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By Hongman JIN Statistics Department Customs General Administration People’s republic of China

Reasons for Discrepancies in China’s External Trade Statistics with partners: the Particular Role of Processing Trade. By Hongman JIN Statistics Department Customs General Administration People’s republic of China. September 12, 2005. China's Trade Development, 1994-2004. 3. 11. 11.

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By Hongman JIN Statistics Department Customs General Administration People’s republic of China

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

  2. China's Trade Development, 1994-2004 3 11 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

  4. Discrepancies in China-US Trade

  5. Discrepancies in China-EU Trade

  6. Summary of the results of the reconciliation studies

  7. 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. HK’s re-export value has been used for the adjustment

  8. China-US Direct and Indirect Trade Flows 1993 5.7 Direct Trade 5.9 3.2 10.8 21.2 Via HK(HK) 4.3 Via HK(CN) 0.5 Via Other 1.1

  9. 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

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

  11. Survey by Hong Kong

  12. China Processing Trade

  13. 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

  14. Fast growth in recent years

  15. High Proportion of Total Trade

  16. Foreign Invested Enterprises play an important role

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

  18. Concentrated in consumer products

  19. 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%

  20. Hong Kong’s Role • Biggest supplier of Chinese FDI • Investment mainly in Guangdong Province. • Exports usually transported via Hong Kong

  21. A decreasing trend in reliance on Hong Kong in recent years

  22. A decreasing trend in trade statistics discrepancies

  23. 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

  24. Conclusion • 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.

  25. Thank you ! Further information Jin_hm@mail.customs.gov.cn

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