Caution: China trade data may be a stinker


China's trade growth may have ground to a halt in January, fueling further concerns over the outlook for the world's second largest economy.

Exports likely grew just 2 percent on-year in January, according a Reuters poll of economists, lower than the 4.3 percent climb recorded in December. Imports, meanwhile, are forecast to have risen an annual 3 percent, compared to an 8.3 percent gain in the previous month.

"China's trade activity likely deteriorated in January. Despite the global economic recovery, exports have been slow to rebound," Moody's Analytics wrote in a report this week.

"Some of this is due to the stronger yuan, while some of it reflects distortions in the data due to past speculative inflows hidden in export receipts. The Lunar New Year also crimped activity," it added.

Adam Jeffery | CNBC

China economic data tends to be distorted around the Lunar New Year holidays, which began at the end of January this year, with many businesses shut during the week-long holiday.

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Societe Generale, which expects exports and imports to have contracted 3 percent and 5 percent, respectively, said the results should not be interpreted as genuine deceleration in trade growth.

"The dramatic loss of speed was mostly due to a base effect, which in turn was partly the result of the significant amount of speculative capital flows that were disguised as merchandise exports a year ago," the bank wrote in a report on Monday.

China is scheduled to release a slew of January economic indicators the coming days including inflation data on February 14 and money supply data on February 15, which will be watched for clues on how the economy is faring.

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Data on fixed asset investment, industrial production and retail sales for January, however, will not be released this month due to the Lunar New Year holiday distortions. Rather, they will be combined with February's data and released in March.

So far, other indicators for January including the official and HSBC manufacturing Purchasing Managers' Index (PMI) have pointed to a weak start to the year for the mainland economy.

The HSBC's final PMI, for example, fell to 49.5 in January from 50.5 in December, its lowest level in six months and compared with the flash estimate of 49.6 released last week.

(Read more: HSBC PMI tips weak start to 2014 for China's economy)

"We are starting the year on weak footing...I would be curious to see whether factories actually fire up again or if they take another leg lower," Frederic Neumann, co-head of Asian economics, managing director at HSBC said late last month.

—By CNBC's Ansuya Harjani. Follow her on Twitter: @Ansuya_H