Reasons for Discrepancies in Chinas External Trade Statistics with partners: the Particular Role of Processing Trade By Hongman JIN Statistics Department Customs General Administration Peoples republic of China September 12, 2005

11 China's Trade Development,

Major issues: Methodology and quality of Chinese trade statistics has attracted much attention Doubts on the validity of the data have been cast, because of the large discrepancies in trade statistics between China and major partners, in particular the US and EU Debates in trade negotiations

Discrepancies in China-US Trade

Discrepancies in China-EU Trade

Summary of the results of the reconciliation studies

Reasons for discrepancies Impact of differences in methodology is small CIF/FOB, Less than 10% of import value Hong Kong re-export is the main reason for discrepancies, Underestimation of goods to the US or EU via HK, Overestimation of China export to HK. HKs re-export value has been used for the adjustment

Direct Trade Via HK(HK) Via Other Via HK(CN) China-US Direct and Indirect Trade Flows 1993

HK Re-export Margin Large re-export margin added by HK makes the discrepancies more significant Estimation: unit value approach China-US eastbound trade : 40%,1993 China-EU westbound trade: 35%,1995

Why does Hong Kong deal with large re-exports of Chinese goods?

Survey by Hong Kong

China Processing Trade

Inward Processing Trade (Processing Trade) Type I: The imported inputs remain the property of the foreign supplier. Type II: The ownership of imported inputs are transferred to Chinese producers, more commonly FIEs Benefits from duty exemptions Value record: According to UN recommendation

Fast growth in recent years

High Proportion of Total Trade

Foreign Invested Enterprises play an important role

Distributed in coastal areas Guangdong processes nearly half of the total products. Transfer trend in recent years Guangdong Jiangsu

Concentrated in consumer products

Differences in country of origin of material and the final destination market Import Taiwan P. 20%, Japan 18%, Korea 14%, US 5%, EU %, HK 2%, Singapore 3% Export USA, 26%, EU 17%, HK 22%, Japan 13% Korea 4%, Taiwan P. 2%, Singapore 3%

Hong Kongs Role Biggest supplier of Chinese FDI Investment mainly in Guangdong Province. Exports usually transported via Hong Kong

A decreasing trend in reliance on Hong Kong in recent years

A decreasing trend in trade statistics discrepancies

Debate in China Positive: helps employment, updates manufacture capacity, contributes to GDP growth Negative: labour intensive products, low added value, low salaries, creates environment pollution, leads to trade conflicts

Hong Kongs re-export of Chinese goods, in particular Chinese processing goods, is the major reason for discrepancies in Chinas reported trade statistics with its major partners. An economic reality: the real expansion of Chinese foreign trade is due to the massive outsourcing schemes of foreign invested enterprises into the low-margin processing sector in China. Despite the decreasing trend in reliance on Hong Kong, the increasing scale of the processing trade means large discrepancies will still exist in the future. Conclusion

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