The gap between China’s goods surplus — as reported in the customs data — and China’s good surplus in the balance of payments is now an incredible $300 billion, or over 1.5% of GDP … Real money.
There is a plausible explanation for the source of the gap — namely China stopped counting (for balance of payments purposes) the exports of foreign firms producing in China’s bonded zones (technically the bonded zones are offshore)
While the adjustment may be technically correct (the production is taking place in a part of China that technically isn’t China for BoP purposes by a non-resident) I am not as convinced as Adam that it is entirely innocent — the adjustment only entered the data recently.
And while the bonded zones do serve a tax purpose, I suspect the goods produced in China (for customs purposes) but outside China (for BoP purposes) and real — not phantom goods to move phantom profits around. They use Chinese labor …
So in addition to stateless profits* we now have stateless exports — and a stateless trade surplus … * (Stateless profits have fallen as a result of the BEPS process; Apple Ireland is now a tax resident of Ireland — before it was a resident of “nowhere”)
The customs v BoP gap though is no so big that I don’t think either the U.S. Treasury or the IMF can continue to use the BoP data when assessing China’s external position — the BoP now leaves out too much.
The net effect of the adjustment now applied to the customs data is a reduction in China’s reported current account surplus and in reported errors in the financial account — I personally doubt China would have started doing the adjustment if it added to the surplus!