Obsolete Way of Measuring Trade Inflates China's Trade Surplus  

Measuring global trade in line with the principle of "the country of origin" fails to reflect the complexities of global commerce where the design, manufacturing and assembly of products involves several countries, experts said.

"It is not always true that goods exported by a country are wholly made by that country," said Tu Xinquan, associate director of China National Institute of WTO at the University of International Business and Economics.

"Therefore, the trade surplus between two countries can not be simply interpreted as one benefiting more than the other from the trade," Tu said.

Using the iPhone as a case, a research paper released by the Asian Development Bank Institute (ADBI) earlier this month showed that conventional trade statistics greatly inflated bilateral trade deficits between a country used as export-platform by multinational firms and its destination countries.

The paper said trade statistics in both China and the U.S. consider the iPhone a Chinese export to the U.S., even though it is entirely designed and owned by a U.S. company, and is largely of parts produced in other countries.

The entire 179 U.S. dollars estimated wholesale cost of each iPhone is credited to China, while the country is only responsible for the last step of making the iPhones -- assembling, the value of which accounted for just 3.6 percent, or 6.5 U.S. dollars of the total cost, according to the paper.

The researchers estimated China's total iPhone exports in 2009 at 2.02 billion U.S. dollars. After deducting 212.5 million U.S. dollars in Chinese imports for parts produced by U.S. firms, China held a trade surplus of 1.9 billion U.S. dollars with the U.S. because of iPhone exports.

However, if China was credited with only its portion of the value of an iPhone, the iPhone export would result in a U.S. trade surplus of 48.1 million U.S. dollars with China, according to the researchers.

The case of the iPhone was an excellent example of China's trade relations with other countries, said Zhao Jinping, a researcher with the Development Research Center of the State Council.

"In fact, 'Made in China' is not only a process where China adds value, but also a value-adding process for other countries," said Zhao.

"The concept of country of origin for manufactured goods has gradually become obsolete," said Pascal Lamy, director-general of the WTO, in a speech to the French Senate in October.

"What we call 'made in China' is indeed assembled in China, but what makes up the commercial value of the product comes from the numerous countries," said Lamy.

"For instance, every time an iPod is imported to the U.S., the totality of its declared customs value (150 U.S. dollars) is ascribed as if it were an import from China," said Lamy, adding that "In fact, according to American researchers, less than 10 of the 150 dollars actually come from China and all the rest is just reexportation."

He said if trade statistics were adjusted to reflect the actual value contributed to a product by different countries, the size of the U.S. trade deficit with China would be cut in half.

Sheng Guangzu, head of China's General Administration of Customs, told Xinhua in an interview in April that much of China's trade surplus was "transferred" from foreign-funded enterprises operating in China.

In the first 11 months this year, exports of foreign-funded enterprises totaled 779.14 billion U.S. dollars, accounting for 54.7 percent of China's total exports, according to China's customs authorities.

The data also showed that, during the same period, foreign-funded firms generated 112.51 billion U.S. dollars of trade surplus, accounting for 66 percent of China's total surplus.

"Many foreign enterprises come to China to take the advantage of the low labor cost here. They reap most of the profits while China only gets paid for the processing, however, the traditional trade statistics means all the value of the products are credited to China," said Sheng.