Seminar on
Balance of Payments for
Secondary Economics Teachers
(Part II)
20 May 2011
政府統計處
Census and Statistics Department
1
Today’s rundown
• Major Differences between the BPM5 and the BPM6
on goods and services account
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Background
Previous International Standards
New International Standards
Illustrative Examples
Impact on Hong Kong
Dissemination Plan
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Census and Statistics Department
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Background
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Census and Statistics Department
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Background
Structural change in Hong Kong’s external trade
• 1960-70’s: Hong Kong’s external trade mainly comprised
merchandise 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
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Census and Statistics Department
4
Background
Significant shares of trade in goods and services related to
outward processing and merchanting
Exports of services
2009
Merchanting
26%
Imports of goods
Exports of goods
Involving
Goods for
Processing
23%
政府統計處
Census and Statistics Department
Involving
Goods for
Processing
17%
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Background
Outward processing trade of Hong Kong in the mainland of China
US$Bn
120
Exports of Hong Kong to the mainland of China Involving Outward Processing
Imports of Hong Kong from the mainland of China after Outward Processing
100
80.4
80
54.9
60
40
14.7
25.4
20
0
1991
1993
1995
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Census and Statistics Department
1997
1999
2001
2003
2005
2007
2009
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Background
Exports of Merchanting Services from Hong Kong
24
US$Bn
22.1
20
16
12
8
4
4.0
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
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Census and Statistics Department
7
Previous International
Standards
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Census and Statistics Department
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Previous International Standards
Under BPM5, Goods for processing
• Data of goods account primarily come from external
merchandise 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/ semimanufactures 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
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Census and Statistics Department
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Previous International Standards
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
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Census and Statistics Department
10
New International Standards
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Census and Statistics Department
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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.”
政府統計處
Census and Statistics Department
12
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.”
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Census and Statistics Department
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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)
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Census and Statistics Department
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New International Standards
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
recorded 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
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Census and Statistics Department
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New International Standards
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.
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Census and Statistics Department
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Illustrative Examples
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Census and Statistics Department
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Illustrative Examples
A simplified outward processing trade flow (USD million)
1. Raw materials provided by HK to China (80)
Hong Kong
China
2. Finished goods returned to Hong Kong (100)
Current situation﹕
100IM of goods
80EX of goods
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Census and Statistics Department
New standard﹕
100deducted from IM of goods
80deducted from EX of goods
20 processing fee  imports of services
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Illustrative Examples
A simplified merchanting trade flow
(USD million)
2. The goods sold under merchanting were
delivered from Taiwan to the US directly
without passing through Hong Kong.
Taiwan
US
1. HK paid 280 to Taiwan for
the cost of goods procured.
Hong Kong
3. Hong Kong received 300
from the US for the sales of
goods.
4. Hong Kong earned a gross margin of 20.
Current situation﹕
20EX of merchanting services
280not included in IM of goods
300not included in EX of goods
政府統計處
Census and Statistics Department
New standard﹕
20not included in EX of merchanting services
280included in IM of goods (-ve EX of goods)
300included in EX of goods
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Impact on Hong Kong
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Census and Statistics Department
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Impact on Hong Kong
• 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!
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Census and Statistics Department
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Dissemination Plan
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Census and Statistics Department
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Dissemination Plan
• 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
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Census and Statistics Department
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References
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Census and Statistics Department
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References
• 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 Committee
http://www.imf.org/external/pubs/ft/bop/2008/21.htm
http://www.imf.org/external/pubs/ft/bop/2007/20.htm
• iPod study
http://escholarship.org/uc/item/1770046n
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Census and Statistics Department
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References
21/F., Wanchai Tower, 12 Harbour Road, Wan
Chai, H.K.
C&SD Publications Unit, Wan Chai
gen-enquiry@censtatd.gov.hk
2582 5073
2827 1708
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C&SD Website
(www.censtatd.gov.hk)
Hong Kong Statistics
About C&SD
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and charts
Web Links
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organizations and other
statistical authorities
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Thank you!
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