To Understand China's Trade Data, Look at the Yuan
February’s surprise fall in Chinese exports may have less to do with the strength of foreign dem
and than with changing perceptions of the Chinese yuan.
A less-bullish outlook for the Chinese yuan may have contributed to the surprise fall in China’s
February exports.
A glance at the mainland’s trade data with Hong Kong suggests the strong capital inflows that
boosted China’s export data in early 2013 have begun to wane as the outlook for the yuan
currency becomes less rosy.
China on Saturday reported a rare trade deficit of nearly $23 billion in February, the largest in
two years. That reflected an 18% drop in exports from a year ago, probably linked to speculative
fund movements back then.
“We believe the weak export numbers reflect both fundamental weakness and capital outflows
due to [yuan] depreciation in February,” Nomura economist Zhang Zhiwei said in a note to
clients.
China’s exports early last year were unusually strong — they surged 25% in January 2013 and
almost 22% in February – leading to suspicion that the data were distorted.
Economists said the numbers were inflated by over-reporting of exports in order to skirt capital
controls and bring more foreign exchange into China. Exporters were looking to take advantage
of a strengthening yuan currency, which climbed nearly 3% last year.
Fast-forward to 2014. In the first two months of this year the People’s Bank of China has
allowed more volatility in yuan trading, helping to curb speculative capital inflows disguised as
foreign trade. The yuan dropped nearly 1.4% in February and touched a 10-month low, throwing
yuan bulls off balance.
After taking a breather last week, the yuan has continued to fall this week. The Chinese central
bank has set its benchmark exchange rate weaker every day, at 6.1327 per dollar Tuesday from
6.1312 Monday and 6.1201 last Friday. Tuesday morning, the yuan was trading at 6.1359 to the
dollar.
The data on trade with Hong Kong, a major platform for bringing funds onshore, is particularly
telling: Over the first two months of 2014 exports to Hong Kong fell 21% on-year, while last year
they surged 61% in January-February.
“With the significant [yuan] depreciation observed in February, we think… an additional factor
behind the weak export data in February is that the incentive for fake exports disappeared,”
J.P. Morgan economist Zhu Haibin said.
That’s likely to affect trade data in coming months as well. Last May, foreign exchange
regulators warned of tough penalties for companies found to have falsified export reports,
leading to a big slowdown in export growth after May. That means that until May 2014, exports
may continue to look weak in comparison to the inflated figures a year earlier.
Most analysts say China’s economic fundamentals haven’t really deteriorated to a significant
extent – it may just be speculative inflows taking a break.
–Liyan Qi in Beijing contributed to this story.
February’s surprise fall in Chinese exports may have less to do with the strength of foreign dem
and than with changing perceptions of the Chinese yuan.
A less-bullish outlook for the Chinese yuan may have contributed to the surprise fall in China’s
February exports.
A glance at the mainland’s trade data with Hong Kong suggests the strong capital inflows that
boosted China’s export data in early 2013 have begun to wane as the outlook for the yuan
currency becomes less rosy.
China on Saturday reported a rare trade deficit of nearly $23 billion in February, the largest in
two years. That reflected an 18% drop in exports from a year ago, probably linked to speculative
fund movements back then.
“We believe the weak export numbers reflect both fundamental weakness and capital outflows
due to [yuan] depreciation in February,” Nomura economist Zhang Zhiwei said in a note to
clients.
China’s exports early last year were unusually strong — they surged 25% in January 2013 and
almost 22% in February – leading to suspicion that the data were distorted.
Economists said the numbers were inflated by over-reporting of exports in order to skirt capital
controls and bring more foreign exchange into China. Exporters were looking to take advantage
of a strengthening yuan currency, which climbed nearly 3% last year.
Fast-forward to 2014. In the first two months of this year the People’s Bank of China has
allowed more volatility in yuan trading, helping to curb speculative capital inflows disguised as
foreign trade. The yuan dropped nearly 1.4% in February and touched a 10-month low, throwing
yuan bulls off balance.
After taking a breather last week, the yuan has continued to fall this week. The Chinese central
bank has set its benchmark exchange rate weaker every day, at 6.1327 per dollar Tuesday from
6.1312 Monday and 6.1201 last Friday. Tuesday morning, the yuan was trading at 6.1359 to the
dollar.
The data on trade with Hong Kong, a major platform for bringing funds onshore, is particularly
telling: Over the first two months of 2014 exports to Hong Kong fell 21% on-year, while last year
they surged 61% in January-February.
“With the significant [yuan] depreciation observed in February, we think… an additional factor
behind the weak export data in February is that the incentive for fake exports disappeared,”
J.P. Morgan economist Zhu Haibin said.
That’s likely to affect trade data in coming months as well. Last May, foreign exchange
regulators warned of tough penalties for companies found to have falsified export reports,
leading to a big slowdown in export growth after May. That means that until May 2014, exports
may continue to look weak in comparison to the inflated figures a year earlier.
Most analysts say China’s economic fundamentals haven’t really deteriorated to a significant
extent – it may just be speculative inflows taking a break.
–Liyan Qi in Beijing contributed to this story.
