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China trade surplus 'overstated' by dodgy math
By Wang Yanlin |
October 21, 2011, Friday
|
Online Edition
Online Edition
CHINA'S trade surplus has been exaggerated due to erroneous calculation methods that use total value of an exported product instead of the added value created in China, People's Daily said today in an article.
Assistant Commerce Minister Yu Jianhua in the article urged the global community to fairly evaluate China's trade surplus, and correct loopholes in the calculation methods as soon as possible.
China, dubbed as the world's factory due to cheap labor, is a popular choice for global companies to assemble their products before exporting them to various markets.
However, the profit made from assembling is one of the smallest links in the production chain that also includes designing and manufacturing.
Take the production of an iPhone as an example. Japan, Germany and South Korea can earn 34 percent, 17 percent and 13 percent respectively for manufacturing parts of an iPhone which is sold at a wholesale price of US$178.96.
But China, which is responsible for putting these parts together, can only get US$6.5, or 3.6 percent, of an iPhone's wholesale price, the article said.
When returning to the trade calculation, however, the total value of US$178.96 per iPhone is written on the bill of China's exports - and not the real added value of US$6.5.
"It wrongly exaggerates trade surplus in China, where more than 50 percent of exports is of such a nature, or trade of processing goods," Yu said.
If the added-value method is used, the surplus for exporting iPhones in 2009 was US$73.5 million, not the startling US$1.9 billion arrived at with total-value methods.
Similarly, China's trade surplus with the United States was US$285 billion in 2008. But a more proper calculation was US$164 billion, using the value-added methods.
The article is published as the US is increasingly concerned about China's trade surplus, and has taken advantage of the blown-up figures to call for a yuan appreciation.
China's trade surplus fell for a second straight month in September to US$14.5 billion under shrinking external demand, a stronger yuan and mounting inflation.
But at the same time its surplus with the US still widened.
Assistant Commerce Minister Yu Jianhua in the article urged the global community to fairly evaluate China's trade surplus, and correct loopholes in the calculation methods as soon as possible.
China, dubbed as the world's factory due to cheap labor, is a popular choice for global companies to assemble their products before exporting them to various markets.
However, the profit made from assembling is one of the smallest links in the production chain that also includes designing and manufacturing.
Take the production of an iPhone as an example. Japan, Germany and South Korea can earn 34 percent, 17 percent and 13 percent respectively for manufacturing parts of an iPhone which is sold at a wholesale price of US$178.96.
But China, which is responsible for putting these parts together, can only get US$6.5, or 3.6 percent, of an iPhone's wholesale price, the article said.
When returning to the trade calculation, however, the total value of US$178.96 per iPhone is written on the bill of China's exports - and not the real added value of US$6.5.
"It wrongly exaggerates trade surplus in China, where more than 50 percent of exports is of such a nature, or trade of processing goods," Yu said.
If the added-value method is used, the surplus for exporting iPhones in 2009 was US$73.5 million, not the startling US$1.9 billion arrived at with total-value methods.
Similarly, China's trade surplus with the United States was US$285 billion in 2008. But a more proper calculation was US$164 billion, using the value-added methods.
The article is published as the US is increasingly concerned about China's trade surplus, and has taken advantage of the blown-up figures to call for a yuan appreciation.
China's trade surplus fell for a second straight month in September to US$14.5 billion under shrinking external demand, a stronger yuan and mounting inflation.
But at the same time its surplus with the US still widened.
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