Galbraith On China's Drastically Overstated Trade Surplus

It is no secret that China's economic numbers are so cooked and unreliable, that they make the constantly changing and optimistically biased economic data out of the U.S. (especially lately) have the credibility equivalent of a Harvard Ph.D. thesis. University of Texas professor James Galbraith discusses one aspect of China's "booming" economy, specifically the question of China's Trade Surplus, which as he notes has been drastically inflated since 2002 due to Chinese companies over-reporting profits on exports in order to disguise various investments by foreigners into China, so as to beat capital control restrictions.

Galbraith argues the "fake profits" are so large that China may have actually ran a trade deficit in some years, and these figures casts serious doubt on the reported P&L of Chinese companies.

Focal points in the attached presentation:

  • Slide 5: 2003-2006, 25% to over 100% overstatement of reported exports if you use constant unit values.
  • Slide 10-13: increase in reported export value is not due to price increases of exports to US, Japan, or EU.
  • Slide 17: increase in reported export value is not due to wage increases.
  • Slide 19: increase in reported export value is not due to quality improvements.
  • Slide 21: capital inflow suggested by drop in spread of 3-mo RMB repo's from 1.59% to (2.41%), and drop in spread of 3-mo CHIBOR vs LIBOR from 1.66% to (2.57%).
  • Slide 28: capital inflow seems to have gone into investments in PP&E. Slide 29: capital inflow seems to have gone into real estate investment

 

hat tip Richard

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