1政府統計處Census and Statistics Department

Seminar on Balance of Payments for

Secondary Economics Teachers(Part II)20 May 2011

2政府統計處Census and Statistics Department

Today’s rundown

• Major Differences between the BPM5 and the BPM6 on goods and services account– Background

– Previous International Standards

– New International Standards

– Illustrative Examples

– Impact on Hong Kong

– Dissemination Plan

3政府統計處Census and Statistics Department

Background

4政府統計處Census and Statistics Department

Background

Structural change in Hong Kong’s external trade• 1960-70’s: Hong Kong’s external trade mainly comprised mer

chandise trade• 1970’s: globalization + the open-door policy

Remarkable development in trade in goods (outward processing)

• 1990’s: Rapid infrastructural development (ports and transportation facilities in particular) in mainland China Remarkable development in trade in services (merchanting) Structural shift to a services economy

5政府統計處Census and Statistics Department

Background

Significant shares of trade in goods and services related to outward processing and merchanting

Merchanting26%

Exports of services

Imports of goods Exports of goods

Involving Goods for Processing

17%

Involving Goods for Processing

23%

2009

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Background

Outward processing trade of Hong Kong in the mainland of ChinaOutward processing trade of Hong Kong in the mainland of China

0

20

40

60

80

100

120

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

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$Bn

14.7

25.4

80.4

54.9

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Background

Exports of Merchanting Services from Hong Kong

0

4

8

12

16

20

24

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

US$Bn

4.0

22.1

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Previous International Standards

9政府統計處Census and Statistics Department

Under BPM5, Goods for processing• Data of goods account primarily come from external merchandis

e trade statistics compiled based on trade declarations lodged to HK Customs

• Record all physical movements of goods at the time they cross the boundary of Hong Kong, but not at the time of change of ownership

• “Goods for processing” (EX of raw materials/ semi-manufactures to the processing economy & the subsequent IM of the processed goods) are included in external merchandise trade statistics

• A change of ownership is imputed and recorded on gross terms under the goods account an exception of the “change of ownership” principle

Previous International Standards

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Under BPM5, Merchanting

• Another exception to the “change of ownership” principle

• Sales of goods - Cost of goods sold

= Gross margin

= Exports of merchanting services

• Collected from an annual establishment survey

Previous International Standards

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New International Standards

12政府統計處Census and Statistics Department

New International Standards

In the Global Statistics Forum 2011, Hubert Escaith, the Chief Statistician of the WTO said,

“ …the world has been changing quite fast lately and things are not done, produced and traded the way they used to be 50 years ago. In the old times, you had large plants making everything from A to Z, from design to production, even transportation. Everything was done in the same plant, in the same country, so when it was exported, when you had “made in UK”, for example, on a label, you knew that everything came from England.”

“Today large companies are organized according to what we call supply chain, global value chains, where in fact all these processes which before took place in one roof is now fragmented across the world. So some parts come from Sweden, others from China, Japan or Korea.”

13政府統計處Census and Statistics Department

New International Standards

In the Global Statistics Forum 2011, Hubert Escaith, the Chief Statistician of the WTO said,

“Everything is made in the world.”

“ …the old measure or the traditional measure gives a wrong figure about bilateral trade flows and when you have the wrong figure you may take the wrong decision. I guess you Americans say you may be barking at the wrong tree.”

14政府統計處Census and Statistics Department

New International Standards

• The fifth edition of the Balance of Payments Manual (BPM5) was released in 1993 by the International Monetary Fund (IMF)

• To address development in the international economy in the past decade or so (e.g. globalization, financial innovation), the IMF initiated an updating process of the BPM5 in 2003

• After several years of extensive work, including a worldwide review of the draft new manual, the IMF published the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) in December 2008

• The BPM6 also harmonises with other manuals, notably the System of National Accounts 2008 (2008 SNA)

15政府統計處Census and Statistics Department

No more exceptions to the “change of ownership” principle:

• Goods for processing:– Imports and exports of goods involved in processing without a change of

ownership to be excluded from trade in goods– The payment of processing fees to the processing economy would be reco

rded as imports of services

• Merchanting:– The acquisition of goods abroad for “merchanting” would be recorded as

imports (shown as negative exports) of goods by the economy where the trader resides

– The subsequent resale of goods would be recorded as exports of goods from that economy

– Merchanting will not be included as exports of services

New International Standards

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How to define a “change of ownership”?

• Economic ownership takes account of where the risks and rewards of ownership lie. A change in ownership from an economic point of view means that all risks, rewards, and rights and responsibilities of ownership in practice are transferred.

• Rewards: the right to use, rent out, or otherwise generate income, or to sell the asset. Every economic asset has demonstrable value, functioning as a store of value that reflects the amounts of the economic benefits that its owner can derive by holding it, using it, or providing it temporarily to another entity. It may be tangible or intangible.

• Risks: the potential losses caused by damage, theft, and holding losses; that management, transfer, or maintenance costs are greater than anticipated; and, in the case of financial assets, default of the counterparty. Ownership may be subject to costs such as maintenance and taxes.

New International Standards

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Illustrative Examples

18政府統計處Census and Statistics Department

Illustrative Examples

Hong Kong China

1. Raw materials provided by HK to China (80)

2. Finished goods returned to Hong Kong (100)

Current situation﹕100IM of goods 80EX of goods

A simplified outward processing trade flow (USD million)

New standard﹕100deducted from IM of goods 80deducted from EX of goods

20 processing fee imports of services

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New standard﹕ 20not included in EX of merchanting services280included in IM of goods (-ve EX of goods)300included in EX of goods

Current situation﹕ 20EX of merchanting services280not included in IM of goods300not included in EX of goods

Taiwan

1. HK paid 280 to Taiwan for the cost of goods procured.

4. Hong Kong earned a gross margin of 20.

3. Hong Kong received 300 from the US for the sales of

goods.

US

Hong Kong

2. The goods sold under merchanting were delivered from Taiwan to the US directly without passing through Hong Kong.

Illustrative ExamplesA simplified merchanting trade flow (USD million)

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Impact on Hong Kong

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• Exports of goods ↑ or ↓?• Imports of goods ↓• Balance of trade in goods: deficit surplus

• Exports of services ↓• Imports of services ↑• Balance of trade in services: surplus deficit

• No net effect on the balance of goods and services!

Impact on Hong Kong

22政府統計處Census and Statistics Department

Dissemination Plan

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• Conventional merchandise trade statistics will continue to be compiled– To serve a variety of needs e.g. forecast of infrastructural facilities

• A supplementary set of trade in goods and trade in services statistics based on the “change of ownership” principle under the BPM6 will be compiled starting from 2012 for the reference period 2011– To facilitate macroeconomic analysis, international comparison and trade

negotiations– E.g. iPod study

• Bridge tables explaining the gaps between the two sets of figures will be provided

Dissemination Plan

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References

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• The sixth edition of the Balance of Payments and International Investment Position Manual

http://www.imf.org/external/pubs/ft/bop/2007/bopman6.htm

• Balance of Payments Committeehttp://www.imf.org/external/pubs/ft/bop/2008/21.htmhttp://www.imf.org/external/pubs/ft/bop/2007/20.htm

• iPod studyhttp://escholarship.org/uc/item/1770046n

References

26政府統計處Census and Statistics Department

References

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gen-enquiry@censtatd.gov.hk

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2827 1708

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