On June 20th, the U.S. Department of the Treasury called on Beijing to explain the significant discrepancies in the trade surplus data reported for 2023. The U.S. Treasury questioned the issues that appeared in the official data released by China about the trade surplus within its semi-annual foreign exchange report. According to China’s customs authority, the trade surplus for 2023 was $823 billion, while the figure released by the State Administration of Foreign Exchange was $594 billion, showing a difference of nearly $230 billion.
This discrepancy in the data has sparked widespread discussion because the $230 billion difference represents over 1% of China’s GDP. However, the average difference between these two sets of data officially released by China since 2000 has been only $7 billion.
The United States is hoping that Beijing will clarify why the trade surplus reported by China’s customs authority is significantly higher than the trade surplus reported in international balance of payments.
Despite the attention from the U.S., the Chinese officials have not provided a direct explanation for the discrepancies in data. Lu Daliang, the spokesperson for the General Administration of Customs and the Director of the Statistical Analysis Department, mentioned in a press conference back in April that the difference in the two sets of data is due to differing statistical principles and valuation methods.
He stated that the customs figures and the foreign exchange department figures are transparently provided for public analysis.
The U.S. Department of the Treasury has not confirmed the accuracy of either of the two sets of official Chinese data. The growing disparity in these two sets of trade surplus data in recent years has raised concerns among many economists and international organizations.
With the bursting of the domestic real estate bubble in China decreasing domestic consumption, the Chinese government is relying on exports to drive growth. Not only Western countries but even neighboring Southeast Asian countries and countries participating in the Belt and Road Initiative are complaining that their domestic markets are being flooded with Chinese export products.
Consequently, the actual scale of China’s trade surplus has become a key issue of external concern.
Regarding the attribution of some data differences by the State Administration of Foreign Exchange to the activities of multinational corporations outsourcing production to Chinese companies in free trade zones, the U.S. Department of the Treasury stated that “It remains unclear which trends over the past three years have led to the widening discrepancy” in the two sets of surplus data and urged the Chinese side to provide further quantifiable evidence for clarification.
An official mentioned in a press conference in May that the International Monetary Fund has been closely monitoring this issue in China since last year. The organization will discuss this issue in an upcoming report.
Another abnormality highlighted by the U.S. Department of the Treasury in Chinese foreign exchange is that there has been no significant decrease in foreign assets held by Chinese residents, while during the same period, the reported overseas investment income for 2022 and 2023 has decreased.
Generally, when reported overseas investment income decreases, it helps to reduce the reported current account surplus.
Former U.S. Treasury official Brad Setser, who is now a Senior Research Fellow at the Council on Foreign Relations, analyzed on social media that the key question is why China, which has a huge merchandise surplus, suddenly reports a current account surplus close to 1% of GDP, despite the merchandise surplus being significantly smaller according to the official international balance of payments data. Moreover, against the backdrop of rising interest rates in the U.S. and globally, the reported decline in Chinese resident investment income contributes to a reduction in the reported current account surplus. Setser observed that there have been significant changes in the “errors and omissions” in the official international balance of payments statement during the same period.
The international balance of payments is composed of four components: the current account, the capital account, errors and omissions, and changes in reserve assets.
“The correct answer is that the adjustment to the current account surplus also mechanically reduces the ‘errors and omissions’ item in the balance of payments,” explained Setser. Therefore, the actual current account surplus and the actual outflows are larger than reported. Setser analyzed that China deliberately understated the 2023 current account surplus figure and aimed to better align the reported surplus figures with the actual outflows. This means that while China is cutting the surplus figures, it unavoidably touches on the “errors and omissions” item in the balance of payments.