The US Department of the Treasury recently stated that there is a discrepancy of $230 billion in the trade surplus data reported by two Chinese institutions, and it has requested clarification from Beijing. Experts analyzed that this comes at a time of US-China tariff tensions, with the US seeking to uncover the true extent of the trade deficit. The US is primarily investigating whether China is circumventing US tariffs and sanctions, especially in its exports to countries like Iran and Russia.
According to the US Treasury’s semi-annual foreign exchange report released last Thursday (June 20), China’s customs data shows a trade surplus in 2023 that is nearly $230 billion higher than the surplus reported by China’s State Administration of Foreign Exchange. This discrepancy is equivalent to over 1% of China’s gross domestic product. The Chinese Ministry of Finance stated that since 2000, the average difference between these two sets of data has been just $7 billion.
One year ago, China’s State Administration of Foreign Exchange attributed part of the discrepancy to the increasing use of special types of free trade zones by multinational companies, which outsourced production to Chinese companies.
However, the US Treasury stated that it is “unclear what trends have led to the widening of these discrepancies in the last three years,” and it has called on China to provide further quantifiable evidence for clarification.
Bloomberg reported that an official stated in a press conference in May that the International Monetary Fund has been closely monitoring this issue since last year and will discuss it in an upcoming report.
American economist David Huang, when analyzing the reasons behind the discrepancy in China’s customs trade surplus data and the State Administration of Foreign Exchange data, pointed out several causes.
Firstly, in the past, some companies exaggerated their export figures for the purpose of earning foreign exchange rebates and export subsidies. While this practice may be less common now, it was prevalent before.
Secondly, after exporting goods, as the US dollar continues to appreciate and the Chinese yuan depreciates, some companies keep their foreign exchange reserves overseas instead of converting them back to yuan in China.
The third reason is China’s export growth, particularly to Russia, which has been increasing by over 50% annually. Thus, there are significant amounts of foreign exchange, foreign trade, and customs exports to Russia, which may not be settled in US dollars or euros, possibly being settled through other means or barter trade for importing other goods.
The fourth reason is exports to countries in Asia and Africa, some of which are as trade aid, leading to bad debts and resulting in non-recovery.
Currently, the actual scale of the US-China trade surplus is a crucial issue. Bloomberg pointed out that Beijing relies on foreign trade to drive economic growth, especially after a slowdown in domestic consumption due to the previous real estate downturn. Additionally, low-priced exports of products like electric cars overseas have raised concerns among trading partners who accuse China of flooding their markets with exports.
Historically, bilateral trade statistics between the US and China often differ by one to two hundred billion US dollars. For example, in 2019, the US reported a trade deficit of nearly $420 billion with China in 2018, while China claimed that the US had exaggerated, stating that its trade deficit with China was just over $150 billion.
China expert Wang He believes that the current discrepancy of over $200 billion within China is due to different departments within the Chinese government having their own conflicting interests.
Wang He analyzed that the US government has brought this issue to the forefront now because of the ongoing trade war with China. One of the reasons behind this is the US Section 301 trade investigation into China’s various problems, leading to the significant trade deficit with the US.
“So, what is the actual amount of this trade deficit for the US?” Wang He said, adding that there is widespread skepticism internationally regarding China’s economic data. “Previously, there was a situation where the trade numbers for imports and exports between the mainland and Hong Kong were vastly different, which became a big joke.”
“The accuracy and reliability of all Chinese data are now major concerns,” he said, adding that this situation has provided the US with justification to take certain tariff measures or other actions against China.
In recent years, the growing gap in trade surplus figures reported by the two Chinese institutions has attracted attention from various economists and international organizations.
Former US Treasury official Brad Setser analyzed on social media that the key issue is China’s massive goods surplus, with the sudden discrepancy closely approaching 1% of the GDP. He believes that China’s State Administration of Foreign Exchange deliberately understated the surplus in 2023 and hopes to better align the actual outflow of funds by lowering the surplus figure.
Wang He stated, “We know that in the years after the epidemic, there has been a rapid outflow of funds from China, with a huge amount leaving the country.”
“In recent years, why has China been cracking down on underground smuggling, illicit money transfers, and capital flight? Because there is chaos in the country, implementing things like dynamic clearing, forcing everyone to find ways to transfer funds out of the country,” Wang He said.
Sonali Jain-Chandra, Director of the IMF’s China Office, stated that the discrepancy in data exists because customs data is based on actual cross-border flow of goods, while the State Administration of Foreign Exchange data covers all transactions between residents and non-residents during ownership changes. Other countries also face such discrepancies.
However, she did not explain why China’s discrepancy suddenly started to widen after 2021.
Regarding why the US is now raising concerns, David Huang believes, “The reason the US is suddenly so worried is that they fear that part of the over $200 billion gap might be exports to countries like Iran and Russia. While there are exports, they may have bypassed international settlements. For instance, China recently had a bank specifically for Russia, settling in rubles and yuan, and the US believes it circumvented sanctions.”
“The US is mainly investigating from three aspects. One is whether China is exporting to sanctioned countries like Russia and Iran, the second is bypassing tariffs through Hong Kong and Macau, disrupting the macro strategic balance of trade between the two countries; and the third is the issue of exaggerating export data causing tax problems.”
Huang David stated that the US is primarily investigating from three perspectives: China’s exports to Russia, Iran, and other sanctioned countries; the use of Hong Kong and Macau to bypass tariffs, upsetting the trade balance between the two countries at a strategic level. Finally, the third aspect is the issue of exaggerated export data leading to tax problems.