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Is China Pulling a Lance Armstrong?

Ron DeLegge

Gaming the numbers is an international sport. And China's latest export figures raise big questions about 1) the reliability of reported figures, and 2) whether Chinese officials are juicing.

Chinese exports surged 14.1% in December and the report handedly beat analysts' estimates. 

Here's what Bloomberg News reported:

"The 14.1% jump from a year earlier was the biggest positive surprise since March 2011, according to data compiled by Bloomberg. The increase didn't match goods movements through ports and imports by trading partners according to UBS, while Goldman Sachs and Mizuho Securities Asia Ltd. cited a divergence from overseas orders in a manufacturing index.

'China's influence on the global economy has become bigger, so not only Chinese policy makers but also business people and the rest of the world need better data,' said Liu, Hong Kong- based chief economist for Greater China, who formerly worked for the World Bank. 'Unreliable data could have a negative impact on resource allocation and business planning.'

The Beijing-based customs administration, which reported the December trade figures on Jan. 10, said it couldn't immediately respond to a faxed request from Bloomberg News for comment on the banks' skepticism." 

Bloomberg's December survey of economists showed a median forecast of just a 5% gain for Chinese exports compared to the actual 14.1% gain reported.

After the Asian financial crisis in 1998, Chinese exports grew only 0.5% and during the global financial crisis in 2008-09, Chinese exports fell over 16%. China's total exports are dominated by heavy machinery, infrastructure, and electronic parts while textile, garments, and sneakers make just 15% of total exports.

With the eurozone (FXE - News) still on the edge of crisis and U.S. economy decelerating, China's export sector faces another uphill battle this year. Also, any escalation of China's ongoing conflict with Japan (EWJ - News) may negatively impact its commerce. It's never a good sign when the number one and number three economic juggernauts are at odds.  

Thus far, Chinese equity ETFs have ignored accounting questions by starting 2013 in positive territory.

The iShares FTSE China 25 Index Fund (FXI - News), Guggenheim China Real Estate (TAO - News), and SPDR S&P China (GXC - News) have all posted year-to-date gains between 2% to 4.5%.

Leveraged long funds like the Direxion Daily China Bull 3X Shares (YINN - News) are up 25.55% over the past month. 

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