the changed treatment of goods for processing and merchanting in the revised system of national...

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 DepartmentHong Kong, China

2

Background

3

Background

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

Merchanting

25%

Exports of Services

Imports of Goods

Involving

Goods for

Processing

27%

Exports of Goods

Involving

Goods for

Processing

17%

7

Historical Trend of Goods for Processing

33,280

57,881

49,619

28,570 28,130

99,986

84,944

68,209 61,684

51,650

0

20,000

40,000

60,000

80,000

100,000

120,000

1995 1998 2001 2004 2007

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

10,185

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

1995 1998 2001 2004 2007

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

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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


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


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

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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

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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

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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

(US$Bn) Balance of Trade in Goods Balance of Trade in Services Reference

Year Balance

Balance (Adjusted figures*) Balance

Balance (Adjusted figures*)

1995 -16 12 9 -18 1996 -15 20 12 -22 1997 -17 21 11 -27 1998 -8 32 9 -31 1999 -3 36 12 -28 2000 -8 37 16 -30 2001 -8 37 16 -29 2002 -5 39 19 -25 2003 -6 38 20 -23 2004 -9 41 24 -26 2005 -8 48 30 -26 2006 -14 51 36 -29 2007 -20 43 42 -21

* Figures are adjusted for goods for processing and merchanting based on 2008 SNA and BPM6 standards.

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Impact on World Ranking of Hong Kong - Exports of Goods

(US$Bn)

Economy Exports of Goods in 2006 Exports of Goods in 2006

(Adjusted Figures*)

Germany 1,131 (1) 1,131 (1)

United States 1,027 (2) 1,027 (2)

China 970 (3) 970 (3)

Japan 616 (4) 616 (4)

France 483 (5) 483 (5)

United Kingdom 450 (6) 450 (6)

Italy 417 (7) 417 (7)

Canada 402 (8) 402 (8)

Netherlands 391 (9) 391 (9)

Korea, Republic of 332 (10) 332 (10)

Hong Kong 318 (11) 283 (13)

Russian Federation 304 (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

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Impact on World Ranking of Hong Kong - Exports of Services

(US$Bn)

Economy Exports of Services in 2006 Exports of Services in 2006

(Adjusted Figures*)

United States 409 (1) 409 (1)


Germany 174 (3) 174 (3)

France 118 (4) 118 (4)

Japan 117 (5) 117 (5)

Spain 106 (6) 106 (6)

Italy 99 (7) 99 (7)

China 92 (8) 92 (8)


India 75 (10) 75 (10)

Hong Kong 73 (11) 54 (15)

Ireland 68 (12) 68 (11) Figures in brackets are rankings among economies in the world.



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Impact on World Ranking of Hong Kong – Total Trade in Goods

(US$Bn)

Economy Total trade in Goods in 2006 Total trade in Goods in 2006

(Adjusted Figures*)

United States 2,887 (1) 2,887 (1)

Germany 2,065 (2) 2,065 (2)

China 1,722 (3) 1,722 (3)

Japan 1,150 (4) 1,150 (4)

United Kingdom 1,054 (5) 1,054 (5)

France 1,004 (6) 1,004 (6)

Italy 846 (7) 846 (7)

Canada 758 (8) 758 (8)


Hong Kong 649 (10) 516 (13)


Belgium 564 (12) 564 (11)Figures in brackets are rankings among economies in the world.



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Impact on World Ranking of Hong Kong - Total Trade in Services

(US$Bn)

Economy Total trade

in Services in 2006

Total trade

in Services in 2006

(Adjusted Figures*)

United States 752 (1) 752 (1)


Germany 394 (3) 394 (3)

Japan 253 (4) 253 (4)

France 226 (5) 226 (5)

Italy 199 (6) 199 (6)

China 193 (7) 193 (7)

Spain 185 (8) 185 (8)


Ireland 146 (10) 146 (10)

India 139 (11) 139 (11)

Canada 132 (12) 132 (13)

Economy Total trade

in Services in 2006

Total trade

in Services in 2006

(Adjusted Figures*)


Singapore 121 (14) 121 (15)

Belgium 115 (15) 115 (16)

Hong Kong 110 (16) 138 (12)

Denmark 97 (17) 97 (17)

Sweden 90 (18) 90 (18)

Luxembourg 82 (19) 82 (19)

Switzerland 81 (20) 81 (20)

(US$Bn)

Figures in brackets are rankings among economies in the world.



26

Plan of Hong Kong in Implementing

the New Statistical Standards

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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)

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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

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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

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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

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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

Thank You

the changed treatment of goods for processing and merchanting in the revised system of national...

Documents

processing value of

activities of goods

processing processing

changed treatment of

global production of

historical trend of

processing economy

processing significant