What has China’s stock market got to do with export growth?

I have always questioned the sanctity of the government statistics. I guess the account below adds to my skepticism.

Some economists have reportedly questioned on the supposed recent strength of China’s exports.

From the Wall Street Journal Real Time Economics Blog: (bold mine)

A sharp increase in Chinese exports to Hong Kong seen in September data released Monday has some analysts wondering whether traders are engaged in another round of overinvoicing or round-tripping, a variety of practices wherein trade flows are used to get around strict capital market restrictions.

China’s exports through Hong Kong – a major trade gateway — should roughly track the nation’s total exports. In September, however, even as year-on-year exports to all regions rose a stronger-than-expected 15.3% year on year, those to Hong Kong grew by 34%. (This compared with a drop in exports to Hong Kong of 2.1%  in August.)

The sharp September increase comes amid recent appreciation of China’s currency, the renminbi.

“Given that China’s exports to Hong Kong have surged again while the RMB is appreciating, it is natural to suspect the round-tripping trade is reviving,” said ANZ economist Li-Gang Liu, who added that trade developments between Hong Kong and China need to be closely monitored.

China’s monthly exports to Hong Kong should in theory equal Hong Kong’s imports from China. In practice, they tend to differ by a few billion dollars, largely because each side counts trade differently. Between late 2012 and March 2013, however, that monthly gap rose to a peak of $27.8 billion.

“It was a blow-out,” said Oliver Barron, head of investment bank North Square Blue Oak’s Beijing office.  “The latest data clearly exhibits some symptoms of the first quarter of 2013.”

Stealth fund flows into the stock market?

If in fact another round of overinvoicing is under way, analysts said, it could be driven by recent appreciation of the RMB or yuan, which is up nearly 2% over the past three months. Overinvoicing also may be driven in part by recent gains in Chinese stocks, some added, which have appreciated some 20% since May.

New brokerage accounts rose by as much as 200,000 per week last month, the highest level since March 2012, said Mr. Barron. And China has announced a new program to link the Shanghai and Hong Kong stock exchanges, said Mizuho Securities economist Jianguang Shen, giving investors an incentive to pre-position funds.

“There’s no evidence so far that it’s definitely overinvoicing, but the pattern and the export growth rates are abnormal,” Mr. Shen said. “I’m pretty suspicious.”

Of course there will hardly be “direct” evidence in support of such surreptitious fund flows. But “evidence” will hardly surface given the reality of China’s tight capital controls despite promises to liberalize. That would be like asking for the moon!

Yet in the face of stringent regulations or "strict capital market restrictions", the universal market response has always been via the black market or shadow economy or related activities. The statistical disparity alone suggest that there has been a sizeable padding up of export figures. Since money has to flow somewhere, then whether such (in)flows had been channeled to speculate on the RMB or to stocks or even both could be a large possibility, given the growing signs of economic weakness.

This goes to show that economic numbers don’t seem as they are. 

And this also exhibits how the Chinese government has been whitewashing their beleaguered overleveraged economy by sprucing up financial assets via stealth QE and by managing IPOs