The mystery of Chinese data.

It is hardly a secret that official Chinese economic statistics represent a wasteland of unreliability. As former Federal Reserve Chairman Alan Greenspan once cynically quipped when asked about the reliability of data coming out of Beijing, "You mean the system where the end of the fiscal quarter arrives and early the next morning the official GDP number is announced?"

In recent months, Chinese data have shown a significant expansion in imports. Normally that would mean Chinese investment must be accelerating (assuming of course that the data on imports are correctly calculated). This time, however, skeptics wonder whether the data showing an import explosion reflect less the investment environment and more the ramping up of efforts to move capital outside of China. Here's the inside thinking: In recent years international observers have recognized that the Chinese often inflate the size of import bills (in other words, the purchase price of a sale, say, of some commodity is intentionally charged at a much higher rate than the actual cost). This practice allows for the passing of capital overseas as the foreign interest involved credits the amount of the overpayment into an account outside of China in the name of the interested Chinese party. International strategists say that lately these inflated bills are suddenly much higher, in some cases inflated by ten times the actual cost of the bill. The situation has caused many within the international community to worry whether the true economic, financial, and political picture within China is deteriorating even as Chinese officials announce ever higher GDP growth and investment rates. The obvious concern: Why are the attempts to move money out being ratcheted up to such high levels--and at considerable risk?

Ironically, the Chinese central bank continues to express an official willingness eventually to appreciate its currency. It may be world financial markets won't allow such a development given that capital seems to be fleeing out of China at an ever dramatic rate. This situation prompted one global trader recently to observe: "You'll know when the Chinese economy is about to seriously slow. That's when the government announces it has finally seen the light and tells Washington China is moving to a flexible exchange rate regime." Under such a scenario, Beijing would be bowing to Washington's long-time demand even as the currency dropped like a stone.