Here's What's Behind China's Ugly Export Data

Earlier this weekend, China reported trade data which showed exports fell 0.3% year-over-year in September.

This compares with a 7.2% rise in August.

A breakdown by region showed that exports to the U.S. climbed 4.2% in September, compared with 6.1% the previous month. While exports to the EU fell 1%, compared with a 2.1% rise in August.

Exports to Japan ticked up. But exports to the Association of Southeast Asian Nations (ASEAN) climbed just 9.8% in September, compared with 30.8% in August.

Many have pointed to the data as proof that external demand is crumbling and the global economy is turning weak. But there are a few reasons that exports plunged.

"The most obvious reason for such a sharp deterioration was statistical, as export growth quickened from +2.7% yoy last August to +9.8% yoy last September," writes Societe Generale's Wei Yao. 

"The yuan appreciation started to pick up the pace last September and attracted a large amount of speculative capital inflows, most of which were disguised as trade flows. The yoy rates of export growth were  inflated as a result back then, but are likely to be suppressed in the next six months."

Bank of America's Ting Lu points out that the mid-autumn festival took place in September this year, but in October of last year. This "means that yoy export growth could still be affected by the different timing of holiday," he wrote. "In fact, both Korea and Taiwan’s export growth fell more than expected in Sep as the two economies have similar tradition in celebrating the Mid- Autumn Festival.

Many emerging markets also went "into turmoil," according to Lu on concerns over the Fed tapering its monthly $85 billion asset purchase program.

And again from a pure comparison base, Lu points out that external demand picked up after August 2012, as the eurozone crisis eased "significantly." That also made the comparison base much higher for September 2013.

Markets can take some solace from these factors behind September's ugly export data.
But external demand is mixed at best. And Yao argues that the trade data and the "less upbeat PMI data" suggest that "the window of big positive data surprises from China is closing quickly."

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