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Three Reasons to Doubt China's Export Numbers

A Chinese flag flies on a vessel moving past shipping containers being unloaded at a Tianjin Port Group Co. dock in Tianjin, China.
Nelson Ching | Bloomberg | Getty Images

In spite of the two-week Lunar New Year holiday in February, which typically translates into a slower period for economic activity, China's export numbers blew past expectations, coming in more than double of what was forecast, raising questions over the reliability of the data.

The world's second largest economy on Friday reported a 21.8 percent jump in exports for February from a year earlier, versus forecasts for a rise of just 10.1 percent. Imports, meanwhile, declined by 15.2 percent over the same period, the largest drop in 13 months, compared with expectations for an 8.8 percent fall.

There are three main reasons to question this data, according to experts, including Zhiwei Zhang, chief China economist at Nomura.

First, Zhang said, the data is "inconsistent" with exports out of neighboring countries including South Korea and Taiwan, which saw a decline of 8.6 percent and 15.8 percent, respectively, last month. He noted that China and South Korea's export growth is positively correlated. For both countries, the U.S. and Europe are key export destinations.

Second, the data does not match up to the weak new export orders index in the recent purchasing managers index (PMI) readings, according to Zhang. In February, for example, the new export order component of the China's official PMI index declined to 47.3 from 48.5 in January, suggesting a weak external demand environment. A reading above 50 indicates expanding activity and one below 50 signals contraction.

(Read More: China February Factory Growth Cools to 5-Month Low)

Third, a reason cited by a variety of economists, is that the data could be artificially supported by traders overstating their exports and understating their imports, in order to move capital into the country and circumvent capital controls.

Li Huiyong, economist at Shenyin and Wanguo Securities told Reuters, "The February exports are much higher than expectations even after seasonal adjustment. The possibility of hot money inflows via trade could not be ruled out."

Demand for the has been on the rise in recent months, fueled by expectations for further appreciation in the currency. Purchases of the currency by companies and individuals amounted to 684 billion yuan ($110 billion) in January - the most ever in a single month.

(Read More: China Is a Huge, Huge Trade: FTSE CEO)

"Forex purchases of the yuan is a good signal of capital inflows," said Zhang.

Stephen Schwartz, chief economist for Asia at BBVA, said while some of the rise in exports could be a result of capital inflows disguised as trade flows, he believes the export picture is fundamentally improving. The Chinese economy has been gathering steam, since bottoming in the third quarter of 2012, and is expected to grow around 8 percent this year.

(Read More: China Think-Tank Sees 8% Growth in First Quarter)

"It [capital inflows] could explain some of it but not all of it, most of it is a likely a genuine rebound," he said, pointing to a pickup in demand from key export markets in Southeast Asia as well as Western economies.

Mark Matthews, head of research Asia at Bank Julius Baer agreed the bounce in exports is likely tied to the steady improvement in the health of the global economy, pointing to leading indicators such as JPMorgan's Global Manufacturing PMI which has remained above 50 – the mark that separates growth from contraction – for three straight months.