The Role of Hong Kong in U.S.-China Trade
The entrepot trade of Hong Kong has caused the bilateral US-China trade deficit estimated by the U.S. Dept of Commerce to be very different from that estimated by China’s Customs authorities. In Table 1, we contrast the values of eastbound and westbound trade between the U.S. and China, as reported by these two countries. Part A gives eastbound trade (i.e. China’s exports and U.S. imports), and Part В gives westbound trade (U.S. exports and China’s imports), while Part С computes the difference between westbound and eastbound trade to arrive at the U.S.-China trade balance. The information in the first column is obtained from the U.S. Department of Commerce, while that in the second to fourth columns is obtained from the Customs General Administration, People’s Republic of China. We supplement this with information on Hong Kong re-exports in the last column, as reported by the Hong Kong Census and Statistics Office.
From Part С of Table 1, we can see that U.S.-China trade balance differs not only in the magnitude reported by the two countries, but even in its sign! The United States reports a trade deficit with China, which has increased about tenfold over the years 1988-1996, from about $3.5 billion to $39.5 billion. In contrast, China reports that the United States was running a trade surplus in the years 1988-1992, which turned into a deficit beginning in 1993. In 1996, the U.S. reported deficit with China of $39.5 billion compares to the Chinese reported value of the U.S. deficit of $10.5 billion, so that these two figures differ by $29 billion or a factor of three times. Clearly, the difference between these values is large enough that it risks misunderstanding between the countries on what the “true” value of the deficit might be. loans
The most important source of the different values for the trade deficit is the entrepot trade of Hong Kong. The U.S. Department of Commerce calculates total Chinese exports to the US as the sum of (a) Chinese goods shipped directly to U.S., and (b) Hong Kong re-exports of goods from Chinese origin (i.e. Chinese goods shipped indirectly to U.S.).5 In other words, the value of all goods that originate in China are counted as Chinese exports to the United States. In contrast, the Chinese customs authorities calculate exports to the United States as consisting of component (a), and only those goods in component (b) whose final destination (the U.S.) is known at the time the product leaves China. It is often the case, however, that the Chinese exporter does not know the final destination of the good, so that many of the goods bound for the United States are not counted as such in the Chinese trade statistics; rather, these goods are treated as exports to Hong Kong.