One of the most incomprehensible aspects of China’s foreign trade data has long been the trade data with Hong Kong. The core question is: Is the mainland’s trade with Hong Kong in a long-term deficit or a long-term surplus? The suspicion of trade with Hong Kong, almost in the field of China’s foreign trade research, has a Goldbach conjecture type of status, can speak this problem thoroughly, take a Chinese economics research field “Sun Yefang Award”, no problem at all.
Here, the first thing I need to give is the data from both the mainland and Hong Kong, so that you can understand how big the difference is. First, the mainland customs side of the China-Hong Kong trade data table released from 1997 to the present.
Well, you can clearly see that, according to the data given by the mainland customs, the mainland has maintained a surplus with Hong Kong for a long Time. In terms of import and export, the scale of mainland exports to Hong Kong has been very large in recent years, maintaining a very high level of about 300 billion U.S. dollars for a long time, and this scale of exports is second only to exports to the United States, so Hong Kong has become the second export destination of China. But the scale of imports from Hong Kong is extremely small, less than 10 billion U.S. dollars. Thus in recent years, the trade surplus earned by the mainland from Hong Kong has always remained between $250-300 billion.
If that’s the case, we earn nearly 300 billion U.S. dollars in foreign trade surplus from Hong Kong every year, Hong Kong’s little foreign exchange reserves, simply not enough for us to earn, casually, Hong Kong’s 450 billion U.S. dollars in foreign exchange reserves, can be emptied by the mainland, a residue can not be left. But Hong Kong’s foreign exchange reserves are solid as Gold, there is no risk of being emptied, so we must look at another set of data: the Hong Kong government statistics on trade between Hong Kong and China data sheet.
OK, according to the data released on the Hong Kong government side , Hong Kong in turn has maintained a high surplus with the mainland for a long time. From 1997 to 2020, only two years, 2014 and 15, there was a deficit, the other years are all surplus. 2020 trade surplus with the mainland even reached a staggering 401 billion Hong Kong dollars, or about 51.7 billion U.S. dollars, is the highest ever trade surplus value with the mainland. It seems that in the case of Hong Kong, because it does not have the industrial capacity, nothing can be produced, almost any living materials need to be imported, Hong Kong should have long been trapped in the huge pressure of imports, foreign exchange reserves should be in a high state of tension is right. However, Hong Kong earned from the mainland this huge surplus, is an important supplement to its overall foreign trade deficit, plus Hong Kong can also earn from the mainland every year to more than 50 billion U.S. dollars in surplus trade in services (including mainland people to Hong Kong tourism and shopping, and Hong Kong accountants and lawyers to provide professional services to the mainland, etc.), which actually achieved the long-term stability of Hong Kong’s foreign exchange reserves.
—-? The split line full of question marks? —-
However, this is where our problem lies: logically speaking, the data released by the Hong Kong government is obviously more reasonable and in line with the reality, otherwise Hong Kong’s foreign exchange reserves would have been depleted. And what about the mainland customs data? Who exactly is in surplus to whom?
Let’s look at 2019 alone, the mainland customs side of the data, exports to Hong Kong 278.9 billion U.S. dollars, imports from Hong Kong only 9.1 billion U.S. dollars, almost equivalent to no imports, the mainland therefore earned a surplus of 268.9 billion U.S. dollars. The data from the Hong Kong government’s side, when converted to US dollars, is $263.8 billion in imports from the mainland, which basically corresponds to the mainland customs data, but exports to the mainland are as high as $283.4 billion, far exceeding that $9.1 billion figure from the mainland customs.
Having said that, we must give specific data on the types of imports and exports of goods, which can more clearly understand the causes behind this data conflict. Considering that the Hong Kong government’s statistics are more logical, the table below adopts the data from Hong Kong. The reason why the data for 2019 are used is simply because the data for 2020 are not yet available, but there should be no change in the law.
Well, whether importing from or exporting to the mainland, the top three categories of goods are the same: electronic components, communication equipment and office computer equipment. And these three categories of products occupy the absolute trade dominance. In fact, we can look at these three things together and understand them collectively as electronic products. 2019 Hong Kong imported 127.08 billion Hong Kong dollars ($162.9 billion) of electronic products from the mainland, while exporting 159.46 billion Hong Kong dollars ($204.4 billion) of electronic products to the mainland. On the electronics piece, Hong Kong earned a surplus of $40 billion from the mainland. And in the statistics of the mainland customs side, the scale of the mainland’s imports of electronic products from Hong Kong, directly to zero. This is the root cause of the difference between the two sides of the data.
—- conclusion of the division line —-
The reason for this situation is related to the trade pattern of the mainland’s imports of electronic products from Hong Kong. Such imports are very piecemeal, often using a flesh-and-blood model. In passing through the mainland customs, buyers basically will not declare; and in Hong Kong side, Hong Kong is a free port anyway, so sellers are normal declaration. So one way or another, it creates a major statistical difference between the two sides. And, the interesting thing is that the mainland imports electronic products from Hong Kong on such a large scale of human beings, which can effectively circumvent the technological blockade of the mainland by European and American countries, especially in areas such as chips. In other words, Shenzhen‘s booming artificial intelligence industry, drone industry and cell phone industry are actually built on this $200 billion annual import trade from Hong Kong.
And, more critically, this import trade from Hong Kong, it does not rely on the U.S. dollar for settlement. Thanks to Shenzhen’s well-developed private financial system, both RMB and HKD can be used as trade instruments for settlement, and can be settled on the same day. RMB and HKD can be mutually considered as foreign exchange reserves by the two governments. It is not possible to rely only on the official currency swap between the two regions, and this link must be built on solid foreign trade ties. The annual import trade of electronic products from Hong Kong, which amounts to 200 billion dollars, is an important reason why the two sides can reach a high degree of tacit understanding in the field of foreign exchange reserves.
No matter how you look at it, this annual $200 billion import business of electronic products from Hong Kong in flesh and blood is a lifeline for the mainland’s technology-based enterprises; it is the strongest credit support for the foreign exchange reserves of the mainland and Hong Kong.
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