Bloomberg News:

I have two questions. The first is that the U.S. Department of Treasury has raised some doubts about the balance of payments and statements by SAFE, including on the calculation of the trade deficit, and they have asked SAFE to provide more information about how you're calculating the goods trade deficit as compared to the customs administration, including in recent meetings and high-level meetings. Will you provide more information on how this is calculated for the U.S. Treasury and the public? My second question is, recently, there's been a rebound in the stock market due to expectations about stimulus. Do you have any information on how this is affecting capital inflows of foreign investors? And what is your outlook for cross-border capital flows through the end of this year? Thank you.

Jia Ning: 

Thank you for your attention to the balance of payments statistics. The discrepancies between goods trade figures in the balance of payments and customs import-export data aren't unique to China – they're common worldwide. These differences primarily arise from the different international standards followed by balance of payments and customs statistics, which highlights the importance of understanding their respective statistical methodologies. While the balance of payments focuses on the economic ownership of goods between residents and non-residents – essentially documenting transactions between domestic and foreign companies, customs statistics are solely concerned with the physical movement of goods across China's borders, regardless of ownership changes. Let me illustrate this with a common example from processing trade: When a foreign company provides all raw materials and contracts a domestic company for processing and assembly, with the finished products remaining foreign-owned, these transactions aren't included in the balance of payments since no ownership transfer occurs. However, customs records the full value of these goods as imports and exports since they physically cross the border.

It's important to recognize that as a major global trading and consuming nation, China has diverse trading patterns and a complex trade structure. The separation between goods transactions and their physical cross-border movement is increasingly common in international trade, naturally leading to more noticeable differences between these two sets of data. In a globalized economy, foreign multinationals may contract production in China, and the products may be sold directly in the domestic market. Since these goods do not cross borders, the transaction is not reflected from customs statistics. However, when these goods are sold domestically, the ownership transfers from the foreign company to a domestic entity, requiring their inclusion in the balance of payments import statistics. Additionally, the valuation principles differ between the two data sets. Balance of payments statistics measure the value of goods themselves, excluding transport and insurance costs. In contrast, customs statistics record exports at free on board (FOB) prices and imports at cost, insurance and freight (CIF) prices. 

These detailed explanations can be found in our newly released “China's Balance of Payments Report for the First Half of 2024” and previous reports. To achieve more comprehensive and accurate statistics on the goods trade in the balance of payments, since 2022, SAFE has been using data directly reported by enterprises, aligning more closely with the principles of goods trading. Balance of payments statements worldwide are compiled according to the uniform standards set by the International Monetary Fund. During this year's Article IV Consultation for China, the IMF fully endorsed China's new compilation methodology, recognizing that it addresses the practical challenges faced by China and better adheres to balance of payments statistical principles. Recently, at a special session of the China-U.S. financial working group, SAFE also had thorough and effective discussions with the U.S. Treasury on statistical issues. Looking ahead, SAFE will continue to monitor developments in China's foreign trade, refine our statistical methods, and provide higher-quality balance of payments data to the public.

As for the second question you asked, Mrs. Li responded previously. In general, China's balance of payments has solid economic foundation with sound market conditions. Since this year, the current account has developed steadily with two-way trade increasing and surplus continuing to be reasonable and balanced. From the perspective of the capital account, recent foreign direct investment has improved, and foreign purchases of bonds and stocks under portfolio investments have been sound. Therefore, we are confident and have good reason to believe that in the future months and even further China's cross-border investment capital will remain to have a trend that is steady and sound. Thank you for your concern.