China has a huge interest in looking at the way its official statistics are compiled

Chinese trade data from last month attracted considerable attention and provoked a lot of debate. Exports rose 14.7 percent, better than in the previous month and the 9.2 percent forecast by foreign investment banks. However, exports were not nearly as impressive.

Another issue of debate among economists has been the sharp increase in the mainland's exports to Hong Kong. Trade between the mainland and Hong Kong rose 55 percent in April, whereas trade between China and the rest of the world rose just 12 percent. Hong Kong is so important in the data that if one takes it out, the Chinese mainland would have sustained a trade deficit of $20 billion (15 billion euros) instead of the reported surplus of $18.2 billion.

Granted, Hong Kong has always been an important trade partner to the mainland and there is always a stable relationship between the mainland's exports to and imports from Hong Kong, but last month's figures increased doubts about the authenticity of the country's exports to its special administrative region and raised speculation about a capital influx in the guise of a trade surplus.

Chinese customs said that given that a large fraction of mainland exports to Hong Kong are trans-shipments and their final destination remains to be determined, a large fraction of the export trade is classified as exports to Hong Kong. However, such an explanation is less than convincing, especially given that the practice of trans-shipments has been a big contributor to the mainland's exports to Hong Kong for a long time. There has been no particular statistical change that would account for the sharp increase last month.

A more plausible explanation is that given further monetary easing by leading economies and the relatively high interest rate and economic growth of the Chinese mainland, many enterprises and investment companies use differentials in interest rates in the mainland and Hong Kong to arbitrage. Because the offshore yuan market in Hong Kong offers much lower savings and loan interest rates, many enterprises borrow from the low-interest yielding offshore market and use trade to transfer the money into the mainland and obtain a higher yield in China's onshore market.

Depending on varying expectations of the pace of yuan appreciation, many companies even use more advanced techniques of (mis)-matching the maturity of their payables and receivables to further enhance their arbitrage returns. Such yuan interest rate arbitrage may have proven to be so lucrative lately that it drastically pushed up the mainland's exports to Hong Kong, amid an otherwise lackluster month in trade data.

It is not as though it is the first time that doubts have been raised about the reliability of Chinese economic data. In the late 1990s economic growth data were found to be out of sync with energy consumption in the same period, even though the two figures typically move hand in hand.

At the same time, the Chinese public has long been skeptical about the consumer price index and the country's housing market index. Over the past few years, many have felt that consumer price rises and housing price rises have been greatly understated in official statistics.

Statistics is a science and a very important tool in policymaking. Since the enactment of the Statistics Law, China has come a long way in making more data available to the public, and in a scientific way. When China celebrates such progress, it should also take heed of new challenges.

Statistics are numbers, but they are a lot more than just that. In addition to trying to double its per capita GDP within a decade and gain increasing influence in the world, it is incumbent on China to raise the trust that the rest of the world puts in it. Statistics are but one reflection of the changes China is undergoing, but keeping a close eye on how those statistics are collected, collated, analyzed and presented would be invaluable to the country as it continues on its road of reform.

The author is faculty fellow at the International Center for Finance, Yale University; and deputy director of the Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University. The views do not necessarily reflect those of China Daily.

(China Daily 05/17/2013 page10)