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Just How Skewed Is China's Trade Data?

Thursday, 7 Feb 2013 | 11:51 PM ET
Robert Francois | AFP | Getty Images

China's January trade data on Friday appear impressive at first glance, but beneath the favorable Lunar New Year distortions, the global and domestic demand picture remains fragile, economists tell CNBC.

Exports out of the world's second largest economy grew by a higher-than-expected 25 percent in January from a year earlier, while imports surged 28.8 percent, good news for China as it recovers from its worst yearly downturn in 13 years.

However, after adjusting for the Chinese New Year effect – which provides an artificial boost to exports as companies front load shipments as well as imports due to stockpiling before the holiday period – exports grew 12 percent and imports rose 3.4 percent.

The data was also helped by a low base effect as the festive season fell over January in 2012, compared with February this year, economists said. In December, imports rose 6 percent from a year earlier.

"The import data suggests that underlying demand domestically is not as strong as we think," Liu Li-gang, chief China economist at ANZ told CNBC.

(Read More: China's Workers Endure Unhappy New Year)

"Although we still maintain the view that the economy is rebounding at a pace of 8 percent this year, the rebound will need to be broadened further because China's economy is being led by old fashioned investment growth," he added.

Much of the recovery in Chinese domestic demand has been driven by government stimulus, say economists, and this means when the impact of the stimulus fades the economy is at risk of slowing.

(Read More: China Factory Activity Eases in January, Misses Forecast)

In 2012, the government launched fiscal stimulus measures including a $150 billion-plus infrastructure spending package to boost growth.

Export Outlook Cloudy

While export growth remained solid even after discounting the favorable seasonal factors, some China watchers believe the uptick in shipments is unsustainable.

From a month-on-month perspective, exports to key trading partners, the U.S. and Europe declined 5.9 and 5.1 percent, respectively, in January from December.

"One quick look at the euro zone and the U.S. and it is hard to conclude that China's exports are surging ahead. With the euro zone in recession this year and U.S. growth slow, China's external environment is going to make it difficult for the economy to maintain a steady recovery," said Alistair Thornton, China economist at IHS.

China's exports picked up to 14 percent in December from a year earlier, after slowing to 2.9 percent in the previous month.

Wang Tao, head of China economic research at UBS expects the rapid pick up in trade last month will negatively impact February's trade data. She expects the country's surplus will turn into a deficit next month.

Contact World Economy

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