How is China's trade imbalance overstated? An analysis based on trade in value‐added

Abstract This paper uses the 2015 version of the Organisation for Economic Co‐operation and Development (OECD) and World Trade Organization (WTO)'s Trade in Value‐added (TiVA) database to estimate China's value‐added exports to gross exports ratio (VAER), and calculate and compare China's bilateral gross trade imbalances and value‐added trade imbalances with its major trading partners at the aggregate and sector level, respectively. During the period from 1995 to 2011, China's value‐added exports were around 35% less than gross exports at the aggregate level, and around 60% and 80% for manufacturing sectors and tech‐intensive sectors, respectively. Compared with those based on conventional gross trade statistics, our estimates based on trade in value‐added cut China's overall trade imbalances substantially. China's value‐added trade surplus for manufacturing sectors, especially for the so‐called tech‐intensive sectors, was around 45% and over 85% less than gross trade surplus, respectively. China–U.S. value‐added trade surplus was 28–45% less than gross trade surplus during the period from 1995 to 2011. On the contrary, China's value‐added trade deficit with East and Southeast Asian economies is 71–99% and 59–93% less than gross trade deficit during the period from 2005 to 2011, respectively.