China's trade surplus exaggerated, European trade expert says

15:38, December 29, 2010      

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China's trade surplus has been exaggerated by the current statistical method to measure trade, an expert at a Brussels-based think tank said.

"I would say that China's export is not as large as some say it is. The large export figures include value that has been added in other countries before the assembly in China," Hosuk Lee-Makiyama, co-director of the European Center for International Political Economy (ECIPE), told Xinhua in an interview.

Lee-Makiyama said that current international trade statistics do not reflect the true "value added" of the goods that are mostly designed, manufactured and assembled in more than one country. Many products assembled in China and then sold in the United States are registered as exports from China, according to the concept of country of origin for manufactured goods used in current trade measurement.

"This follows the conventional statistical method of determining a product's origin by the country where it is finalized, and all of the product value is attributed to that last country," he explained.

Lee-Makiyama cited Apple's iPhone as an example.

A product like Apple's iPhone, which is "made in China," is said to have added about two billion U.S. dollars in trade deficit for the United States. But in reality, only one percent of its total value-added comes from its final assembly in China, while the rest goes to other countries, including the United States, where the product is designed and marketed.

If the calculation were based on value-added, trade imbalances between China and the United States would turn out the other way: The iPhones would bring a trade surplus of 48 million dollars to the United States, Lee-Makiyama said.

"That's how the current method of trade registration exaggerates China's exports," he said. "China's large export figures actually include contributions by U.S. workers, engineers, designers and drivers."

Lee-Makiyama does not agree with the prevailing opinion in Washington that China is the sole beneficiary of globalization.

"The new anti-globalization sentiments in the U.S. Congress and some American labor unions show that some Americans fail to understand how much wealth the United States has earned through trading with Asia," he said. "The figures, or the people who quote them, are simply exaggerated or misleading."

He also said it is the China-centric manufacturing and supply chains that have enabled many U.S. companies to export their ideas and products all over the world.

According to latest trade statistics, world trade in manufactured goods,which are mostly exported by China, is four times bigger than trade in services, which are mostly exported from the European Union and the United States.

Lee-Makiyama explained that if we separate the cost of product components and raw materials from the total cost and measure only the value-added parts, trade in goods and services is probably of similar size.

He noted that China has practically no exports in services compared to countries such as India, which has created a viable export sector.

In the era of globalized supply chains, calculating trade balances between nations will soon become irrelevant, the trade expert believed.

"A country can have huge surpluses while making little or no profits. Similarly, some run a tremendous trade deficit on paper, yet amass great wealth," he said.

Source: Xinhua
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