1. Census and Statistics Department Hong Kong, China 1 Implementation of the New Statistical Standards for Goods for Processing and Merchanting in Hong Kong, China: First Results of the New Trade in Services Survey Lilian FUNG Yuk-chi Census and Statistics Department The Hong Kong Special Administrative Region, China 9 November 2011

2. Census and Statistics Department Hong Kong, China 2 Introduction New international statistical standards for recording goods for processing and merchanting based on “change of ownership” principle  Introduction of “Manufacturing services on physical inputs owned by others”  Removal of “Goods for processing” from merchandise trade  Removal of “Merchanting” from trade in services Major recommendations will be implemented in Hong Kong for the compilation of GDP and BoP statistics in the latter part of 2012

3. Census and Statistics Department Hong Kong, China 3 Overview of Hong Kong’s External Trade

4. Census and Statistics Department Hong Kong, China 4 Overview of Hong Kong’s External Trade Ratio of Trade in Services to GDP (%) : YearExports of servicesImports of servicesTotal TIS 199023.816.840.6 200023.914.638.5 201047.422.770.1 Ratio of Trade in goods to GDP (%) : YearExports of goodsImports of goodsTotal trade in goods 1990106.8105.2212.0 2000119.4124.2243.6 2010175.5194.7370.2

5. Census and Statistics Department Hong Kong, China 5 Hong Kong plays an important role as the regional and world hub According to World Trade Organization statistics released, ranking of Hong Kong’s trade in goods and trade in services in 2010 ： World: Exports of goods ： 11 th Exports of services:11 th Asia Pacific region: Exports of goods ： 4 th Exports of services:5 th

6. Census and Statistics Department Hong Kong, China 6 Development of Hong Kong’s Outward Processing Trade and Merchanting Increasing degree of globalisation of the world economy in past decades and opening policy of the mainland of China (the Mainland) in 1980s  Relocation of production processes to the Mainland  Substantial amount of merchanting activities because of extensive network of buyers and sellers in the global market  Diversified exporting channels of processed goods manufactured in the Mainland by directly exporting to overseas markets

7. Census and Statistics Department Hong Kong, China 7 Hong Kong’s Outward Processing Trade Predominantly carried out in the Mainland Exportation of raw materials/ semi-manufactures from Hong Kong with contractual arrangement for subsequent re-importation of processed goods into Hong Kong or exported to directly to overseas markets after processing Two types of processing arrangement:  “processing and assembling” – not involving change of ownership  “processing with imported materials” – involving change of ownership

8. Census and Statistics Department Hong Kong, China 88 Proportion of goods involving outward processing in the mainland of China to total imports and total exports of goods of Hong Kong and offshore trade involving outward processing, 2009

9. Census and Statistics Department Hong Kong, China 99 Outward processing trade of Hong Kong with the mainland of China, 1991-2010

10. Census and Statistics Department Hong Kong, China 10 Exports of Merchanting Services from Hong Kong, 1999-2009 6.9 22.1

11. Census and Statistics Department Hong Kong, China 11 Existing Surveys

12. Census and Statistics Department Hong Kong, China 12 Existing Surveys Outward processing  Monthly Survey on Trade Involving Outward Processing in the Mainland of China (OP Survey)  Annual Survey of Imports and Exports of Services (ASIES) – for offshore trade involving outward processing Merchanting  Annual Survey of Imports and Exports of Services (ASIES)

13. Census and Statistics Department Hong Kong, China 13 Survey on Trade Involving Outward Processing in the Mainland of China (OP Survey) Establishment survey conducted on a monthly basis since third quarter of 1988 Delineate OP activities in the Mainland from the regular trade Estimate the value and proportion of Hong Kong’s trade involving OP in the Mainland Sampling units: import/export declarations in respect of Hong Kong’s trade with the Mainland Survey method: Computer-Assisted Telephone Interviews

14. Census and Statistics Department Hong Kong, China 14 Survey on Trade Involving Outward Processing in the Mainland of China (OP Survey) Coverage  OP activities with exportation of raw materials/semi-manufactures from Hong Kong with contractual arrangement for subsequent re-importation of processed goods into Hong Kong  OP activities under the arrangement of “processing with imported materials” or “processing and assembling”

15. Census and Statistics Department Hong Kong, China 15 Annual Survey of Imports and Exports of Services (ASIES) Establishment survey conducted since 1980 to collect detailed TIS data from establishments having significant amount of TIS transactions Collect data related to offshore trade activities since 1999 Sampling frame: Central Register of Establishments (CRE) Questionnaire: Industry-specific questionnaires Survey method: Postal enumeration, Telephone interview, Face-to-face interview

16. Census and Statistics Department Hong Kong, China 16 Annual Survey of Imports and Exports of Services (ASIES) Coverage  ASIES covers all industries  Offshore trade involving outward processing  Data on sales of goods and the cost of goods sold for merchanting largely collected on an annual basis from establishments in imports and exports trade sector  Only trade margins derived from merchanting (i.e. net data) collected on a quarterly basis via an existing sub-annual economic survey

17. Census and Statistics Department Hong Kong, China 17 New International Standards

18. Census and Statistics Department Hong Kong, China 18 Change of ownership principle Exclude imports and exports of goods involved in processing under the arrangement of processing and assembling (i.e.without “change of ownership”) from trade in goods Record payments of processing fees to the processing economy as imports of “manufacturing services on physical inputs owned by others” by the goods hosting country/economy Record procurements of raw materials/ semi-manufactures as imports of goods of Hong Kong if procured by Hong Kong owners Record procurements of raw materials/ semi-manufactures as imports of services of Hong Kong if procured by Mainland processing units New International Standards on Goods for processing

19. Census and Statistics Department Hong Kong, China 19 New International Standards on Goods for processing Apply to the goods sent to the Mainland for processing under the arrangement of “processing and assembling” only as no change of ownership is involved for both inputs and finished goods Processing under the arrangement of “processing with imported materials” should be recorded under general merchandise as there involves a change of ownership for both inputs and finished goods

20. Census and Statistics Department Hong Kong, China 20 Change of ownership principle Reclassify merchanting of goods (i.e. net value of sales of goods less the cost of purchasing these same goods) from exports of services to exports of goods Record separately gross values of purchases and sales of goods under merchanting  Goods acquired under merchanting (shown as a negative export)  Goods sold under merchanting New International Standards on Merchanting

21. Census and Statistics Department Hong Kong, China 21 Implementation of New Standards

22. Census and Statistics Department Hong Kong, China 22 Outward processing in the Mainland Data models are constructed to produce preliminary estimates of trade aggregates to support timely compilation of GDP and BoP statistics Enhanced the Survey on Trade Involving Outward Processing in the Mainland of China  To collect additional information pertaining to imports from the Mainland related to OP which involve processing under the arrangement of “processing and assembling”  To revise the preliminary estimates at aggregate level and provide parameters for updating the data models Implementation of the New Standards

23. Census and Statistics Department Hong Kong, China 23 Enhanced OP survey Since Q2 2008, the quarterly sample size has been increased from 7 000 to over 25 000 imports/exports declarations Response rate:around 85% To collect additional information for goods imported from the Mainland involving processing under the arrangement of “processing and assembling”:  processing fee paid by Hong Kong;  raw materials/semi-manufactures provided through Hong Kong;  raw materials/semi-manufactures procured from sources other than Hong Kong and delivered directly to the Mainland without going through Hong Kong; and  raw materials/semi-manufactures procured directly by the Mainland processing units Implementation of the New Standards

24. Census and Statistics Department Hong Kong, China 24 Merchanting & Offshore trade involving outward processing Conducted a feasibility study in 2008 and 2009 to assess the practicability of collecting quarterly data from, and the additional reporting burden on, respondents via establishment survey Launched a new “Quarterly Survey of Merchanting and Other Trading Activities” (QSMTA) since the reference period of the first quarter of 2010 :  To collect quarterly data on the sales and the cost of goods sold for merchanting  To collect data related to offshore trade activities involving outward processing Implementation of the New Standards

25. Census and Statistics Department Hong Kong, China 25 QSMTA  Designed with reference to previous rounds of ASIES and feasibility study to cover those industry strata with significant merchanting or trade in services transactions  Prominent establishments (in terms of TIS or merchanting receipts) in respective sectors are included as certainty cases  Other establishments are enumerated on a sample basis  Sample size: 4 000 establishments each quarter (in which around 1 000 certainty cases)  Questionnaire: industry-specific questionnaires  Response rate: approached 90% each quarter Implementation of the New Standards

26. Census and Statistics Department Hong Kong, China 26 QSMTA Collect quarterly data on the sales and the cost of goods sold for merchanting Also collect additional information for offshore trade of goods involving processing under the arrangement of “processing and assembling”:  value of goods sold offshore after processing ;  cost of goods sold offshore after processing, with further breakdown into: (a)processing fees paid by Hong Kong; (b)raw materials/ semi-manufactures procured by Hong Kong traders and delivered to processing units through Hong Kong; (c)raw materials/ semi-manufactures procured by Hong Kong traders but delivered to processing units without passing through Hong Kong; and (d)raw materials/ semi-manufactures procured by the processing units. Implementation of the New Standards

27. Census and Statistics Department Hong Kong, China 27 Preliminary results

28. Census and Statistics Department Hong Kong, China 28 Outward processing in the Mainland Import value from the Mainland involving outward processing under the arrangement of processing and assembling : (a)around 20% was processing fees; (b)around 70% was raw-materials/semi-manufactures procured by Hong Kong traders and exported from/ through Hong Kong to the Mainland; (c)around 10% was raw-materials/semi-manufactures procured by Hong Kong traders and delivered directly from sources other than Hong Kong to the Mainland; and (d)around 2-3% was raw-materials/semi-manufactures procured by Mainland processing units. Preliminary results

29. Census and Statistics Department Hong Kong, China 29 Chart 1Import value from the Mainland involving outward processing under the arrangement of processing and assembling by component (based on survey results for 2008-2010)

30. Census and Statistics Department Hong Kong, China 30 Merchanting & Offshore trade involving OP  Around 10% of goods sold offshore involve outward processing under the arrangement of “processing and assembling”. Preliminary results

31. Census and Statistics Department Hong Kong, China 31 Merchanting Out of the cost of goods sold offshore under the arrangement of processing and assembling for 2010 : (a)around 20% was processing fees; (b)around 20% was raw-materials/semi-manufactures procured by Hong Kong traders and exported from/ through Hong Kong to the processing units; (c)around 40% was raw-materials/semi-manufactures procured by Hong Kong traders and delivered directly from sources other than Hong Kong to the processing units; and (d)around 20% was raw-materials/ semi-manufactures procured by the processing units. Preliminary results

32. Census and Statistics Department Hong Kong, China 32 Chart 2Cost of goods sold offshore under the arrangement of processing and assembling by component

33. Census and Statistics Department Hong Kong, China 33 Impact

34. Census and Statistics Department Hong Kong, China 34 Table 1Impact of implementation of the 2008 SNA and the BPM6 on goods for processing and merchanting (US$ billion) External Trade of Hong Kong in 2008 Under BPM5 Outward Processing Merchanting Offshore Trade with Outward Processing Under BPM6 Percentage Change Exports of goods365-57+19+18345-5% Imports of goods388-77+8319-18% Balance of trade in goods -2327 Exports of services92-19-369-25% Imports of services47+20+774+58% Balance of trade in services 45-5 Balance of trade in goods and services 22 Figures may not add up to the respective totals due to rounding. Raw-materials/ semi-manufactures procured by Hong Kong traders and exported from/ through Hong Kong to mainland China (-57) Processed goods imported from mainland China to Hong Kong (-85) Raw-materials/ semi-manufactures procured by Hong Kong traders and delivered directly from sources other than Hong Kong to mainland China (+8) Processing fee and raw-materials/ semi- manufactures procured by mainland processing unit (+20) Goods sold under merchanting (+330) Goods acquired under merchanting (-311) “Gross margin” (-19) Sale of goods offshore (+25) Raw-materials/ semi-manufactures procured by Hong Kong traders and exported from/ through Hong Kong to mainland China (-7) Raw-materials/ semi-manufactures procured by Hong Kong traders and delivered directly from sources other than Hong Kong to mainland China (+8) “Gross margin” (-3) Processing fee and raw-materials/ semi- manufactures procured by mainland processing unit (+7)

35. Census and Statistics Department Hong Kong, China 35 Focus on further strengthening the quality of data, especially for preliminary estimates Continue to engage major data users to ensure correct understanding of the statistics Implement the change of ownership principle planned for 2012 Way Forward

36. Census and Statistics Department Hong Kong, China 36 Thank You