Recently, a top American economist has stated that the Chinese Communist Party (CCP) should explain why the discrepancy between the trade surplus figures from two of its institutions is increasingly widening. This former U.S. trade official raised concerns that these differences are masking a growing global trade imbalance.
According to Bloomberg, Brad Setser expressed that the merchandise trade surplus shown in the international balance of payments data released by the CCP’s State Administration of Foreign Exchange has been significantly lower since 2022 compared to the surplus reported by the Chinese customs.
Speaking at the Bund Summit in Shanghai on September 5, Setser mentioned, “These significant gaps raise questions about some adjustments that China (CCP) is making in its data.”
The discrepancy between the trade surplus data for the second quarter of this year announced by the CCP’s State Administration of Foreign Exchange and the Chinese customs reached a record-breaking $87 billion. This also means that the data difference for the first half of this year has increased to nearly $150 billion.
Setser, a senior researcher at the Council on Foreign Relations in the U.S., formerly served as a senior advisor to U.S. Trade Representative Katherine Tai.
He also pointed out another puzzling issue where despite rising bank interest rates, the deficit in China’s investment income is growing. He believes that the CCP seems to be underestimating the income from its tens of billions of dollars in overseas assets.
Setser estimated that China’s external surplus is close to $700 billion, more than double the $253 billion current account surplus reported last year.
The CCP’s State Administration of Foreign Exchange attributes the discrepancy in merchandise surplus to global companies outsourcing production to enterprises in special free trade zones in China. While the data from the foreign exchange administration includes trade between Chinese and foreign companies, the customs data reflects the movement of cross-border commodities.
The International Monetary Fund seems to agree with this explanation, but Setser questions it. He argues that if this were the case, other parts of China’s international balance of payments data should also be adjusted accordingly, such as profits generated by multinational companies in China, but no such adjustments have occurred.
He urges the CCP’s State Administration of Foreign Exchange to disclose more details on statistical adjustments and provide numerical examples to explain why the data series show discrepancies.
In the semiannual foreign exchange report released by the U.S. Treasury in June of this year, it was stated that the surplus in 2023 shown in the Chinese customs data was nearly $230 billion more than that reported by the CCP’s State Administration of Foreign Exchange.
The difference between these two sets of figures is equivalent to over 1% of China’s gross domestic product. The Chinese Ministry of Finance has stated that the average gap between the two data sets since 2000 has been only $7 billion.
An official from the International Monetary Fund mentioned in May that the organization has been closely monitoring this issue since last year.
The ongoing U.S.-China trade war makes the true scale of the U.S.-China trade surplus a crucial question.
Bloomberg’s analysis suggests that with China’s real estate sector in a slump, the CCP is relying on foreign trade to drive economic growth, raising concerns in other countries that their domestic markets might be flooded with Chinese exports.
American economist Huang Dahua previously told Epoch Times that there are discrepancies between the Chinese customs trade surplus data and the State Administration of Foreign Exchange data due to several reasons.
Firstly, in the past, some companies inflated export figures to earn foreign exchange tax refunds and export subsidies. While this may have been a prevalent practice in the past, it is now less common.
Secondly, after exports, due to the continuous appreciation of the U.S. dollar and depreciation of the Chinese yuan, some enterprises keep foreign exchange abroad and do not convert it back to yuan in China.
The third reason is that China’s exports to Russia have increased by over 50% annually, and some of these exports may not be settled in U.S. dollars or euros, possibly being settled through other means, aid without payment, or barter for importing other goods.
Lastly, China’s exports to countries in Asia, Africa, and Latin America may serve as trade assistance, some resulting in bad debts that cannot be recovered.