Bloomberg:

My question is about the trade balance last year. Last year, the customs administration reported a good surplus of 823 billion dollars but the State Administration of Foreign Exchange reported a good surplus of 594 billion dollars. Why is there such a difference between these two numbers which should indicate the same thing? The State Administration of Foreign Exchange explained that free trade zones were part of the reason for this difference but this difference in the data only started to appear in 2021 and there hasn't been a radical expansion of free trade zones since 2021. So, can you please explain in detail what you think is the reason that these two numbers are so radically different? Thank you.

Lyu Daliang:

I understand that your question is essentially about the difference between the surplus and deficit of trade in goods according to customs' statistics and the international balance of payments for trade in goods according to the statistics released by the State Administration of Foreign Exchange (SAFE). What I want to say is that the statistical principles of these two numbers are different. The trade in goods calculated by customs is based on the cross-border principle. As long as goods move across borders, they will be included in customs' statistics, regardless of whether or not the ownership of the goods is transferred. The balance of payments for trade in goods in the international payments statistics, compiled by SAFE, is based on the principle of transfer of ownership, regardless of whether or not goods move across borders. This is an important difference between the two statistical methods.

I can give two examples to elaborate. The first example is what is now called factory-free manufacturing, which means that multinational companies entrust domestic companies to manufacture products and then sell them domestically. In this case, there is no cross-border flow of goods, and customs does not count them. But its ownership has been transferred and the balance of payments needs to be calculated. This difference is more prominent when it comes to electronic products, processing and manufacturing.

The second example is processing of supplied materials and bonded warehousing. Ownership of processing of supplied materials does not transfer across borders. The ownership of some bonded warehousing products does not transfer when they cross the border. This kind of cross-border flow must be reflected in customs' statistics, but not in foreign exchange receipts and payments statistics, which is also the reason for the difference.

In addition, the pricing methods of customs' statistics and balance of payments statistics are also different. For customs' statistics, as we all know, imports to China are calculated based on CIF pricing, while exports are calculated based on FOB pricing. China's balance of payments statistics, including our trade in goods and international balance of payments, are based on FOB price, excluding freight charges and insurance. Because of the differences in these statistical principles and methods, the two numbers will show certain changes as the situation changes. For specific figures, both statistics are accessible to the public. You can do your own calculation. Thank you.