Reasons for Discrepancies in China’s External Trade Statistics with

partners:the Particular Role of Processing

Trade

By Hongman JINStatistics DepartmentCustoms General AdministrationPeople’s republic of China

September 12, 2005

11

0

100

200

300

400

500

600

700

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

Bill

ion

US

$

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Gro

wth

rate

Export I mportExport growth rate I mport growth rate

China's Trade Development, 1994-2004

11

3

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 TradeTable1. Westbound Trade (China Export - US Import, in billion US$)

1993 1995 1997 1999 2001 2003China Export 17 24.7 32.7 42 54.3 92.5US Import 31.5 45.5 62.6 81.8 102.3 152.4Discrepancy(Imp - Exp)

14.5 20.8 29.9 39.8 48 59.9

Discrepancy %(Imp- Exp)/Imp 46% 46% 48% 49% 47% 39%

Table 2. Eastbound Trade (US Export - China Import , in billion US$)

1993 1995 1997 1999 2001 2003US Export 8.8 11.8 12.9 13.1 19.2 28.4China Import 10.7 16.1 16.3 19.5 26.2 33.9Discrepancy(Imp - Exp)

1.9 4.3 3.4 6.4 7 5.5

Discrepancy %(Imp- Exp)/Imp 18% 27% 21% 33% 27% 16%

Source: China Customs, US Bureau of Census

Source: China Customs, US Bureau of Census

Discrepancies in China-EU Trade Table 3. Westbound Trade (China Export - EU Import, in billion US$)

1993 1995 1997 1999 2001 2003China Export 11. 7 19. 1 23. 8 30. 2 40. 9 72. 2EU Import 23. 0 34. 4 42. 5 52. 9 68. 0 108.4Discrepancy(Imp - Exp)

11. 3 15. 3 18. 7 22. 7 27. 1 36. 2

Discrepancy %(Imp- Exp)/Imp 49% 44% 44% 43% 40% 33%

Table 4. Eastbound Trade (EU Export - China Import , in billion US$)

1993 1995 1997 1999 2001 2003EU Export 13. 3 19. 1 18. 7 20. 6 26. 9 45. 7China Import 14. 4 21. 3 19. 2 25. 5 35. 7 53. 1Discrepancy(Imp - Exp) 1. 1 2. 2 0. 5 4. 9 8. 8 7. 4Discrepancy %(Imp- Exp)/Imp 8% 10% 3% 19% 25% 14%

Source: China Customs, EUROSTAT

Source: China Customs, EUROSTAT

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 discrepanc

ies, Underestimation of goods to the US or EU via HK, Overestimation of China export to HK. HK’s re-export value has been used for the adjustment

5.7

5.9

21.2

3.210.84.3

Direct Trade

Via HK(HK)

0.51.1

Via Other

Via

HK(C

N)

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

1.

.

RX RX

I RX

UV Q

UV Q

• 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

Table 5. Estimated Proportion of Outward Processing TradeTrade Type 1993 1995 1997 1999 2001 2003Total export to mainland China 47. 9% 49. 0% 48. 1% 47. 5% 47. 5% 43. 9%Total Import from mainland China 73. 8% 74. 4% 81. 2% 80. 5% 78. 0% 71. 7%Reexport of mainland the China to other places 80. 8% 82. 2% 88. 4% 86. 6% 82. 2% 79. 4%soure: Hong Kong Census and Statistical Department

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

China's Processing Trade Development, 1994-2004

0

50

100

150

200

250

300

350

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Bil

lio

n U

S$

-5%0%5%10%15%20%25%30%35%40%

Gro

wth

rat

e

Processi ng Export Processi ng I mport

Export growth I mport growth

Fast growth in recent years

High Proportion of Total Trade

Proportion of Total ExportCustoms Regimes 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Processi ng Trade 47% 50% 56% 55% 57% 57% 55% 55% 55% 55% 55%Ordinary Trade 51% 48% 42% 43% 40% 41% 42% 42% 42% 42% 41%Other 2% 2% 3% 3% 3% 3% 3% 3% 3% 3% 4%

Proportion of Total ImportCustoms Regimes 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Processi ng Trade 41% 44% 45% 49% 49% 44% 41% 39% 41% 39% 40%Ordinary Trade 31% 33% 28% 27% 31% 40% 44% 47% 44% 45% 44%Other 28% 23% 27% 23% 20% 15% 14% 15% 15% 15% 16%

FI Es i nvol ved i n the Processi ng Trade

0%

20%

40%

60%

80%

100%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

Prop

orti

on

ExportI mport

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

Processing Products of 1994 and 2004HS2

M US$ Share M US$ ShareTL 56976 100% 327970 100%85 11558 20% 104702 32%84 3594 6% 95210 29%90 1171 2% 12695 4%62 6593 12% 11059 3%95 3849 7% 10329 3%39 1920 3% 7434 2%64 4766 8% 7017 2%94 1319 2% 6922 2%61 2854 5% 5579 2%86 612 1% 5333 2%42 2663 5% 3879 1%sub-TL 72% 82%

1994 2004

Differences in country of origin of material and the final

destination marketImport

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 Kong’s 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

processing export via Hong Kong

0

100

200

300

400

1994 1997 2000 2002 2004Year

bill

ion U

S$

0%

20%

40%

60%

80%

via

HK

in

%

Total Processi ng exportProcessi ng vi a Hong Kongvi a Hong Kong rate

A decreasing trend in trade statistics discrepancies

Di screpanci es i n %

0%

10%

20%

30%

40%

50%

60%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Chi na Export - US I mport

Chi na Export - EU I mport

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 Kong’s re-export of Chinese goods, in particular Chinese processing goods, is the major reason for discrepancies in China’s 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

Thank you !

Further information

Jin_hm@mail.customs.gov.cn