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Sino-US trade gap not that big if US business interests in China are counted: survey
The big gains made by the US business community in China are not factored into the calculations of US-China trade balance. So, once a trade war breaks, bigger-than-expected US business interests will be jeopardized, reported thepaper.cn, a Shanghai-based news portal, citing a recently released research report.

“The large amount of revenue earned by the China subsidiaries of US companies is not reflected in the current trade figures, while export volume accomplished by the China branches would always be counted into the country's overall exports,” wrote Zhang Zhiwei, China Chief Economist of the Deutsche Bank, in a report focusing on the US business interest in China.

In a note accompanying the report, Zhang suggested that compared with China's trade surplus with the US, “aggregate sales balance” between the two countries could more accurately mirror the situation of their economic and trade exchanges.

China's customs data indicated the country's surplus with the US scaled to $275.8 billion in 2017, while the figure was US$261 billion back in 2015, reported Wall Street Journey this January. It is widely known that for the claimed trade gap, the US President Donald Trump has lashed out at China's “one-sided and unfair” trade practices multiple times and committed his administration to solving the problem by reducing China's surplus by US$100 billion.

Apple Inc. is used as a case in point in the German bank's report to undermine President Trump's argument about unfair trade. It's documented that, in 2016, 310 million iPhones were being used in China, which is twice the figure for American users. Meanwhile, the US company grossed $48 billion from its China operations in the year, with much of the revenue deriving from iPhone sales.

However, the part of sales would not factor in bilateral trade numbers. Like many other US companies, Apple Inc. has set up subsidiaries in China, which would import components and parts from suppliers overseas and then arrange for the phones to be assembled and then sold in the country. The phones made and sold in China by the US company would not be counted as China's imports.

On the other hand, bilateral trade figures told a different story: in 2016, China imported merely one million US dollars of cell phones from the United States while it exported cell phones worth $26 billion to the US—so, a deficit of $26 billion in this sector alone.

Based on this, Zhang pointed out in the report that “the first thing is revenues earned by the US companies' China branches are not included in the calculations of bilateral trade flow, while the second thing is the current bilateral trade practices would also not screen out 'exports' made by the foreign companies' China branches.

Based on the statistics from the US Bureau of Economic Analysis (BEA), a US government agency under the Department of Commerce, in 2015, the report estimated the total value of the US business interest in China.

In 2015, the total value of sales by the China subsidiaries stood at $372 billion, among which, $223 billion of goods and services were sold directly to Chinese consumers in the country and $150 billion of goods were exported.

Also in 2015, Chinese companies sold $402 billion worth of goods and services to the US, among which $10 billion were revenues of Chinese companies' US branches and sales of $393 billion were earned from exports.

With the method of “aggregate sales balance”, China's trade surplus with the US in 2015 was merely $30 billion.

The report indicates before 2009, both trade and “aggregate sales” gap between the two countries had been expanding, while between 2008 and 2015, the aggregate sales balance dropped from US$ 110 billion to US$ 30 billion. “The reason is the China branches of US companies embraced boosted sales,” Zhang wrote.

Based on data of BEA, between 2010 and 2015, the China market accounted for one third of the total sales made by US companies' overseas subsidiaries. Although the data for the year 2016 and 2017 has not yet been released, corporate data indicated the companies' China operation still took lead in the race of global sales during the period.

Zhang noted it's concluded by the research although the trade gap between China and the US used to be huge, over the past decade, the problem has been rectified, with businesses of both countries now gaining equal interests from each other's markets. “If there is a trade war, both countries would suffer huge losses, considering the most devastating retaliation on China's side would be to punish US companies now operating in China.

The article is translated and edited from a Thepaper.cn report. 
 

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