China recovery dogged by doubt as data questioned

BEIJING (AP) - China reported stronger trade in March in a possible positive sign for its recovery but analysts said the data might be inflated and give a distorted picture of the economy's health.

Imports rose 14.1 per cent after growing 5 per cent for the combined January-February period, customs data showed on Wednesday, suggesting Chinese manufacturers and consumers might be buying more.

Export growth slowed to 10 per cent from the previous two-month period's 23.6 per cent. That could add to challenges for newly installed Communist Party leaders as they try to sustain the rebound from China's deepest downturn since the 2008 global crisis and avoid job losses.

Analysts said, though, the data might be distorted by companies misreporting trade or government manipulation, clouding the picture of whether an economic recovery is gaining traction.

Exports probably are lower than reported, based on what is known about shipments into Hong Kong, which Beijing lists as its biggest trading partner, said Mr Francis Lun, chief economist of GE Oriental Financial Group. Hong Kong is Chinese territory but is treated as a separate customs region.

"The figures in Hong Kong to and from China do not add up," he said. "Instead of 10 per cent growth, you have 2 or 3 per cent."

China's economic growth rose to 7.9 per cent in the three months ending in December, up from the previous quarter's 7.4 per cent. Analysts say the recovery from the country's deepest downturn since the 2008 global crisis is being propped up by government spending and could be vulnerable if trade or state-driven investment weakens.

Commentators raised questions after China's strong trade data failed to match up with much lower figures reported by its trading partners.

Some suggested companies might be reporting phony exports to get tax rebates or to evade Beijing's strict capital controls and move money into China with fictitious billing of foreign customers. Others say Beijing might have exaggerated trade volume to make the economy look healthier during the transition to new Communist Party leaders in recent months.

"Today's trade data release has not instilled any more confidence in either the quality of data or the strength of the recovery," said IHS Global Insight analyst Alistair Thornton in a report.

Other indicators show economic activity recovering but at a slow pace. A survey of manufacturing by a Chinese industry group showed activity improved in March but by only a fraction of one point on a 100-point scale.

Also in March, inflation fell, suggesting consumer demand might be weaker than authorities hoped.

Referring to February's explosive reported export growth, Mr Alaistair Chan of Moody's Analytics said in a report: "It now seems that it was probably due to some issue with the reporting of exports, or possibly over-invoicing as firms evaded capital controls to bring in more foreign capital."

Chinese customs officials defended their data on Wednesday at a news conference.

"Every dollar that is listed in the customs trade data can be traced back to an actual declaration form," said bureau spokesman Zheng Yuesheng. "The exported or imported goods listed on the declaration form have to be something shipped across the border, either in or out."

Beijing's capital controls and tax breaks and other privileges for foreign investors give Chinese companies an incentive to covertly bring in money from abroad. Economists believe a large share of China's reported foreign investment is money sent abroad by Chinese companies and "round-tripped" back into the country.

China's trade is volatile in the first few months of each year as companies shut down for several weeks during the Lunar New Year and then buy raw materials to resume production.

March exports rose to US$182.2 billion (S$226 billion) while imports were US$183.1 billion, leaving a rare monthly deficit of US$900 million, according to the General Administration of Customs.

The trade surplus with the United States narrowed by 34 per cent from a year earlier to US$11 billion. The surplus with the 27-nation European Union shrank 35 per cent to US$5.3 billion.

Exports to Germany, China's biggest European trading partner, fell 7 percent while shipments to France declined 6.7 per cent.

Analysts have warned that Beijing also faces possible risks from a rapid rise in bank lending and local government debt, part of which paid for the stimulus that helped China rebound quickly from the 2008 crisis.

The ratings agency Fitch cut its rating on China's long-term local currency sovereign debt late on Tuesday, citing potential risks from rapid growth in credit and local government debt loads. The rating was cut from AA- to a still healthy A+.

The change is unlikely to cause trouble for the government because it has relatively low debt levels compared with other major economies. Fitch left its rating on China's foreign-currency government debt unchanged.

Fitch said its analysts believe China's total credit may have risen to the equivalent of 198 per cent of gross domestic product by the end of 2012 from 125 per cent in 2008. It said that includes bank credit and informal lending used by entrepreneurs who often cannot get loans from the state-owned financial industry.

Debt of local governments rose to 25.1 per cent of GDP at the end of 2012 from 23.4 per cent a year earlier, Fitch said.

"Risks over China's financial stability have grown," said a Fitch statement. It warned that "underlying structural weaknesses" including relatively low economic development despite rapid growth "weigh on China's ratings".