In recent years, the gap between China’s merchandise trade surplus figures based on customs data and balance of payments data has been widening, from $28.1 billion in 2019 to $228.2 billion in 2023, attracting considerable international attention. [para. 1].
Western media have speculated that the Chinese government may be under-reporting its trade and current account surpluses, indicating a larger trade imbalance and overcapacity problem than officially claimed. [para. 5]However, various explanations for this discrepancy have been proposed. [para. 6].
**Statistical discrepancies**: The main explanation stems from differences in statistical methodology. BOP data calculate foreign trade based on transfer of ownership of goods, while customs data is based on the physical movement of goods across borders. BOP data also contribute to GDP calculations that account for global production arrangements, such as contract manufacturing by multinational companies, where ownership changes occur without cross-border movement. Similarly, processing, warehousing services, and offshore trade affect BOP figures without appearing in customs statistics. [para. 7][para. 10].
Additionally, pricing principles are different: BOP uses FOB (free on board) pricing, while customs use CIF (cost, insurance and freight) for imports and FOB for exports. These differences lead to variations in the trade surpluses recorded. [para. 12].
These factors explain the persistent divergence between the data sets, but do not fully explain the recent widening of the gap. It has been suggested that either contract manufacturing or processing trade has increased significantly, or that gains from foreign trade have plummeted, but evidence for these circumstances is lacking. [para. 16].
Exchange rate factors: Another explanation is exchange rate pressures. With US interest rates rising and the renminbi under downward pressure, Chinese exporters may be keeping more of their revenues overseas. This has become more pronounced since 2015, when the central bank reformed the exchange rate and balance of payments surpluses are often lower than tariff surpluses. [para. 20][para. 22].
**Errors and omissions**: Heightened domestic and international uncertainties have led to substantial net capital outflows being recorded as “net errors and omissions.” While there is no empirical evidence for this explanation, it has sparked debate as to whether authorities are spreading discrepancies across different accounts to downplay concerns. [para. 29].
**Payment Delays and Fraud**: Finally, some analysts have suggested that delays in payments for exports to sanctioned countries and misreporting of export tax refund fraud may be contributing to the discrepancy, although these factors are less plausible than the first two explanations. [para. 31][para. 34].
A breakdown of the trade surplus variance shows that the main driver of the widening surplus gap in recent years is the variance in export data, accounting for 88% of the surplus gap in 2023. While the export gap has widened significantly, the import gap has narrowed, showing contrasting trends in the two data sets for imports and exports. [para. 36][para. 39].
The official explanation for multinational contract manufacturing does not fully explain these trends, as it typically widens the import gap. Similarly, processing and offshoring typically cause corresponding changes in both the export and import gaps, making the second, fourth and fifth explanations for these trends more plausible. [para. 43].
**Overpayments for imports**: The narrowing gap in the import statistics could be due to overpayments for imports, suggesting domestic funds are moving abroad. [para. 48].
In summary, the discrepancy between China’s BOP and tariff data on its trade surplus likely reflects large capital outflows driven by uncertainties such as the prospect of a depreciating renminbi. These factors distort the trade surplus data and suggest underlying economic motivations and strategies. [para. 50].
AI generated, for reference only
