Accounting and Reconciling Statistical Accounting and Reconciling Statistical Discrepancies in Bilateral TradeDiscrepancies in Bilateral Trade::

The Case of China, Hong Kong, The Case of China, Hong Kong, and their Major Trading Partnersand their Major Trading Partners

Zhi WangZhi Wang

United States International Trade Commission*United States International Trade Commission*

**The views expressed in this presentation are solely those of the presenter. It The views expressed in this presentation are solely those of the presenter. It is not meant to represent in anyway the views of the U.S. International Trade is not meant to represent in anyway the views of the U.S. International Trade Commission or any of its individual Commissioners. This presentation is Commission or any of its individual Commissioners. This presentation is based on two co-authored working papers by the presenter with Michael based on two co-authored working papers by the presenter with Michael Ferrantino, Mark Gehlhar and Shunli Yao.Ferrantino, Mark Gehlhar and Shunli Yao.

. .

Presentation OutlinePresentation Outline• Questions and Major Issues • Literature Review• How to measure the Discrepancies• The Method of Reconciliation

– Basic Ideas of the Procedure– Brief Outline of Procedure – Six Steps in Implementation

• Reconciliation Results• Conclusions and Implications

Three Related QuestionsThree Related Questions• How to measure the discrepancy in trade statistics between

China and its major trading partners? Could we find reasonable explanations of the discrepancies? Is the discrepancies between China reported trade statistics and US reported statistics special?

• Is it possible to have a methodology to reconcile trade statistics reported by China and its major partners and to know how much good made in China really exports to the U.S. and the world?

• How much does China earn from its rapidly expanding exports, in other words, how China’s exports contribute to its production of GDP and GNP? Is it significantly different from major industrial and other developing countries?

Two indices of Mirrored trade Two indices of Mirrored trade Statistics discrepancyStatistics discrepancy

sritM

sritEsr

itM DIF sr

it

100

)(100

sritEsr

itM

sritEsr

itM ERsr

it

Eastbound U.S.-China trade 1978-1993

0

10

20

30

40

50

60

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

Source: IMF Direction of Trade (Tsao and Whisler 1995)

Bil

lio

n d

oll

ars

U.S. reported imports fromChina c.i.f.

China's reported exports to theUnited States f.o.b.

Average discrepancy index = 30.2

(60.4 percent of average value of both reporters)

Eastbound U.S.-China trade 1978-1993

0

10

20

30

40

50

60

Source: IMF Direction of Trade (Tsao and Whisler 1995)

Bill

ion

do

llars

U.S. reported imports fromChina c.i.f.

China's reported exports to theUnited States f.o.b.

U.S. reported imports fromChina and Hong Kong c.i.f.

China and Hong Kong reportedexports to the United Statesf.o.b.

Average discrepancy index = 2.2

(4.4 percent of average value of both reporters - close to a possible fob/cif margin)

China-Hong Kong Exports to United States, 1995-2005, with corrections for shipping margins and geography

0

50

100

150

200

250

300

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

bill

ion

s

US reported imports fromChina & Hong Kong (fob)China & Hong Kong reportedexports to US (fob)

2005 discrepancy index =10.0

(20.0% of average value of both reporters)

2005 difference = $45.8 billion

The discrepancy grows as Hong Kong's role shrinks

-6

-4

-2

0

2

4

6

8

10

12

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Dis

crep

ancy

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Per

cen

t o

f to

tal Discrepancy (U.S. -

China/HK value)/(U.S. value+ China/HK value)

Hong Kong re-export as %of U.S. total imports fromChina

Mirror Relation among U.S. , China and Mirror Relation among U.S. , China and Hong Kong Reported Trade StatisticsHong Kong Reported Trade Statistics

Westbound FlowsWestbound Flows

U.S. reported total exports to China (fas)

U.S. ReportedTotal exports to Hong Kong (fas)

Hong Kong reported re-exports of U.S

originated goods

U.S. indirect exports to China via Hong Kong

Hong Kong’s reported re-export

U.S. originated goods to other countries

China reported imports of U.S.

originated prodicts (cif)

Hong Kong reported imports of U.S

originated products (cif)

+

+fob/cifadj

fob/cifadj- -

-

Mirror Relation among U.S. , China and Mirror Relation among U.S. , China and Hong Kong Reported Trade StatisticsHong Kong Reported Trade Statistics

Eastbound FlowsEastbound Flows

China reported total exports to U.S. (fob)

+ Hong Kong reported domestic exports to U.S.(fob)

Hong Kong Reported re-exports of China

originated

goods to U.S. (fob)

China indirect Export to U.S. via Hong Kong

Hong Kong’s markup for re-export

China originated goods to U.S

U.S. reported imports originated from China (fob)

U.S. reported imports originated

from Hong Kong (fob)+

=

Mirror Relation among China and Hong Kong Mirror Relation among China and Hong Kong Officially Reported Trade Statistics and U.S Officially Reported Trade Statistics and U.S

Unpublished Shipping Data - Unpublished Shipping Data - Eastbound FlowsEastbound Flows

Decomposing the Discrepancy in 2005 Decomposing the Discrepancy in 2005 Millions of US Dollars Millions of US Dollars

China-HK exports

U.S. imports

Difference

TOTAL 205,929 252,181 46,252

China direct exports

141,943 178,426 36,484

Re-exports thru HK

38,268 42,770 4,501

Transshipments thru Hong Kong

20,410 12,294 -8,116

HK domestic exports

4,850 8,128 3,279

Sum of all HK 63,528 63,165 -362

China exports via 3rd countries

459 11,099 10,640

Statistical Discrepancies of China and Statistical Discrepancies of China and Hong Kong Exports to Their PartnersHong Kong Exports to Their Partners

• Small discrepancies -- partner reported imports closely matched China and Hong Kong reported exports:

Japan, South Korea • Positive discrepancies -- partner reported imports were more

than China and Hong Kong reported exports: USA, Canada, Mexico, EU15, EU10, Norway,

Switzerland, Australia, New Zealand Argentina, India, Singapore, Malaysia, and Thailand

• Negative discrepancies -- partner reported imports were less than China and Hong Kong reported exports:

Russia, Chile, Venezuela, Indonesia, Philippines, Brazil, Saudi Arabia, South Africa, and Sum of all other reporters

The average discrepancy in 2004 is about 18 percent

Statistical Discrepancies of China and Hong Statistical Discrepancies of China and Hong Kong Exports to Their Partners, 1995-2004Kong Exports to Their Partners, 1995-2004

Sample CountriesSample Countries

-70

-50

-30

-10

10

30

50

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Japan Korea USA EU15 Canada Indonisia Brazil South Africa

What are some possible causes of What are some possible causes of discrepancies?discrepancies?

• Timing – but this washes out over the long run

• Shipping and insurance costs – we correct for these, but not perfectly

• Classification – HS 98 and 99, and other problems (we omit these from the analysis)

The “Hong Kong re-export” explanation of the “mismatched mirror” between China and the United States has served well for awhile.

It has focused attention on Hong Kong, and on such issues as the “Hong Kong markup” (Feenstra and Hanson (2003)).

But in the 21st Century the mirror appears to be breaking again.

Literature Review:Literature Review: International Trade StatisticsInternational Trade Statistics

Special problems with re-exportsSpecial problems with re-exports

• The ultimate origin and destination can become confused

• Usual practice – Importer records country of origin, exporter records country of shipment (*old* Hong Kong explanation)

• Exporter may not always know when goods are re-sold (middlemen)

• Confusion with goods in transit

General vs. special trade, and General vs. special trade, and goods in transitgoods in transit

• General trade – the physical territory• Special trade – the economic or customs territory• Not internationally standardized• U.S. has both systems

– General trade – General imports, total exports– Special trade – Imports for consumption, domestic exports– Total exports = Domestic exports + foreign exports (re-

exports)• Goods in transit (transshipment), e.g. boats being loaded and

unloaded without goods clearing customs, are *not* re-exports, but can be confused with them

Mis-invoicing, transfer pricing, and Mis-invoicing, transfer pricing, and mis-attributionmis-attribution

• Under- and over-invoicing can be used to evade tariffs or other taxes

• Transfer pricing – mis-invoicing by multinational firms• Mis-attribution – mis-stating of origin or destination• Special policies (FTAs, TRQs) may give further

incentives• Could be accidental or intentional• Different types of firms, policies, etc. may behave

differently• Smuggling – is like under-invoicing at P = 0 (sort of). If

it leaves no record on either side, it is undetectable by mirror methods

What We find in preliminary What We find in preliminary Econometric WorkEconometric Work

• The robust correlates of the eastbound discrepancy are– Valuation problems (a 1 percent increase in missing

valuations = 0.13 to 0.37 increase in the discrepancy)– Time (the discrepancy increases by 0.9 to 1.5 points per

year, ceteris paribus)– U.S. tariffs (a 1-point ad valorem increase in U.S. tariffs is

associated with 0.34 to 1.41 decrease in the discrepancy, except in fixed effects)

– U.S. re-exports (a 1 percent increase in the re-export share is associated with 0.04 to 0.60 decrease in the discrepancy)

• The other regressors vary a lot depending on weighting, outliers, and fixed effects. Some of them look big

21

Major Problems in Bilateral Major Problems in Bilateral Trade Statistics ReconciliationTrade Statistics Reconciliation

• No consistency condition has been defined in the presence of re-exports via third countries

• No global consistency has been imposed

• No adjustment at sector level has been done

• Substantial inconsistencies still exist after adjustment even at aggregate level

22

Trade Balances Reported by China and its Partners Trade Balances Reported by China and its Partners by GTAP Sectors, Billions of US Dollars, 2004by GTAP Sectors, Billions of US Dollars, 2004

-35.00 -15.00 5.00 25.00 45.00 65.00 85.00 105.00

Chemical rubber plastic productsMachinery and equipment nec

Oil and gasmetals

Coal and Minerals necOil seeds

Motor vehicles and partsPetroleum coal products

Plant-based fibersProcessed Food

Mineral products necWood and paper products

Metal productsLeather products

Manufactures necTextiles

Wearing apparelElectronic equipment

China official reported Partner offcially reported

Data Source: USITC Oracle database and China Customs Trade Statistics

23

China and U.S. Merchandise Trade Balance Reported and Adjusted, 1989-2005

-210

-190

-170

-150

-130

-110

-90

-70

-50

-30

-10

10

1989 1991 1993 1995 1997 1999 2001 2003 2005

Bill

ion

s o

f U

.S. D

olla

rs

U.S reported data China Reported data U.S. Adjusted China adjusted

Data Source: Fung, K C, Lawrence Lau, and Yanyan Xiong, 2006 “Adjusted Estimates of United States-China Bilateral Trade Balances—An Update,” Pacific Economic Review, vol 11(3), pages 299-314, October

24

ObjectivesObjectives• Develop and implement a globally consistent

procedure to reconcile bilateral trade statistics in the presence of re-exports via third countries

• Apply the procedure to 2004 trade statistics in GTAP sectors to produce Hong Kong re-exports-adjusted bilateral trade flows between China, Hong Kong and their major trading partners contributing to version 7 GTAP database

25

Basic Ideas of the ProcedureBasic Ideas of the Procedure

• Initial estimates of the same economic variables from different sources

• A set of well defined consistency conditions and other constraints

• Reliability information on the initial estimates

26

Problems of Proportional Adjustment in Problems of Proportional Adjustment in International Trade StatisticsInternational Trade Statistics

China & Hong Kong reported exports and partner China & Hong Kong reported exports and partner reported imports, 2004, Million Dollars reported imports, 2004, Million Dollars

Country

China reportedExports to Partners

Hong Kong domestic exports to partner

China re-exports to partner via Hong Kong

Partners imports from China and Hong Kong

Statistical discrepancy

Malta 273 5 20 92 -200.4

Russia 9,102 119 361 4,744 -110.4

Korea 27,810 2,111 2,832 32,853 -1.8

Japan 73,222 4,268 11,977 94,911 3.4

27

Problems of One-Size for All in CIF/FOB MarginProblems of One-Size for All in CIF/FOB Margin Bilateral Margins Depend on Product Composition of SectorBilateral Margins Depend on Product Composition of Sector

• Example: GTAP Sector 42 ‘other manufactures’• HS chapter 71-high value goods: diamonds, precious

stones• HS chapter 95-low value goods: toys games and

sporting goods• China exports very large proportion of toys: high

transport margin > 8 percent• India exports very large proportion of diamonds: low

transport margin <1 percent

28

Problems of One-Size for All in CIF/FOB Margin Problems of One-Size for All in CIF/FOB Margin Bilateral transport margins on selected U.S. import flows Bilateral transport margins on selected U.S. import flows

for other manufacturersfor other manufacturers  High unit value (HV) Lower unit value (LV) Traded content Aggregate

HS category 7101-7118 9501-9508 Ratio Other manufacturers

  cif/fob cif/fob LV / HV cif/fob

Canada 1.006 1.056 1.27 1.034

Mexico 1.003 1.063 1.67 1.051

Brazil 1.014 1.176 0.17 1.038

Germany 1.008 1.045 1.43 1.034

India 1.004 1.093 0.01 1.005

China 1.039 1.088 9.63 1.086

South Korea 1.027 1.037 1.37 1.049

Taiwan 1.052 1.073 17.37 1.093

Japan 1.005 1.02 5.58 1.039

Australia 1.002 1.029 0.63 1.022

World 1.006 1.079 0.89  

Source: U.S. Census, foreign trade statistics using transport costs (c.i.f. / customs value).Note: HS categories of high unit value goods consist of precious stones, metals, and jewelry categories in low unit value goods are primarily toys, sporting goods, and accessories.

29

Key AssumptionsKey Assumptions

• Hong Kong is the only entrepot between China and its partner countries

• All reporting countries, including China, can correctly identify the country of origin of their imports, whether the imports are directly from the partners or indirectly from Hong Kong

30

Consistency Constraints in the ModelConsistency Constraints in the Model

• Five for exports from China & Hong Kong

• Five for exports to China & Hong Kong

• Four for China-Hong Kong bilateral trade

• Two for China’s & Hong Kong’s exports to and imports from the world

31

The Adjustment ProblemsThe Adjustment ProblemsAdjust a given set of initial trade statistics according to the following objective function to satisfy the 16 consistence constraints:

tmi Ws Wr

srit

2srit

srit

tmi Ws Wr

srit

2srit

srit

tMi Ws Wr

srit

2srit

srit

tmi Ws Wr

srit

2srit

srit

tMi Ws Wr

srit

2srit

srit

wrxm)RXM -RXM (

wtm)TM -TM (

wtx)TX -TX (

wdm)DM -DM (

wdx)DX -DX (

21

=SMin

0

00

00

Theoretical PropertiesTheoretical Properties• Statistical interpretations underlying the model differ when

different reliability weights are used

• Estimation of Hong Kong’s re-export markups, rearrange sources and destinations of China’s and Hong Kong’s exports and imports, adjust bilateral trade balance for China and all its partners are made in a consistent simultaneous manner, thus impose global consistence to the adjusted trade data

• In all but the trivial case, posterior estimates derived from entropy or quadratic loss minimand will always be closer to the unknown, true values than the associated initial statistics

• The choice of weights in the objective function has a large impact on the estimation results

Why Adjusted Estimates Better?Why Adjusted Estimates Better?

• D0: Initial estimates

• W variance matrix of initial estimates ,

• A coefficient matrix of all linear constraints AD* = 0

• The BLUE :

• D* will never be worse than D0 with equal or smaller variance

])([ 1* AAWAWAID TT

AWAWAWAWWAAWAWAI 11 )(])([*)( TTTTDVar

Empirical AdvantagesEmpirical Advantages• Convenience and details

– Hong Kong's re-export markup rate, each country's re-exports via Hong Kong as percent of the country's total exports, and adjusted bilateral BOT between China, Hong Kong and their partners all are part of the model solution

• Completeness– Complete use of all information from official trade statistics

• Flexibility– The model permits a wider variety and volume of information to be

brought into the adjustment process than is possible with scaling methods such as RAS

• Incorporation of data reliabilities in a systemic way – The weights in the objective function reflect the relative reliability of a

given trade flow. Trade statistics with higher reliability should undergo less adjustment than trade statistics with lower reliability

35

Six Key Steps to Implement Six Key Steps to Implement the Procedurethe Procedure

1 Obtain initial estimates from observed data

2 Decide country and commodity aggregation

3 Calculate initial Hong Kong re-export markups

4 Estimate fob/cif margins

5 Chose and estimate reliability weights

6 Determine global consistent world exports and imports by China and Hong Kong

Observed and Derived Trade StatisticsObserved and Derived Trade Statistics East bound tradeEast bound trade

Observed• China’s direct exports to partner countries• Hong Kong’s total exports to partner countries• Partner’s total imports from China• Partner’s imports of product originated from Hong Kong

Derived • China’s total exports to partner countries • Hong Kong’s domestic exports to partner countries• Partner countries’ direct imports from China• Partner countries’ total imports from Hong Kong

Observed and Derived Trade StatisticsObserved and Derived Trade Statistics West bound tradeWest bound trade

Observed• Partner countries total exports to Hong Kong• Partner countries direct exports to China• China’s total imports from partner countries• Hong Kong’s total imports from partner countries

Derived • Hong Kong’s imports from partner countries for domestic use • China’s direct imports from partner countries • Partner countries’ total exports to China• Partner countries’ exports for Hong Kong’s domestic market

Data SourceData Source• All data are from 1995-2004• China: Customs General Administration, 8-digit

Harmonized System (HS)• Hong Kong: Census and Statistical Department, 8-

digit HS• United States: Census Bureau, 10-digit HS;• Other Partner Countries: World Integrated Trade

Solution (WITS) managed by the World Bank, 6- digit HS, more than 150 reporting countries.

Country and Commodity AggregationCountry and Commodity Aggregation• 42 GTAP merchandise sectors aggregated from original data at 6

and 8 digit HS level• 215 countries identified in the GTAP global bilateral trade data base,

while only 157 countries reported at least one year of their exports to or import from China and Hong Kong during 2002 to 2004

• First aggregate all the non-reporting country into one block • Then use two cut off criteria to separate the 157 reporting country

into two blocks. The first block has 96 countries, including all single countries in version 6 GTAP database and the sum of exports from China and Hong Kong to the world greater than 300 million dollars in 2004 identified either by China and Hong Kong reported data or their partner reported data.

• The second block is consisted of 61 remaining reporting countries, which aggregated to one other reporting country block.

• Include China and Hong Kong, the model has 98 countries.

Characters of the Initial DataCharacters of the Initial Data• Reported westbound trade is less problematic than

reported eastbound trade. (24 of the 96 reported bilateral routines with more than 90% discrepancies in eastbound trade, only three routines in the westbound trade see such large discrepancies)

• Trade with developing country partners shows greater discrepancies than developed countries in general

• Small trade flows often associate with large discrepancies than large flows. Extremely large discrepancies come from partners only have small trade values

41

Reliability of Reported Trade StatisticsReliability of Reported Trade Statistics

• Mirror trade statistics are the major data source to estimate the reliability weights

• Econometric analysis of discrepancies between the two "reported" trade data of the same trade flows provide estimates of data reliability

42

Auto regression with dummy variablesAuto regression with dummy variables

aVeV

iit )1(

)()( 2

Dbbeae itk

n

k

kiiitiit

1

01

e: mirror trade statistics discrepancies b: symmetric bias D: dummy variables. Represent events have a significant impact on the reporting practice in the two reporting countries

the variance:

43

Route Specific Reliability IndexesRoute Specific Reliability Indexes

• The initial trade flow estimates of the model can be used to construct such indexes:

• It has a value between 0 and 2. A smaller value indicates the initial estimates are relatively reliable for the associated trade routine.

)(

||2

)(5.0

||sritEsr

itM

sritEsr

itMsritEsr

itM

sritEsr

itM RELsr

it

44

Reporter Specific Reliability IndexesReporter Specific Reliability Indexes

• All bilateral trade data in the world need to be used to construct the reporter specific reliability indexes

• It has a value between 0 and 1. A large value indicates the initial estimates reported by the country are relatively reliable for its reported exports or imports than other reporters

• The weights in the objective function of the model can be assigned by multiplying one minus the indexes by their corresponding initial values

45

Global Consistent Total Exports to and Imports Global Consistent Total Exports to and Imports from the World by China and Hong Kongfrom the World by China and Hong Kong

• A quadratic programming model to reconcile IMF country aggregate merchandise trade and country reported exports & imports at GTAP sector level from UN COMTRADE

• Data on global total exports and imports of primary commodities from FAO, USDA were incorporated

• The degree of adjustment depends on reporter’s reliability

China and Hong Kong’s total export to and import from the world at each GTAP sector from this model were taken into the bilateral model as control totals

46

Reporter Reliability and Percentage of AdjustmentReporter Reliability and Percentage of Adjustment IMF country total exports, 2004IMF country total exports, 2004

47

Reporter Reliability and Percentage of AdjustmentReporter Reliability and Percentage of Adjustment IMF country total imports, 2004IMF country total imports, 2004

48

Reporter Reliability and Percentage of AdjustmentReporter Reliability and Percentage of Adjustment

World exports by GTAP sectors, 2004World exports by GTAP sectors, 2004

49

Reporter Reliability and Percentage of AdjustmentReporter Reliability and Percentage of Adjustment

World imports by GTAP sectors, 2004World imports by GTAP sectors, 2004

0

10

20

30

40

50

60

70

80

RI M-total % impadj Linear (% impadj)

50

Reporter Reliability and Percentage of AdjustmentReporter Reliability and Percentage of Adjustment IMF country total imports, 2004IMF country total imports, 2004

00.20.40.60.8

11.21.41.61.8

2

RIM %impadj Linear (%impadj)

51

Reporter Reliability and Percentage of AdjustmentReporter Reliability and Percentage of Adjustment

World imports by GTAP sectors, 2004World imports by GTAP sectors, 2004

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

RIM %impadj Linear (%impadj)

52

Reported and Adjusted Bilateral TradeReported and Adjusted Bilateral TradeBalance between China and Selected PartnersBalance between China and Selected Partners

Millions of U.S. DollarsMillions of U.S. Dollars

-10,000 10,000 30,000 50,000 70,000 90,000 110,000 130,000 150,000 170,000

South Africa

Canada

Rest of Europe

Rest of Africa

Mexico

EU 10

Rest of Asia

EU 15

United States

China reported Initial Adjusted Partner reported

53

Reported and Adjusted Bilateral TradeReported and Adjusted Bilateral TradeBalance between China and Selected PartnersBalance between China and Selected Partners

Millions of U.S. DollarsMillions of U.S. Dollars

-55,000 -45,000 -35,000 -25,000 -15,000 -5,000 5,000 15,000 25,000

Taiwan China

Korea Rep

Japan

ASEAN

Brazil

Other reporting countries

Australia & New Zealand

Russia

Rest of Latin America

European FT

China reported Initial Adjusted Partner reported

54

Reported and Adjusted China-U.S. Bilateral TradeReported and Adjusted China-U.S. Bilateral TradeBalance by Major CommoditiesBalance by Major Commodities

Millions of U.S. Dollars Millions of U.S. Dollars

0 10,000 20,000 30,000 40,000 50,000 60,000

Petroleum coal products

Chemical rubber plastic products

Processed Food

Mineral products nec

Motor vehicles and parts

Textiles

Metal products

Wood and paper products

Wearing apparel

Machinery and equipment nec

Leather products

Manufactures nec

Electronic equipment

China reported Initial estimates Adjusted estimates U.S. reported

55

Reported and Adjusted China-U.S. Bilateral TradeReported and Adjusted China-U.S. Bilateral TradeBalance by Major CommoditiesBalance by Major Commodities

Millions of U.S. Dollars Millions of U.S. Dollars

-3,500 -3,000 -2,500 -2,000 -1,500 -1,000 -500 0

Oil seeds

Plant-based fibers

Transport equipment nec

Food grain

livestock

Meat and dairy

Coal and Minerals nec

Forestry and Fishing

metals

Crops nec

Oil and gas

China reported Initial estimates Adjusted estimates U.S. reported

56

ConclusionsConclusions

• Result shows that the procedure works

• It is a flexible tool to reconcile trade statistics from China, Hong Kong and their trading partners simultaneously

• It makes full use of all available official trade statistics in a globally consistent way

• It adjusts the data by reliabilities

57

ImplicationsImplications• Use the global exports and imports reconciliation model in

the last step, a globally consistent trade data set could be easily produced

• The bilateral model only needs to apply to regions where entrepot creates major discrepancies

• It provides a tool for the preparation of global trade data in future versions of GTAP database

• It contributes to the methodology for reconciling discrepancies in international trade statistics when re-export activities heavily diminish a country’s ability to correctly identify its trading partners

58

Thanks for your attention!Thanks for your attention!

• Other comments/questions?

• My E-mail Address:

Zhi.Wang@USITC.GOV

59

Reported and Adjusted China’s Net Exports Reported and Adjusted China’s Net Exports to All Partners to All Partners

by Major Commodities, Millions of U.S. Dollarsby Major Commodities, Millions of U.S. Dollars

-2,000 18,000 38,000 58,000 78,000 98,000

Crops nec

Vegetables fruit nuts

Transport equipment nec

Processed Food

Mineral products nec

Wood and paper products

Metal products

Leather products

Manufactures nec

Textiles

Wearing apparel

Electronic equipment

China reported Initial estimates Adjusted estimates Partner reported

60

Reported and Adjusted China’s Net Exports Reported and Adjusted China’s Net Exports to All Partners to All Partners

by Major Commodities, Millions of U.S. Dollarsby Major Commodities, Millions of U.S. Dollars

-33,000 -28,000 -23,000 -18,000 -13,000 -8,000 -3,000 2,000 7,000 12,000

Chemical rubber plastic products

Machinery and equipment nec

Oil and gas

metals

Coal and Minerals nec

Oil seeds

Motor vehicles and parts

Petroleum coal products

Plant-based fibers

livestock

Forestry and Fishing

Food grain

Beverages and tobacco products

China reported Initial estimates Adjusted estimates Partner reported

61

Unprecedented Trade Growth with Unprecedented Trade Growth with China as Primary DriverChina as Primary Driver

Global Trade

$billions

China exports $billions

Source: China Customs, IFS for Global Merchandise

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007est

0

200

400

600

800

1,000

1,200

1,400

World

ChinaVersion 5

Version 6

Version7

Version 8?

62

As China’s exports grow discrepancies As China’s exports grow discrepancies for traditional partners fallingfor traditional partners falling

China exports to partner imports (ratio)

China exports $billions

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

0

100

200

300

400

500

600

700

800

United States

EU15

Korea

Japan

Value ofimports fromChina

63

But discrepancies rising for others But discrepancies rising for others (NAFTA partners)(NAFTA partners)

Source: China Customs, Mexico Secretary of Economy, Statistics Canada

$billions

0

10

20

30

40

50

60

2001 2002 2003 2004 2005 2006

China's exports to Mexico andCanada

Mexico and Canada's Imports fromChina

Over twice what China reported as exports

64

Future problems with new Future problems with new destinations for China’s exportsdestinations for China’s exports

0

5

10

15

20

25

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Kyrgyzstan

Ukraine

Hungary

Kazakhstan

Romania

China exports $billions

Source: China Customs

Major Issues (1)• Bilateral trade statistics reported by importing and exporting

countries are unlikely to be the same, and in fact they are defer greatly from each other for many reasons, especially in the presence of re-exports via third countries

• Economists and statistical agencies around the world made tremendous efforts to reconcile bilateral trade statistics, but most these efforts never took the global consistency that inherent in the world trade data into account. For example, estimation of cif-fob margins and Hong Kong re-export markups, adjustment of China’s trade flow with a country usually did separately. It does not depend on each other, nor do they depend on the data adjustment with other countries.

Major Issues (2)

• There is no well developed consistent relationships between trade statistics reported by trading partners when re-export via third countries become increasingly important in world trade

• There are significant discrepancies between trade statistics reported between partner countries, especially at commodity level, but adjustment in the literature to date is only made at the aggregate level

• Re-export markup and cif-fob margin estimates are either ad hoc or one size-for-all, as a result, substantial inconsistencies still exist after adjustment even at the aggregate level