II.Statistical Difference in Sino-US
Trade Balance

In recent years, bilateral trade balance, particularly huge US trade deficit from its trade with China as claimed by the US side, has roused extensive attention. Statistics and analyses prove it true that Sino-US trade has been in favour of China in recent years, but it is obvious that the size of the US de cit has been largely exaggerated by the US side.

Statistics from the US side indicate that Sino-US trade had been in favour of the US side during the 1979-82 period, but the United States started suering from decit in 1983 and the gure amounted to 39.5 billion US dollars in 1996. Chinese statistics, however, indicate that China had suered from decit in the bilateral trade during the 14 years between 1979 and 1992. Surplus rst appeared in 1993 and the figure rose to 10.5 billion US dollars in 1996. Obviously, there exists remarkable difference between China and the United States in their estimation of bilateral trade balance situation (see Table 1).

                   Table 1 Sino-US Trade Statistics
                                     (in billions of US dollars)

          Chinese statistics                US statistics

      Chinese   Chinese   Balance      US         US      Balance
      exports   imports              exports    imports

1993   16.97     10.69      6.28       8.77      31.54     -22.77
1994   21.46     13.97      7.49       9.29      38.78     -29.49
1995   24.71     16.12      8.59      11.75      45.56     -33.81
1996   26.69     16.16     10.53      11.97      51.49     -39.52

    Data sources: Chinese Customs and US Department of Commerce

To diagnose the large difference in the bilateral trade statistics by China and the United States and the large US trade deficit against China under US statistics, the US side agreed to a proposal made by China in 1994 on establishing a bilateral trade statistics expert group under the Sino-US Joint Commission on Commerce and Trade to undertake special studies of the subject. US members in the group were composed of experts from the Census Bureau of the Department of Commerce of the United States, while Chinese members in the group were experts from the Ministry of Foreign Trade and Economic Co-operation and the General Administration of Customs. The experts from both sides completed the work report of the Trade Statistics Subgroup of the Trade and Investment Working Group of the Sino-US Joint Commission on Commerce and Trade on the basis of abundant facts after they spent more than one year comparing 1992 and 1993 statistical data from China, the United States and the Hong Kong region, processing several hundred thousand records, sorting out several hundred analysis tables. The report believed that the US statistics had over-estimated at least the following factors in producing the large trade deficit against China:

First, the US import statistics has ignored entrepot trade and value added from entrepot trade to over-estimate its imports from China. A large part of Sino-US trade is conducted through entrepot trade via a third place. Under Chinese statistics, 60% of Chinese exports to the United States are conducted through entrepot trade via a third place, mainly the Hong Kong region. According to US information, only 20% of Chinese goods are directly shipped to the United States, while the remaining 80% get into the United States through a third place. It is obvious that the added value created at the third place after the goods have left China shall not be calculated as exports from China. The conclusion of the Trade Statistics Subgroup of the Trade and Investment Working Group of the Sino-US Joint Commission on Commerce and Trade was: The average rate of value-adding of Chinese exports to the United States via the Hong Kong region was 40.7% in the past two years, which was far above the re-export value-adding rate under general circumstances. The value adding rate of some of the major re-exported commodities, such as toys and knitwear, even exceeded 100%. Chinese mainland products acquired an added value of 5.23 billion US dollars in 1992 and 6.3 billion US dollars in 1993 at Hong Kong before they were re-exported to the United States. The US side, however, calculated the added value created in Hong Kong region's entrepot trade as imports from China, and thus greatly over-calculated its import value from China.

Secondly, the US statistics of its exports to China has been under-estimated by neglecting re-exports. According to analyses by experts of the Sino-US Joint Commission on Commerce and Trade, the amount of re-exports to China via the Hong Kong region included in the US statistics of its exports to China was only about a quarter of that included in Hong Kong's statistics. In 1992 and 1993 respectively, about 1.8 billion US dollars and 2.3 billion US dollars worth of US exports to China, through entrepot trade via Hong Kong, were not included in the US statistics of its exports to China.

Thirdly, the US method in determining the origin of goods also leads to the discrepancies in the statistics of the two sides. The judgment of the origin of ordinary imported goods is usually based on the declaration by importers. Goods determined as originating in China are recorded as imports from China, regardless of whether they are actually exports via a third place or whether the goods have acquired added value in that third place. Some imports which have been recorded by the United States as imports from China should, most probably, be recorded as imports from other third countries or regions. Experts of both sides acknowledged that further studies are needed on the issue of determination of origin.

Leaving aside the error caused by the rules of origin, the US statistics over-estimated trade deficit against China by 7 billion US dollars in 1992 and 8.6 billion US dollars in 1993, or the published US trade deficits against China in these two years were exaggerated by more than 60% (see Table 2), merely through neglecting entrepot trade and value added from entrepot trade alone.

  Table 2 The United States' Over-estimated Trade Deficit
   against China as the Result of Neglecting Re-exports
  and Added Value from Re-exports via the Hong Kong Region
                               (in billions of US dollars)

                                           1992     1993

US published imports from China           25.73    31.54
Value added via Hong Kong's re-exports    -5.23    -6.3
Adjusted US imports                       20.5     25.24
US published exports to China              7.42     8.77
US and Hong Kong statistic difference
  over re-exports via Hong Kong            1.8      2.3 
Adjusted US exports                        9.22    11.07
US published deficit against China        18.31    22.77
Adjusted US deficit                       11.28    14.17

    Data source: Work report of the Trade Statistics
Subgroup of the Trade and Investment Working Group of
the Sino-US Joint Commission on Commerce and Trade

In addition, the United States has also under-estimated its export value to China because of its incomplete export statistics. On December 5, 1996, officials with the Census Bureau of the US Department of Commerce pointed out in the Business Journal that at least 10% of US exports might have been overlooked in statistics because exports, unlike imports, are not taxed and do not bring the government any direct revenue. According to such estimate, at least 1 billion US dollars of US exports to China might have been left out in the US statistics in 1992 and 1993 respectively.

Considering the aforementioned factors, the US trade deficit against China was over-estimated by 8 billion US dollars in 1992 and 9.6 billion US dollars in 1993, and that represents an average over-estimation rate of about 70%. The trade statistics expert group was only in charge of investigating and analyzing the difference between the trade statistics published by China and the United States. The trade statistics methods adopted by the two sides have not been correspondingly adjusted, and the US side's over-estimation of its trade deficit against China has not since changed substantially. Calculated by the aforesaid rate, the 1996 US trade deficit against China, as published by the US side, was over-estimated by an amount of some 16 billion US dollars.

The so-called enormous trade deficit against China under the US statistics in recent years is attributable to a variety of factors, including flaws in statistical techniques and methods as well as the US policies to China. Therefore, it is far from being sufficient to evaluate the two nations' trade balance situation only on the basis of the trade statistics of the US side. Fundamentally, the protracted US trade deficit against other countries is determined by its own deep-rooted economic factors. It should not shift the blame upon other countries.