A recent report by the Joint Commission on Commerce and Trade (1996), a US-China intergovernmental agency, used disaggregate data on Hong Kong’s import and re-export trade to estimate the markup for 1992 and 1993. This study (hereafter referred to as the “interagency report”) finds that the average markup on Hong Kong re-exports of Chinese goods to the U.S. is 29 percent of the re-export value. It attempts to reconcile the differing trade statistics of the two countries using the markups and additional information on specific commodities.
The interagency report is a major advance in the estimation of the Hong Kong re-export markups, but it is vulnerable to two potential flaws. First, the import data used in the study only identifies the countries of origin and not the destination countries. This ignores that fact that there are three types of Hong Kong imports from China: imports that are retained in Hong Kong; re-exports to the U.S.; and re-exports to other countries. Therefore, the overall import unit-value may not reflect the actual unit-value for goods re-exported to the U.S. The distortion on the unit-value is more likely to be highest for goods where only a small portion is re-exported to the U.S. Secondly, in the two datasets (Hong Kong imports and re-exports), there are some records that appear to suffer from measurement error, either because different units where used for imports and re-exports, or because these transactions occurred in different calendar years. The estimates obtained for the markups are quite sensitive to these measurement errors.
In this part of the paper, we try to improve the markup estimation in these two respects, using both Hong Kong and Chinese trade statistics for the period 1988-1995. The Chinese trade data, provided by the Customs General Administration of China, contain information on destination countries for its exports via Hong Kong. The import unit-value calculated from this data should be more accurate than that obtained from the Hong Kong data alone. In addition, we construct a method to detect and eliminate records in the Hong Kong data that potentially suffer from measurement error, and we reconcile the results we obtain with other estimates of the markup. Finally, we use our estimates of the markups to correct the bilateral U.S.-China trade figures. For example, the bilateral deficit in 1995 is $33.8 billion according to official U.S. figures, but only $8.6 billion according to official Chinese figures. Using our markup estimates for the re-export activities in Hong Kong, we find that the actual trade deficit in 1995 is in the range of $15.6 to $21.6 billion. payday loans online