Markup on Hong Kong Re-exports from the U.S. to China
We turn next to the issue of U.S. exports to China that pass through Hong Kong. While there are rather substantial markups on the re-exports from China to the U.S. (eastbound trade), existing studies have found smaller markups on the re-exports from the U.S. to China (westbound trade). For example, the Hong Kong Census and Statistics Department finds from their survey that the markups on trade from the United States to China decline from 11.3% in 1990 to 5.7% in 1994. However, these figures actually refer to the Hong Kong re-export margin on all trade with country of origin other than China.11 For example, these margins include goods shipped from Japan to the U.S. via Hong Kong, as well as from Japan or the United States to China, etc. Thus, these figures are not an accurate estimate of the Hong Kong markup on reexports from just the United States to China.
The interagency report prepared by the U.S. Department of Commerce and the Chinese General Customs Administration does not present markups on Hong Kong re-exports from the U.S. to China in 1992 and 1993, but focuses instead on the differences in trade values reported by these countries due to shipments of aircraft, and other factors. The reason why the interagency report omits the markups on westbound trade is because when they are computed according to the same method used for eastbound trade, negative markups are obtained. This is shown for various years in the first column of Table 4. finance
We see that from 1984-87 the markups are positive, but after that the markups become negative beginning in 1988. The more puzzling finding is that the post-1987 markups sometimes indicate a reduction in the re-export value, such as more than 100%, that is much too large to be believable.12 While mark-downs in the value of particular goods must occur in some instances, it is doubtful that they occur across most goods frequently, and by over 100 percent three times in the 1984-95 period. Our assessment is that the very large mark-downs reflect measurement errors in the data. In particular, since the unit-value for each traded item is constructed by dividing the value by the quantity, then any inaccuracy in the quantity (such as change in units when re-shipped) will result in measurement error in the unit-values.