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 Department
Hong Kong, China
Background
2
Background
Hong Kong



3
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
Background
Outward processing activities


4
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
Background
Merchanting activities


5
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
Vital Role of Trading Activities relating to
Goods for Processing and Merchanting
in Hong Kong in 2007
Exports of Services
Merchanting
25%
Imports of Goods
Exports of Goods
Involving
Goods for
Processing
27%
6
Involving
Goods for
Processing
17%
Historical Trend of Goods for Processing
US$Mn
120,000
Exports of Hong Kong to the mainland of China Involving Outward Processing
100,000
99,986
Imports of Hong Kong from the mainland of China after Outward Processing
84,944
80,000
68,209
61,684
57,881
60,000
51,650
49,619
40,000
33,280
28,130
28,570
20,000
0
1995
7
1998
2001
2004
2007
Historical Trend of Merchanting
US$Mn
22,000
20,000
20,783
Exports of Merchanting Services from Hong Kong
18,000
16,000
14,570
14,000
12,000
10,185
10,000
8,000
6,830
6,000
4,000
3,955
2,000
0
8
1995
1998
2001
2004
2007
Current International Statistical Standards
9
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
10
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
11
New International Statistical Standards
12
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
13
New Statistical Treatment - Goods for Processing
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
14
New Statistical Treatment - Goods for Processing
Observation
 Diversified sources of raw materials/semimanufactures for processing
 Significant amount of raw materials/semimanufactures 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
15
New Statistical Treatment - Goods for Processing
In practice:
Value of goods imported after processing
– Value of goods exported for processing
 Processing fee

16
Affect overall balance of trade in goods and
trade in services
New Statistical Treatment - Goods for Processing
Treatment of such other procurements of raw
materials/semi-manufactures NOT delivered from
Hong Kong:
(i)
(ii)
17
Procured by Hong Kong producers
 imports of goods to HK
Procured by the Mainland processing units
 imports of services to HK
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
18
Impact of Implementing the New International
Statistical Standards on Hong Kong
19
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
20
Impact on Balances of Trade in Goods and Trade in
Services of Hong Kong
(US$Bn)
Reference
Year
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Balance of Trade in Goods
Balance
Balance
(Adjusted figures*)
-16
-15
-17
-8
-3
-8
-8
-5
-6
-9
-8
-14
-20
12
20
21
32
36
37
37
39
38
41
48
51
43
Balance of Trade in Services
Balance
Balance
(Adjusted figures*)
9
12
11
9
12
16
16
19
20
24
30
36
42
-18
-22
-27
-31
-28
-30
-29
-25
-23
-26
-26
-29
-21
* Figures are adjusted for goods for processing and merchanting based on 2008 SNA and BPM6 standards.
21
Impact on World Ranking of Hong Kong Exports of Goods
(US$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.
22
Source: International Financial Statistics Yearbook 2007, the IMF
Impact on World Ranking of Hong Kong Exports of Services
(US$Bn)
Economy
Exports of Services in 2006
Exports of Services in 2006
(Adjusted Figures*)
United States
409 (1)
409 (1)
United Kingdom
230 (2)
230 (2)
Germany
174 (3)
174 (3)
France
118 (4)
118 (4)
Japan
117 (5)
117 (5)
Spain
106 (6)
106 (6)
Italy
99 (7)
99 (7)
China
92 (8)
92 (8)
Netherlands
85 (9)
85 (9)
India
75 (10)
75 (10)
Hong Kong
73 (11)
54 (15)
Ireland
68 (12)
68 (11)
Figures in brackets are rankings among economies in the world.
*Figures for Hong Kong are adjusted for goods for processing and merchanting based on 2008 SNA and BPM6 standards,
whereas figures for other economies are assumed unchanged.
23
Source: International Financial Statistics Yearbook 2007, the IMF
Impact on World Ranking of Hong Kong –
Total Trade in Goods
(US$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)
Netherlands
734 (9)
734 (9)
Hong Kong
649 (10)
516 (13)
Korea, Republic of
634 (11)
634 (10)
Belgium
564 (12)
564 (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.
24
Source: International Financial Statistics Yearbook 2007, the IMF
Impact on World Ranking of Hong Kong Total Trade in Services
(US$Bn)
Economy
25
Total trade
in Services in 2006
Total trade
in Services in 2006
(Adjusted Figures*)
United States
752 (1)
752 (1)
United Kingdom
406 (2)
Germany
(US$Bn)
Economy
Total trade
in Services in 2006
Total trade
in Services in 2006
(Adjusted Figures*)
Korea, Republic of
123 (13)
123 (14)
406 (2)
Singapore
121 (14)
121 (15)
394 (3)
394 (3)
Belgium
115 (15)
115 (16)
Japan
253 (4)
253 (4)
Hong Kong
110 (16)
138 (12)
France
226 (5)
226 (5)
Denmark
97 (17)
97 (17)
Italy
199 (6)
199 (6)
Sweden
90 (18)
90 (18)
China
193 (7)
193 (7)
Luxembourg
82 (19)
82 (19)
Spain
185 (8)
185 (8)
Switzerland
81 (20)
81 (20)
Netherlands
163 (9)
163 (9)
Ireland
146 (10)
146 (10)
India
139 (11)
139 (11)
Canada
132 (12)
132 (13)
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
Plan of Hong Kong in Implementing
the New Statistical Standards
26
Additional Data Requirement under New Statistical
Treatment - Goods for Processing


27
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)
Additional Data Requirement under New Statistical
Treatment - Goods for Processing
How to obtain :
 Data models

To produce preliminary estimates of trade aggregates
to support timely compilation of GDP and BoP
statistics

28
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
Additional Data Requirement under New Statistical
Treatment - Goods for Processing

29
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
Additional Data Requirement under New Statistical
Treatment - Merchanting
30

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
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
31
Views from Major Data Users


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32
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