The Changed Treatment of Goods for Processing and Merchanting in the Revised System of National Accounts (2008 SNA) and the Sixth Balance of Payment Manual (BPM6) Census and Statistics Department Hong Kong, China

2 Background

3 Hong Kong major trading hub in the world a pivotal role in global production of goods and services involvement in activities of goods sent abroad for processing and merchanting is one of the largest in the world

4 Background Outward processing activities predominantly carried out in the mainland of China (the Mainland) As early as 1980s, HK manufacturing companies started to relocate production processes to the Mainland -geographical proximity -low-cost land -low-cost labour

5 Background Merchanting activities extensive network of buyers and sellers in global market rapid infrastructural development in the Mainland (e.g. ports and related transportation facilities)  export processed goods manufactured in the Mainland directly to overseas markets

6 Vital Role of Trading Activities relating to Goods for Processing and Merchanting in Hong Kong in 2007

7 Historical Trend of Goods for Processing 33,280 57,881 49,619 28,57028,130 99,986 84,944 68,209 61,684 51, ,000 40,000 60,000 80, , , Exports of Hong Kong to the mainland of China Involving Outward Processing Imports of Hong Kong from the mainland of China after Outward Processing US$Mn

8 Historical Trend of Merchanting 3,955 6,830 14,570 20,783 10, ,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22, Exports of Merchanting Services from Hong Kong US$Mn

9 Current International Statistical Standards

10 Current Statistical Treatment - Goods for Processing Compilation of goods account of Hong Kong’s BoP statistics  based on external merchandise trade statistics  data collected from trade declarations submitted by importers and exporters Goods for processing  recorded in gross terms in both exports and imports of goods when exported to the processing economy and returned to the original economy after processing

11 Current Statistical Treatment - Merchanting Difference between the value of goods when acquired and the value when sold  i.e. trade margin derived from merchanting  recorded as exports of services in Hong Kong’s GDP and BoP statistics

12 New International Statistical Standards

13 New Statistical Treatment - Goods for Processing Trade flows related to goods for processing excluded from exports and imports of goods in goods account Payment of processing fees recorded as imports of services  Rationale: to strictly apply the change of ownership principle

14 New Statistical Treatment - Goods for Processing Conceptually, NOT affect the overall balance of trade in goods and trade in services Assumption: Value of goods imported after processing – Value of goods exported for processing = Processing fee

15 New Statistical Treatment - Goods for Processing Observation Diversified sources of raw materials/semi- manufactures for processing Significant amount of raw materials/semi- manufactures NOT delivered to the Mainland from Hong Kong -procured domestically in the Mainland -procured and delivered directly from sources other than Hong Kong to the Mainland

16 New Statistical Treatment - Goods for Processing In practice: Value of goods imported after processing – Value of goods exported for processing  Processing fee  Affect overall balance of trade in goods and trade in services

17 New Statistical Treatment - Goods for Processing Treatment of such other procurements of raw materials/semi-manufactures NOT delivered from Hong Kong: (i)Procured by Hong Kong producers  imports of goods to HK (ii)Procured by the Mainland processing units  imports of services to HK

18 New Statistical Treatments - Merchanting Reclassify trade margin derived from merchanting from services account to goods account (as net export of goods)  Rationale: to strictly apply the change of ownership principle

19 Impact of Implementing the New International Statistical Standards on Hong Kong

20 Impact of Implementing the New International Statistical Standards on Hong Kong Trade in Goods and Trade in Services of Hong Kong -balance of trade in goods (deficit surplus) -balance of trade in services (surplus deficit) HK’s Ranking in World Trade in Goods and Trade in Services -significant downward revision in exports and imports of goods and exports of services figures  change the relative ranking in world exports of goods and exports of services  change the relative ranking in world total trade in goods and total trade in services

21 Impact on Balances of Trade in Goods and Trade in Services of Hong Kong

22 Impact on World Ranking of Hong Kong - Exports of Goods (US$Bn) EconomyExports of Goods in 2006 (Adjusted Figures*) Germany1,131 (1) United States1,027 (2) China970 (3) Japan616 (4) France483 (5) United Kingdom450 (6) Italy417 (7) Canada402 (8) Netherlands391 (9) Korea, Republic of332 (10) Hong Kong318 (11)283 (13) Russian Federation304 (12)304 (11) Figures in brackets are rankings among economies in the world. *Figures for Hong Kong are adjusted for goods for processing and merchanting based on 2008 SNA and BPM6 standards, whereas figures for other economies are assumed unchanged. Source: International Financial Statistics Yearbook 2007, the IMF

23 Impact on World Ranking of Hong Kong - Exports of Services (US$Bn) EconomyExports of Services in 2006 (Adjusted Figures*) United States409 (1) United Kingdom230 (2) Germany174 (3) France118 (4) Japan117 (5) Spain106 (6) Italy99 (7) China92 (8) Netherlands85 (9) India75 (10) Hong Kong73 (11)54 (15) Ireland68 (12)68 (11) Figures in brackets are rankings among economies in the world. *Figures for Hong Kong are adjusted for goods for processing and merchanting based on 2008 SNA and BPM6 standards, whereas figures for other economies are assumed unchanged. Source: International Financial Statistics Yearbook 2007, the IMF

24 Impact on World Ranking of Hong Kong – Total Trade in Goods (US$Bn) EconomyTotal trade in Goods in 2006 (Adjusted Figures*) United States2,887 (1) Germany2,065 (2) China1,722 (3) Japan1,150 (4) United Kingdom1,054 (5) France1,004 (6) Italy846 (7) Canada758 (8) Netherlands734 (9) Hong Kong649 (10)516 (13) Korea, Republic of634 (11)634 (10) Belgium564 (12)564 (11) Figures in brackets are rankings among economies in the world. *Figures for Hong Kong are adjusted for goods for processing and merchanting based on 2008 SNA and BPM6 standards, whereas figures for other economies are assumed unchanged. Source: International Financial Statistics Yearbook 2007, the IMF

25 Impact on World Ranking of Hong Kong - Total Trade in Services (US$Bn) EconomyTotal trade in Services in 2006 Total trade in Services in 2006 (Adjusted Figures*) United States752 (1) United Kingdom406 (2) Germany394 (3) Japan253 (4) France226 (5) Italy199 (6) China193 (7) Spain185 (8) Netherlands163 (9) Ireland146 (10) India139 (11) Canada132 (12)132 (13) EconomyTotal trade in Services in 2006 Total trade in Services in 2006 (Adjusted Figures*) Korea, Republic of123 (13)123 (14) Singapore121 (14)121 (15) Belgium115 (15)115 (16) Hong Kong110 (16)138 (12) Denmark97 (17) Sweden90 (18) Luxembourg82 (19) Switzerland81 (20) (US$Bn) Figures in brackets are rankings among economies in the world. *Figures for Hong Kong are adjusted for goods for processing and merchanting based on 2008 SNA and BPM6 standards, whereas figures for other economies are assumed unchanged. Source: International Financial Statistics Yearbook 2007, the IMF

26 Plan of Hong Kong in Implementing the New Statistical Standards

27 Additional Data Requirement under New Statistical Treatment - Goods for Processing Statistics on HK’s trade involving outward processing in the Mainland currently compiled based on data obtained from a monthly survey Additional information required:  Value of processing fee paid by Hong Kong  Value of raw materials/semi-manufactures used for processing which are not delivered from Hong Kong (i.e. procured domestically in the Mainland or delivered directly from sources other than Hong Kong to the Mainland)

28 Additional Data Requirement under New Statistical Treatment - Goods for Processing How to obtain : Data models  To produce preliminary estimates of trade aggregates to support timely compilation of GDP and BoP statistics Enhanced OP survey  To revise the preliminary estimates at aggregate level  To compile trade statistics with broad breakdown by commodity group and by country  To provide parameters for regularly updating the data models

29 Additional Data Requirement under New Statistical Treatment - Goods for Processing Expanding trade declaration documents  Only seen as a long-term target  To compile trade in goods statistics with comprehensive breakdown by commodity group and by country

30 Additional Data Requirement under New Statistical Treatment - Merchanting Data required for compilation of merchanting of Hong Kong currently collected from an annual survey on trade in services Additional information required:  quarterly data on sales of goods and cost of goods sold for merchanting How to obtain:  To enhance the existing survey on trade in services

31 Presentation and Interpretation of New Statistics Trade in goods under national accounts and BoP framework -different from conventional merchandise trade statistics (not compiled based on the change of ownership principle) Options: Release only one combined figure of trade in goods and services in national accounts (may reduce confusion) Use appropriate bridge tables to explain the enlarged gaps between aggregate values of trade in goods and merchandise trade

32 Views from Major Data Users Organise discussion sessions with analysts and academics to capture their responses and comments Organise talks for media to explain the rationale behind the new international statistical standards Arrange visits to major data users in both public and private sectors to consult their views Prepare educational pamphlets to explain the crux of the issue

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