China’s economic news has been so lousy of late that it’s got the world’s attention. And at first glance, China’s just-released April trade data piled on more evidence that the country’s in for a sharp slowdown. Exports grew a meager 0.9% last month, which was better than March’s horrendous 6.6% plunge, but still weak. Here’s a look:
But it’s not quite as bad as all that. Why? Julian Evans-Pritchard of Capital Economics points to China’s exports to Hong Kong and Taiwan, which dropped a staggering 30% in April, compared with the same month in 2013. Meanwhile, trade to the rest of the world grew 10.2%.
And, no—neither Hong Kong nor Taiwan were hit with massive recessions in the last month. Instead, the culprit is likely faked trade data. Remember how last year, exporters were faking invoices like crazy—borrowing cheaply in Hong Kong, sneaking that cash into the mainland under the cover of export earnings, and lending it at high rates on the shadow market? Well, that made April’s 2013 exports look much more robust than they actually were. And, consequently, April 2014’s data look like a bloodbath. When you strip out those fake exports from last year’s data, export growth in April 2014 was actually around 10%, says Ting Lu, economist at Bank of America Merrill Lynch.
This is good news for China, of course. But it also indicates a healthy pickup in global demand. Exports to the US rose 12% last month, compared with with April 2013, while China sold a whopping 15% more goods to the EU.
Thankfully, the mindgames of reading Chinese trade data will soon subside (for a while, at least). As Evans-Pritchard explains, the crackdown on faked invoicing began in May of last year—meaning those distortions the fake data create will fade.