More are provided by InvestHK, in their report “The Greater Pearl River Delta”. Firstly they note that the Pearl River Delta’s GDP figure may be understated, among other reasons, “due to anecdotal evidence that a large number of Pearl River Delta region companies underreport sales and incomes” (no surprise there!). In addition they note that some analysts include Hong Kong and Macao in the region’s statistical base, while others do not. It is important to know which figures you are dealing with.
Population figures can also give rise to confusion, especially as they are the basis for all those “per capita” figures. InvestHK notes an important difference between the “census population” (actual residents) and the “registered population” (people with official local registration). In The Pearl River Delta they report that the “registered population” was 23.07 million in 2000, while the “census population” was 40.77 million – including a large number of migrant workers who are not registered. In the industrial city of Dongguan the figures are even more dramatic: 1.53 million, versus 6.45 million!
Now Standard Chartered’s China economist, Stephen Green, has pointed to another questionable set of statistics, this time in the trade surplus – which has great importance in relation to US-China relations as well as to wider trade and currency issues. In an article from MSNBC he notes that the reported figure – which tripled to US$102 billion – may be fake:
“Much of China’s trade surplus in 2005 was not trade at all, we think, but rather capital inflows [perhaps as much as $67 billion] disguised as trade. If so, this has major implications for China’s trade policies, the yuan, and the way the U.S. deals with China.”
In addition he points out that China and the US account for imports and exports differently, especially when it comes to transshipment via Hong Kong:
- ”China does not count all of the goods exported to the U.S. via Hong Kong so its export number is likely to be understated. Chinese trade authorities say they make this exclusion because their tracking data on the final destination of the goods leaving Hong Kong isn’t always clear enough. The U.S. Commerce Dept., meanwhile, considers all exports out of the mainland that transit through Hong Kong — and that ultimately arrive at U.S. ports — in the final tally of Chinese exports to the U.S.
Not only that, it includes the value-added — that is, the added mark-up on the cost of goods that Hong Kong trading firms impose for services rendered — in Hong Kong. This method of trade accounting adds 20% to 30% more to the total value of outbound mainland goods, and we think the result is that the U.S. export number for China is exaggerated. As a result, the U.S. says its bilateral deficit with China was $202 billion in 2005, while China says it was $114 billion. The correct answer should be somewhere in between.”
The US-China Business Council has long made an issue of this point. In a report on the subject they note that “USDOC [US Department of Commerce] statistics, commonly used in the United States to measure bilateral merchandise trade, overstate the 2003 US bilateral trade deficit with China by roughly 13 percent because of the way entrepot trade through Hong Kong is calculated.” They also note a significant surplus for the US in the services sector. According to research from China guru Nicholas Lardy, the official US trade deficit with China in 2003 was US$124 billion, but the adjusted, more accurate, figure would be US$109.8.
Further analysis by Green leads him to believe that there is also significant “mis-invoicing” by Chinese traders who want to bring in more hard currency in order to benefit from any upward move in the RMB’s value. One side-effect of this is that it artificially boosts the value of Chinese exports. Transfer pricing is also thought to have an impact. The result of all this analysis is that:
- “Our numbers show that the China’s trade surplus could have been as small as $35 billion in 2005. Trade could have disguised some $67 billion of non-trade capital inflows.”
Green concludes that the trade surplus may not be a real indicator of pressure for RMB appreciation, but that steady appreciation may remove the cause of the system abuse – and could therefore reduce the reported trade surplus and accompanying anger from the US. He also suggests that this negates calls for higher taxes on export-driven, foreign firms, and a proposed reduction on VAT rebates.
He should get credit for this research, as we need people who can get under the skin of China’s many numbers – especially when there are many, in the US and elsewhere, who would manipulate them for political purposes.
He should also get credit for admitting what many chose not to mention – that he and his team “made a long list of assumptions…and we are not claiming that it is absolutely accurate”. The bean-counters at Ernst & Young may want to add a footnote to that effect in future reports!
There is more research on Chinese statistics in the pipeline. The research guys at Access Asia are frustrated by “major contradictions” in GDP and consumer statistics. They are linking up with their friends at the China Economic Quarterly “in order to analyse the statistical methodology, and the data that is available”. I look forward to reporting on their findings.
See news source:
China’s Trade Surplus May Be an Illusion
MSNBC – USA
The export of fake goods out of China is commonplace whether you are talking about designer bags, blockbuster movie DVDs, or “Mont Blanc” pens. …
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