Since 1993, the Chinese customs authorities have attempted to determine the final destination for goods exported to Hong Kong with greater accuracy, so as to improve its reported trade statistics. It is still the case, however, that many of the goods bound for the United States via Hong Kong are not recorded as such. This can be seen by breaking up the Chinese exports to the U.S. into those goods that are directly exported (in the third column of Table 1, Part A), and those goods that are exported via Hong Kong (in the fourth column). The latter can be compared to the value reported by the Hong Kong census authorities, in the last column, on the value of reexports from China to the U.S. Thus, in 1988, China reported $705 million in exports to Hong Kong bound for the U.S., while Hong Kong reported $5.6 billion in re-exports to the U.S. that originated in China. These differ by a factor of eight times. In 1995, China reported $ 14.3 billion in exports to Hong Kong bound for the U.S., while Hong Kong reported $27.5 billion in re-exports to the U.S. that originated in China. These now differ by only a factor of two, though the difference in dollar values is still very large.
In comparison, for westbound trade in part В of Table 1, China used to report twice as many imports from the U.S. via Hong Kong as that country reported as re-exports ($2,538 versus $1,237 million in 1988).6 This discrepancy may be due to differing conventions in China and Hong Kong as to what constitutes a re-export: this term normally implies that there has been no “significant transformation” of a good, such as through a production process. If Hong Kong determined that there had been a transformation of a good imported from the U.S., and then sent to China, it would be counted as an actual export from Hong Kong, rather than a re-export. In this same instance, China could classify it as an import from the U.S. via Hong Kong, resulting in a higher import value, as shown in part В of Table 1. In any case, by 1995 the difference between the Chinese imports of U.S. goods via Hong Kong, and the Hong Kong re-exports, has been essentially eliminated. credit
There are several reasons why the value of Chinese goods sent to Hong Kong, and destined for the U.S., differs from the reported value of Hong Kong re-exports from China to the U.S. The first, which has already been mentioned, is that an exporter in China may not know the ultimate destination of a good when it is sent to Hong Kong. But even if this discrepancy did not occur, there is still a second reason. The value of Chinese exports to Hong Kong, which are destined for the U.S., represent the value of these goods when they leave China. In contrast, the Hong Kong re-exports from China to the United States represent the value of these goods when they leave Hong Kong. In other words, these two values differ by the markup or value-added in Hong Kong. Since it can be expected that traders in Hong Kong are providing various services to these goods, such as arranging for transportation and insurance, as well as identifying customers, the value-added in Hong Kong may be substantial In 1995, for example, we saw in Table 1 that the Hong Kong re-exports from China to the U.S. were twice as large ($27.5 billion) as the Chinese exports to Hong Kong destined for the U.S. ($14.3 billion): some of this difference represents exports that are simply not recorded as such in China, but an equally large portion could represent the markup to the value of the goods in Hong Kong.