Of all the economic issues between the United States and China, none has the potential for greater confusion than the bilateral trade deficit. The official trade statistics of the United States and China have huge discrepancies. Much of the difference is due to, among others, the different treatment of Hong Kong’s entrepot trade by the two sides. In the 1988-95 period, on the average, over two-third of U.S. imports from China came through Hong Kong.
The resolution of the discrepancy between the U.S. and Chinese data rests large on two issues: first, the accounting of the Chinese goods shipped to the U.S. via Hong Kong; and second, the measurement of the value added by Hong Kong traders to these goods. The U.S. Commerce Department records the re-exports from Hong Kong as U.S. imports from China. Up until 1993, the Customs General Administrations of China recorded them as Chinese exports to Hong Kong, rather than to the U.S. Since 1993, China has gradually modified this approach to identify the final destination of its exports to Hong Kong, though its accounting of these goods remains incomplete. loans
The magnitudes of the Hong Kong re-export markups have been estimated in a number of studies, including Fung (1996), Fung and Lau (1996), Lardy (1994), Sung (1991), and West (1995). The markups cited in these studies come primarily from surveys conducted by Hong Kong agencies, and individual interviews. Since 1988, the Hong Kong Trade and Development Council has conducted several surveys on the magnitude of Hong Kong re-export markups among the local business community. These surveys have found the average markups around 14% for 1988 and 17% for 1991. A survey by Hong Kong Census and Statistics Department shows that the average markup for 1990 is 13.4%. In a report by the same agency to the GATT Informal Group of Experts on Export Statistics, the average markup is found to be 13% for 1988 and 25% for 1993. In Fung’s interview for 1994 (reported in Fung, 1996; Fung and Lau, 1996), the markup for Chinese goods is reported at 25%. Besides showing that the average markup has increased over time, the surveys also indicate that the markup for the Chinese goods is well above the average markup for re-exports through third countries.