

Wed, 05/08/2013 - 08:12 | 3540409 GetZeeGold
GetZeeGold's picture

 

 

Mmmm......give me some mo melamine!

Wed, 05/08/2013 - 08:40 | 3540405 dcohen
dcohen's picture

Must see Bernanke!

Reaction when Dow hits 15 000

http://www.mediafire.com/?u54tcpmjhpwtyaf

Wed, 05/08/2013 - 08:12 | 3540413 malikai
malikai's picture

This post needs evil music.

Wed, 05/08/2013 - 08:15 | 3540419 hooligan2009
hooligan2009's picture

fight club is on...squawk on cnbc ..joe keernan.just called tyler a weirdo who cant get a job..game on 

Wed, 05/08/2013 - 08:16 | 3540423 digitlman
digitlman's picture

Clip?

Wed, 05/08/2013 - 08:27 | 3540424 GetZeeGold
GetZeeGold's picture

 

 

Oh shit.....that Joe Kernan?

 

Our new/old top story......oh yeah.....it's on like Donkey Kong.

CNBC Viewership Plunges To Eight Year Lows

Wed, 05/08/2013 - 08:27 | 3540438 JustObserving
JustObserving's picture

joe keernan.just called tyler a weirdo who cant get a job

Better to have your integrity than to be a prostitute for the moneyed interests - Kernen is such as accomplished presstitute.   

Wed, 05/08/2013 - 08:32 | 3540453 GetZeeGold
GetZeeGold's picture

 

 

Can't stand that place. All they do is talk about is how people should own gold....and I already did that a long time ago.

Wed, 05/08/2013 - 08:37 | 3540473 holdbuysell
holdbuysell's picture

What was that Ghandi quote again? "First they ridicule you, then they fight you, then you win"?

The fact that CNBC feels compelled to ridicule/acknowledge ZH/Tyler speaks volumes.

Wed, 05/08/2013 - 10:35 | 3540985 localsavage
localsavage's picture

It is like when the "tin foil hat" crowd was calling the housing market a farce.  The A hole media were telling everyone that they were crazy as they cashed all of those advertzing checks from the NAR and bankers.  In the end, you can only manipulate so much and the math wins out.

Wed, 05/08/2013 - 08:38 | 3540422 ebworthen
ebworthen's picture

"Taiwan can't be trusted, and neither can South Korea, and Hong Kong...well...the British gave it up so..."

Wed, 05/08/2013 - 08:18 | 3540428 buzzsaw99
buzzsaw99's picture

all I know is when lloyd blankfuck starts talking on the msm about the great investment opportunity that exists in china you should be afraid. very afraid.

Wed, 05/08/2013 - 08:21 | 3540430 LoneStarHog
LoneStarHog's picture

Hell...China reverse engineers everything, why not our so-called BULLSHIT reporting.

Wed, 05/08/2013 - 08:24 | 3540433 BurningFuld
BurningFuld's picture

Oh it could be even more sinister than what's above. Companies could be lying about their export sales to stop the Banks from foreclosing on all their property speculation....(ie. this could ALL be fake data)

Wed, 05/08/2013 - 08:32 | 3540455 tarsubil
tarsubil's picture

Everyday you get more and more ugly charts. The deviation that began in early 2012 is just ugly. How long can this shit pile remain standing?

Wed, 05/08/2013 - 08:30 | 3540444 fonzannoon
fonzannoon's picture

Edit

Fuck you Joe Kernan you bald rug wearing fuck.

Wed, 05/08/2013 - 08:32 | 3540459 spankthebernank
spankthebernank's picture

I always wonder what these media whores feel like when they retire for the night?  Can they be that oblivious to what is going on around them or callous enough not to give a shit.  Either way it looks like hell under hot lights.

Wed, 05/08/2013 - 08:39 | 3540477 ebworthen
ebworthen's picture

LOL.

Joe seems like a nice guy but his light bulb is too dim even for CNBC.

Wed, 05/08/2013 - 08:39 | 3540479 BandGap
BandGap's picture

Wow, combine communism with the Chinese culture of "saving face" and why would you expect anything different? TPTB in China dictate what they want to see and their regional/local directors deliver. If not, they lose face....or even more than that. My only quesion is how fucking long have they been doing this and how fucking fudged are the numbers? Quite an economic model this "Chinese miracle".

Al Gore probably used these guys for his global warming models.

Wed, 05/08/2013 - 08:40 | 3540481 thismarketisrigged
thismarketisrigged's picture

china data manipulated? cant be, china is so honest with everything (sarc)

 

the whole world is going to shit, at least we will be prepared

Wed, 05/08/2013 - 09:40 | 3540700 Smegley Wanxalot
Smegley Wanxalot's picture

The world is a net exporter because the Romulans haven't sent us that shipment of Romulan Ale they owe us.  Fuckin' romulans.

Wed, 05/08/2013 - 09:46 | 3540725 Carmagnole
Carmagnole's picture

Maybe some young chinese intern made the silly mistake of counting their pile of old US$ as a commodity, a bit like a pile of cheap plastic crap, and counted it as an export when it was thrown all over the place to barter it against some heavy yellow ironic tungstenic metal relic...

Wed, 05/08/2013 - 09:59 | 3540795 ejblues
ejblues's picture

Since the Chinese government is the biggest kletocracy in the history of the world with corruption on a scale never before seen ... stealing-fudging a few statistics is small potatoes. In the end, are their made up results any different than our stats, based on mostly on noise and pretzel logic from governemnt supported PhD economists all attempting to manipluate the data to prove their own thesis.

Wed, 05/08/2013 - 10:05 | 3540830 hannah
hannah's picture

chinese data cant be 'manipulated'....they just use numbers that they feel match someone expectations. either local or international. there isnt an army of data gatherers out there compiling numbers. we need to get past this fantasy that governments accurately gather and disseminate data. it is a joke being played on us for the last 100 years.....

Wed, 05/08/2013 - 10:26 | 3540932 Pairadimes
Pairadimes's picture

I'm sure these goods are just in transit, and that explains the difference. Gives new meaning to the phrase "channel stuffing". Here they would be referring to the Taiwan Strait. /sarc

Wed, 05/08/2013 - 11:26 | 3541244 Element
Element's picture

Bottom-line is, sans regular large injections of stimulus-spending China is going to keep going soft and stalling, for the foreseeable future. And a renewed inflationary surge in food, energy and commodities is coming, globally.

Wed, 05/08/2013 - 13:36 | 3541757 shovelhead
shovelhead's picture

Blobbing up citizenism.

FORWARD!

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