Value-Added Approach
According to the domestic input–output tables and the import-input tables of China and the world in 2002 and 2007, China’s total trade volume and trade surplus are analyzed comparatively with the cus- toms method and the value-added method globally. The domestic input–output tables of China and the world are used for calculating ACC, AW W, EC, andEW; the import-input tables of China and the world are used for calculating AW C and ACW.
The direct consumption coefficient matrix of China’s domestic production and imports in 2007 is from China’s Non-competitive input–output table in 2007 compiled by the Department of National Economic Accounting of the National Bureau of Statistics (Xikang et al., 2011). Since China began to compile the non-competitive input–output table, including the processing information in 2007, no official non-competitive table was developed in 2002. The present study assumes that the import consumption proportion of the domes- tic product remains unchanged in 2000 and 2002 and approximately
Overestimated Trade Surplus 23
replaces the table in 2002, with the direct consumption coefficient of China’s imports in 2000 released by the OECD.
The direct consumption matrix of the global production and import is summarized according to the input–output database of the OECD and the EU. The samples include 35 major countries except China, that is, 27 EU countries, Brazil, Canada, Indonesia, Japan, South Korea, Norway, South Africa, and the U.S. As only the input–output tables of the developing countries in 2005, except 27 EU countries and the U.S., are available, this study uses the direct consumption coefficients of these countries in 2005, assumes that the production technology is fixed, and obtains the input–output tables and the import-input tables of these countries in 2007 according to their total input, value appreciation, total output, imports, and exports of different sectors in 2007 in the STAN Structural Analysis Database with the RAS method. These tables are then combined after the adjustment with the exchange rate in the current period to obtain the approximate global input–output table in 2007 and the corresponding import-input table.
As the classifications of 48 departments in the OECD, 65 depart- ments in the EU, and 42 departments in China are different, this study connects these three groups of data one by one using the international standard industry classification code (ISIC rev. 3.1). To avoid the separation processing, this study finally reviews 40 depart- ments including 20 manufacturing industries. The specific depart- ment classification is shown in Table 1.7.
The processed data are included in Formulas (7)–(10); the specific results are listed in Tables 1.8 and 1.9.
Table 1.8 analyzes the changes in the domestic value-added ratio and the overseas value-added ratio of different trade departments in China in import and export trades in 2002 and 2007. The proportion of China’s overseas value-added ratio in its exports continued to rise with the deepening of the internationalization of production. The average value increased from 11% in 2002 to 15% in 2007, which is an increase of 4% in five years. Accordingly, the average proportion of China’s domestic value-added ratio return of import also increased from 12% in 2002 to 16% in 2007. The global economic integration
24 From Trade Surplus to the Dispute over the Exchange Rate
Table 1.7: Department classification.
ISIC ISIC
Rev.3.1 Dept. Dept. description Rev.3.1 Dept. Dept. description 1–5 1 Agriculture, forestry,
animal husbandry, and fishing
36–37 21 Other
manufacturing industries 10–14 2 Mining and washing 40–41 22 Handicrafts and
other
manufacturing industries 15–16 3 Food production and
tobacco processing
45 23 Construction 17–18 4 Textile industry 50 24 Sales and repair of
motor vehicles and motorcycle 19 5 Textile, clothing,
shoes, hats, leather, and eiderdown and its products
51 25 Wholesale
20 6 Wood processing and furniture
manufacturing
52 26 Retailing
21–22 7 Paper making, printing, stationery, and sporting goods manufacturing
55 27 Accommodation and catering
23 8 Oil processing, coking, and nuclear fuel processing
60 28 Road transportation
24 9 Chemical industry 61 29 Water
transportation 25 10 Rubber and plastics
manufacturing
62 30 Air transportation 26 11 Non-metallic mineral
products
63 31 Other
comprehensive technical service 27 12 Metal smelting and
rolling processing
64 32 Postal service, information transmission, computer service, and software
28 13 Metalwork 65–67 33 Financial Industry
(Continued)
Overestimated Trade Surplus 25
Table 1.7: (Continued)
ISIC ISIC
Rev.3.1 Dept. Dept. description Rev.3.1 Dept. Dept. description 29 14 General and special
equipment manufacturing
70 34 Real estate industry
30 15 Office equipment and computer
manufacturing
71–74 35 Leasing and business services 31 16 Electrical machinery
and equipment manufacturing
75 36 Resident services and other services 32 17 Electronic equipment
manufacturing
80 37 Education 33 18 Instrument and meter
manufacturing
85 38 Health, social security, and social welfare 34 19 Motor vehicle and its
equipment manufacturing
90–93 39 Culture, sports, and entertainment 35 20 Other transport tools 95–99 40 Public service and
social organization
has caused international trades to be interrelated and their depen- dence to deepen.
Specifically, the departments with a higher percentage of over- seas value-added in China’s exports concentrated on the manufac- turing industries, such as office and computers, electronic equipment, instrument and meter, motor vehicle and its equipment, general and special equipment, and electrical machinery. Among the exports of China’s products, the average proportion of the overseas value-added was 26.3%. In other words, over one-fourth of the value-added from export was not produced in China. In 2002 and 2007, the proportion of the overseas value-added increased rapidly on average. For exam- ple, the overseas value-added of motor vehicle and its equipment, handicrafts and others, electronic machinery and equipment, and rubber and plastics increased by more than 1% on average, indicating
FromTradeSurplustotheDisputeovertheExchangeRate9inx6inb2268-ch01page26
TradeSurplustotheDisputeovertheExchangeRate
Domestic Overseas Domestic Overseas
value-added value-added value-added value-added ratio of export ratio of export ratio of import ratio of import
( ˆVCBCC) ( ˆVWBW C) ( ˆVCBCW) ( ˆVWBW W)
2002 2007 2002 2007 2002 2007 2002 2007
Agriculture, forestry, animal husbandry, and fishing 0.94 0.93 0.06 0.07 0.09 0.13 0.91 0.87
Mining and washing 0.93 0.88 0.07 0.12 0.07 0.10 0.93 0.90
Food production and tobacco processing 0.91 0.90 0.09 0.10 0.12 0.17 0.88 0.82
Textile industry 0.85 0.82 0.15 0.18 0.18 0.24 0.82 0.76
Textile, clothing, shoes, hats, leather, and eiderdown and its products
0.85 0.82 0.15 0.18 0.15 0.20 0.85 0.80
Wood processing and furniture manufacturing 0.89 0.84 0.11 0.16 0.15 0.20 0.85 0.80 Paper making, printing, stationery, and sporting
goods manufacturing
0.89 0.83 0.11 0.17 0.19 0.16 0.81 0.84
Oil processing, coking and nuclear fuel processing 0.92 0.86 0.08 0.14 0.45 0.45 0.55 0.55
Chemical industry 0.87 0.82 0.13 0.18 0.15 0.23 0.85 0.77
Rubber and plastics manufacturing 0.86 0.80 0.14 0.20 0.13 0.21 0.87 0.79
Non-metallic mineral products 0.90 0.85 0.10 0.15 0.12 0.20 0.88 0.80
Metal smelting and rolling processing 0.87 0.82 0.13 0.18 0.14 0.26 0.86 0.74
Metalwork 0.86 0.81 0.14 0.19 0.10 0.19 0.90 0.81
General and special equipment manufacturing 0.84 0.79 0.16 0.21 0.10 0.24 0.90 0.76 Office equipment and computer manufacturing 0.64 0.63 0.36 0.37 0.17 0.21 0.83 0.79 Electrical machinery and equipment manufacturing 0.84 0.78 0.16 0.22 0.16 0.22 0.84 0.78
FromTradeSurplustotheDisputeovertheExchangeRate9inx6inb2268-ch01page27
OverestimatedTradeSurplus27
Electronic equipment manufacturing 0.74 0.70 0.26 0.30 0.18 0.23 0.82 0.77 Instrument and meter manufacturing 0.74 0.73 0.26 0.27 0.14 0.16 0.86 0.84 Motor vehicle and its equipment manufacturing 0.86 0.79 0.14 0.21 0.18 0.28 0.82 0.72
Other transport tools 0.83 0.78 0.17 0.22 0.14 0.23 0.86 0.76
Other manufacturing industries 0.90 0.86 0.10 0.14 0.14 0.18 0.86 0.82
Handicrafts and other manufacturing industries 0.93 0.86 0.07 0.14 0.11 0.16 0.89 0.84
Construction 0.87 0.84 0.13 0.16 0.10 0.15 0.90 0.84
Sales and repair of motor vehicles and motorcycle 0.93 0.93 0.07 0.07 0.05 0.09 0.95 0.91
Wholesale 0.93 0.93 0.07 0.07 0.05 0.07 0.95 0.93
Retailing 0.93 0.93 0.07 0.07 0.04 0.07 0.96 0.93
Accommodation and catering 0.93 0.91 0.07 0.09 0.07 0.10 0.93 0.90
Road transportation 0.94 0.91 0.06 0.09 0.08 0.12 0.92 0.88
Water transportation 0.92 0.89 0.08 0.11 0.26 0.28 0.74 0.72
Air transportation 0.90 0.85 0.10 0.15 0.17 0.22 0.83 0.78
Other comprehensive technical service 0.92 0.89 0.08 0.11 0.06 0.10 0.94 0.90 Postal service, information transmission,
computer service, and software
0.91 0.91 0.09 0.09 0.05 0.08 0.95 0.92
Financial industry 0.95 0.95 0.05 0.05 0.03 0.06 0.97 0.94
(Continued)
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TradeSurplustotheDisputeovertheExchangeRate
Table 1.8: (Continued)
Domestic Overseas Domestic Overseas
value-added value-added value-added value-added ratio of export ratio of export ratio of import ratio of import
( ˆVCBCC) ( ˆVWBW C) ( ˆVCBCW) ( ˆVWBW W)
2002 2007 2002 2007 2002 2007 2002 2007
Real estate industry 0.97 0.97 0.03 0.03 0.01 0.03 0.99 0.97
Leasing and business services 0.84 0.83 0.16 0.17 0.04 0.06 0.96 0.94
Resident services and other services 0.94 0.91 0.06 0.09 0.05 0.08 0.95 0.92
Education 0.94 0.91 0.06 0.09 0.03 0.04 0.97 0.96
Health, social security, and social welfare 0.89 0.83 0.11 0.17 0.05 0.07 0.95 0.93 Culture, sports, and entertainment 0.93 0.89 0.07 0.11 0.06 0.08 0.94 0.91 Public service and social organization 0.94 0.89 0.06 0.11 0.05 0.07 0.95 0.93
Average 0.89 0.85 0.11 0.15 0.12 0.16 0.88 0.84
Source: China’s non-competitive input–output tables in 2002 and 2007, OECD STAN Analysis, EUstat.
Overestimated Trade Surplus 29
that the internationalization of these departments has significantly improved in recent years.
Table 1.9 shows the absolute values of the total trade volume and trade surplus of various departments in China estimated according to the customs statistical method and the value-added statistical method. The following observations are obtained after the compari- son. First, China’s total trade volume was 5.7886 trillion yuan in 2006 according to the customs statistical method, whereas the figure was 4.9698 trillion yuan according to the value-added statistical method.
With the first method, the part of the repeated calculation amounted to 818.8 billion yuan. That is, China’s total trade volume was over- evaluated by 16.5%.6 In 2007, the total trade volume differed by 3.4787 trillion yuan between the customs statistical method and the value-added statistical method. The gap between them progressively increases. China’s total trade volume was overestimated by 25.8% by the customs statistical method, and the distortion degree increased by 9.3% over five years ago.
Second, in 2002, China’s trade surplus was 399.9 billion yuan according to the customs statistical method, but it was 318.6 billion yuan according to the value-added statistical method. Thus, a differ- ence of 81.3 billion yuan exists between the two values. With the first method, China’s trade surplus was overestimated by 25.5%. In 2007, China’s trade surplus was 2.1520 trillion yuan according to the cus- toms statistics and 1.6152 trillion yuan according to the value-added statistical method, which points to a difference of 536.8 billion yuan between the values. With the customs statistical method, China’s trade surplus was overestimated by 33.2%,7 which is an increase of 7.7% within five years.
The distortions caused by calculating the trade surplus using the customs statistical method vary in different industrial departments.
According to the order of the degree of distortion from large to
6The degree of overestimation of the total trade volume or the trade surplus or the distortion rate is calculated with the following formula: (the customs frontier statistics — the value-added statistics)/(the value-added statistics) *100.
7The estimate of 33.2% in this study is remarkably close to the estimate of 35.7% by KPWW (2008).
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TradeSurplustotheDisputeovertheExchangeRate
2002 2007
Total Total Surplus Surplus Total Total Surplus Surplus
Volume A Volume B A B Volume A Volume B A B
Agriculture, forestry, animal husbandry, and fishing
1155 1068 −207 −175 2994 2654 −1662 −1411
Mining and washing 2117 1973 −1221 −1136 10979 9883 −9699 −8753
Food production and tobacco processing
1421 1279 366 354 3494 3016 331 412
Textile industry 4410 3724 2392 2075 9479 7705 7712 6363
Textile, clothing, shoes, hats, leather, and eiderdown and its products
2716 2316 1473 1255 5837 4766 4749 3898
Wood processing and furniture manufacturing
423 370 84 83 984 820 599 512
Paper making, printing, stationery, and sporting goods manufacturing
691 576 −300 −228 1208 1007 −185 −162
Oil processing, coking and nuclear fuel processing
674 466 −148 16 2218 1451 −682 −134
Chemical industry 4449 3791 −2045 −1707 12573 9861 −3738 −2624
Rubber and plastics manufacturing 1273 1096 728 625 3770 3005 1871 1505
Non-metallic mineral products 616 548 220 201 1861 1567 1106 965
Metal smelting and rolling processing 2278 1965 −1129 −964 9965 7764 873 1080
Metalwork 1778 1563 523 428 4556 3703 3004 2446
General and special equipment manufacturing
4543 3987 −1400 −1337 13849 10710 792 804
FromTradeSurplustotheDisputeovertheExchangeRate9inx6inb2268-ch01page31
OverestimatedTradeSurplus31
Office equipment and computer manufacturing
1555 1105 390 141 13012 8641 7084 3967
Electrical machinery and equipment manufacturing
4050 3412 −24 −15 8017 6228 1446 1124
Electronic equipment manufacturing 9241 7543 −785 −977 25380 18617 −1468 −1951 Instrument and meter manufacturing 1987 1617 −364 −409 6738 5384 −1452 −1519 Motor vehicle and its equipment
manufacturing
739 613 −348 −276 3569 2683 −334 −123
Other transport tools 911 771 −1 −13 2702 2095 614 499
Other manufacturing industries 1766 1581 1433 1294 6568 5585 2887 2571
Handicrafts and other manufacturing industries
439 391 −330 −290 83 71 47 41
Construction 184 163 25 19 630 530 188 157
Sales and repair of motor vehicles and motorcycle
67 62 67 62 106 99 106 99
Wholesale 1962 1820 1962 1820 3104 2888 3104 2888
Retailing 504 467 504 467 797 742 797 742
Accommodation and catering 358 332 351 325 1260 1140 213 204
Road transportation 462 433 275 261 986 888 438 411
Water transportation 673 604 538 505 1897 1686 1800 1616
Air transportation 555 492 332 308 2035 1675 553 521
(Continued)
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TradeSurplustotheDisputeovertheExchangeRate
2002 2007
Total Total Surplus Surplus Total Total Surplus Surplus
Volume A Volume B A B Volume A Volume B A B
Other comprehensive technical service 120 111 120 111 363 323 168 149
Postal service, information
transmission, Computer service, and software
146 135 68 60 271 246 24 20
Financial industry 298 288 −254 −246 215 203 −43 −39
Real estate industry 0 0 0 0 0 0 0 0
Leasing and business services 1684 1507 180 67 6822 6019 214 −164
Resident services and other services 68 64 −7 −7 107 98 −23 −22
Education 25 24 3 3 73 69 −22 −22
Health, social security, and social welfare
0 0 0 0 62 54 22 16
Culture, sports, and entertainment 1516 1411 518 476 977 883 85 67
Public service and social organization 31 29 11 10 20 18 2 1
Total 57886 49698 3999 3186 169561 134777 21521 16154
Distortion Degree (%) 16.5 25.5 25.8 33.2
Definition of Indicator: Total Volume A and Surplus A represent the results according to the customs statistical method, and Total Volume B and Surplus B represent the results according to the value-added statistical method. As the unit in China’s input–output table is 10,000 RMB, China’s exports to overseas and its imports from overseas (i.e., overseas exports to China) are calculated in 10,000 RMB.
Source: China’s non-competitive input–output tables in 2002 and 2007, OECD STAN Analysis, EUstat.
Overestimated Trade Surplus 33
small, the distortion of the office equipment and computer man- ufacturing industry is the most serious, followed by textile, cloth- ing, shoes and hat manufacturing industry, metalwork industry, and eight others. In 2007, the trade surplus of the office equipment and computer manufacturing industry using the value-added statistical method was 396.7 billion yuan, but it was 708.4 billion yuan using the customs statistical method. The latter distorted the trade sur- plus by 78%. The trade surpluses of other departments were overesti- mated by 12.3%–28.6%. Moreover, except for some industries whose trade surpluses were overestimated, the trade deficits of the electronic equipment manufacturing industry and instrument and meter man- ufacturing industry were underestimated. According to the value- added statistical method, the trade deficit of the electronic equipment was 195.1 billion yuan in 2007, but it was 146.8 billion yuan accord- ing to the customs statistical method, which is an underestimation of 24.8%. The trade deficit of the instrument and meter manufacturing industry was underestimated by approximately 4.4%.