China Trade: U.S. Exports, Investment, Affiliate Sales Rising,
but Export Share Falling (09-DEC-05, GAO-06-162).
China is important to the global economy and a major U.S. trading
partner. By joining the World Trade Organization (WTO) in 2001,
China pledged to further liberalize its trade regime and follow
global trade rules. While U.S.-Chinese commercial relations have
expanded, controversies have emerged, including the size and
growth of the U.S. trade deficit with China, China's lack of
intellectual property protection, and China's implementation of
its WTO obligations. Despite these challenges, China's vast
consumer and labor markets present huge opportunities for U.S.
exporters and investors. GAO (1) analyzed U.S. goods and services
exports to China, (2) assessed how U.S. exports to China have
fared against those of other major trading partners, and (3)
analyzed U.S. investment and affiliate sales in China. We
provided the Office of the U.S. Trade Representative, the
Departments of Agriculture and Commerce, and the International
Trade Commission with a draft of this report for their review and
comment. These agencies chose to provide technical comments from
their staff. We incorporated their suggestions as appropriate.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-162
ACCNO: A43017
TITLE: China Trade: U.S. Exports, Investment, Affiliate Sales
Rising, but Export Share Falling
DATE: 12/09/2005
SUBJECT: Exporting
Foreign trade policies
International economic relations
International organizations
International trade
Investments abroad
China
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GAO-06-162
Report to Congressional Committees
December 2005
CHINA TRADE
U.S. Exports, Investment, Affiliate Sales Rising, but Export Share Falling
Contents
Tables
Figures
December 9, 2005Letter
The Honorable Charles E. Grassley Chairman The Honorable Max Baucus
Ranking Minority Member Committee on Finance United States Senate
The Honorable William M. Thomas Chairman The Honorable Charles B. Rangel
Ranking Minority Member Committee on Ways and Means House of
Representatives
China has become an important nation within the global economy and a major
U.S. trading partner. China is also a top destination for foreign direct
investment, as multinational corporations increasingly access the Chinese
market through their foreign affiliates. By joining the World Trade
Organization (WTO) in 2001, China pledged to further liberalize its trade
regime and become subject to global trade rules. While U.S.-China
commercial relations have expanded in recent years, disagreements have
also emerged over a wide variety of issues, including the size and growth
of the U.S. trade deficit with China, China's enforcement of intellectual
property protection,1 and concerns over China's implementation of its WTO
obligations. Despite these challenges, China's vast consumer and labor
markets present considerable opportunities for U.S. exporters and
investors.
In response to your request for a long-term body of work related to
U.S.-China trade, we provide information in this report on the extent to
which U.S. companies have accessed the Chinese market through exports to
and investment in China. Specifically, we (1) analyzed U.S. goods exports
to China and how they have changed over time, (2) analyzed U.S. services
exports to China and how they have changed over time, (3) assessed how
U.S. exports to China have fared against other major trading partners'
goods exports to China, and (4) analyzed U.S. investment and affiliate
sales in China.
In order to analyze how U.S. exports to China have changed over time, we
collected and analyzed U.S. goods trade data from the Department of
Agriculture's U.S. Census Bureau and U.S. services trade data from
Department of Commerce's U.S. Bureau of Economic Analysis (BEA). To assess
how U.S. exports to China have fared compared with that of China's other
major trading partners, we reviewed official Chinese trade statistics. We
analyzed the goods trade data at various levels, including GAO's 10 broad
categories of goods, which are aggregations of the 99 chapter headings of
the U.S. Harmonized Tariff Schedule (HTS). To compare U.S. companies'
investments and sales in China to U.S. exports to China, we collected and
analyzed U.S. direct investment abroad and multinational company
operations data from BEA and from Chinese trade statistics. We recognize
the limitations of the Chinese trade statistics and the differences from
U.S. statistics, but we found them to be sufficiently reliable to present
individual countries' shares of China's trade and their investment in
China. Finally, we reviewed U.S. government and private sector studies on
the U.S.-China trade and investment relationship and interviewed relevant
U.S. government and private sector experts on U.S.-China trade. In order
to compare real changes in trade flows and remove the effects of price
inflation or deflation, we used deflators and reported statistics in 2004
constant dollars, except as noted. Appendix I contains a full description
of our objectives, scope, and methodologies.
We performed our work from April 2005 to December 2005 in accordance with
generally accepted government auditing standards.
Results in Brief
Although accounting for only 4 percent of total U.S. goods exports, China
is a fast-growing market, with U.S. goods exports to China growing faster
than overall U.S. goods exports over the past decade. In addition, China's
ranking among other U.S. trading partners has grown in importance, jumping
from the 9th-largest market for U.S. goods exports in 1995 to the
5th-largest in 2004, behind Canada, the European Union (EU), Mexico, and
Japan. U.S. goods exports to China tripled in value from 1995 to 2004 from
$11 billion to $33 billion,2 with an annual real growth rate of 13 percent
versus a 2 percent real annual growth rate for overall goods exports. In
the past decade, U.S. goods exports to China increased across virtually
all major categories, and China was a major market for some U.S. exports,
mainly raw materials. Much of the growth occurred during the second part
of the last decade. Economic growth in China and liberalization of its
market, including joining the WTO, are among the factors driving the
impressive export growth. China's development in the manufacturing sector
has created demand for industrial inputs and raw materials, such as
electronic circuits for consumer electronics and cotton for the textile
and apparel industry.
Although smaller compared with goods, China's market for U.S. services has
increased in importance, rising both in dollar value, from $3 billion to
over $7 billion, and as a share of total U.S. services exports, from 1
percent to over 2 percent, from 1995 to 2004.3 China also moved from the
12th- to the 7th-largest market for U.S. services exports during the same
period. In addition, like goods, U.S. services exports to China grew
faster than U.S. services exports to the rest of the world. Growth varied
among the 5 main services categories and their subcategories, with
Royalties and Licensing and Passenger Fares growing the fastest. Also like
goods, overall increases in U.S. services exports were likely due to the
sharp growth of the Chinese economy and the resulting increased demand for
services. Slower U.S. export growth in some categories may be due to
relatively slower trade liberalization in China for services. For example,
many WTO services commitments have only recently come into effect or are
not yet scheduled to be phased in until later and restrictions remain.
However, trade in services also tends to be smaller than trade in goods,
in part, because many services require local presence in China and thus
are harder to provide internationally.
Although growing rapidly, U.S. goods exports to China have not kept pace
with other countries' goods exports to China, particularly from Asia.4 The
U.S. share of world goods exports to China declined from 12 percent to 9
percent over the past decade. At the same time, South Korea and Taiwan
increased their relative shares, and in some cases, surpassed the United
States as suppliers to China, according to Chinese trade statistics. The
U.S. share of world exports to China declined in export categories with
large dollar values, such as Machinery, Electronics, and High-Tech
Apparatus, which include products like telecommunications equipment, fiber
optics, and computer parts. Despite the overall decline, the United States
gained export share in some categories, particularly those related to
agricultural goods under Prepared Food, Beverages, Spirits, and Tobacco.
The U.S. share of world exports to China has declined over time partly
because China is importing goods in industries like electronics, in which
local Asian countries are increasingly exporting parts to China to be
assembled into final products. Another reason for the declining United
States market share is that China has dramatically increased imports of
resource-based products, such as petroleum, which the United States
exports very little of in China. Finally, macroeconomic factors, such as
exchange rates, and industry-specific factors may also affect U.S. firms'
ability to compete with other suppliers to China.
Through increased foreign investment in China, U.S. affiliate sales have
exceeded U.S. exports to China since 2002 because U.S. companies have sold
more of their goods and services directly to the Chinese market through
their local affiliates. In 2004, the United States was the 5th-largest
source of foreign direct investment for China. Overall U.S. investment in
China has been growing, from $2 billion to $15 billion5 from 1995 to 2004,
and is concentrated in the manufacturing sector. U.S. affiliate sales of
goods and services have become an important avenue for accessing the
Chinese market. For goods alone, U.S. affiliate sales in China in 20036
were $34 billion versus $29 billion in U.S. exports to China. The
relationship for services was the reverse, with U.S. affiliate sales at $4
billion compared with exports of $6 billion that same year. Growth in
investment and affiliate sales, particularly for goods, is due at least in
part to China's attraction as a growing economy, including its burgeoning
domestic market, relatively high productivity and low labor costs, and
developing infrastructure. The relatively smaller investment levels and
affiliate sales in services match worldwide patterns but, as is the case
for services exports, may also be because many of China's WTO commitments
for liberalizing services trade have only recently or are yet to be phased
in and restrictions remain.
Background
Over the last few decades, various political and economic factors have
contributed to the advancement of commercial relations between the United
States and China. Trade expanded rapidly after the United States and China
signed a bilateral trade agreement in 1979. Total U.S.-China trade
increased from about $8 billion in 1985 to $20 billion in 1990 and to $57
billion in 1995, according to the Census Bureau. The economic reforms and
open investment policies that China initiated around the same time led to
a surge in demand for foreign goods and services to modernize the economy,
from infrastructure to industries. China's rapid economic growth, with its
real gross domestic product growing at an average annual rate of about 9.5
percent from 1980 to 2000,7 generated demand for raw materials and basic
commodities, such as steel, iron, and cotton. Economic growth also
enhanced the purchasing power of Chinese citizens, especially those living
in urban areas. This created a relatively large middle class with the
ability to buy foreign consumer goods and services. In addition, China
joined the WTO in December 2001, making it subject to the multilateral
organization's trade liberalizing requirements.
While U.S. exports to China rose rapidly after 1980, U.S. imports from
China grew at an even faster pace, creating a large bilateral trade
deficit that continues to increase today. The deficit in goods ballooned
from $6 million in 1985 to $34 billion in 1995 and to $162 billion in
2004, according to the Census Bureau. This U.S. trade deficit with China
in 2004 accounted for almost 25 percent of the overall U.S. trade deficit.
The U.S.-China trade imbalance has gained much political and media
attention in recent years and has become a source of trade friction
between the two countries. Some policy makers, industry leaders, and labor
groups believe that this trade imbalance is costing United States jobs in
industries trying to compete with imports from China. Further, some plicy
makers believe that this trade imbalance may be due to China's unfair
trade practices or its failure to meet all of its WTO obligations. Some
policy makers also believe that China's currency is undervalued relative
to the U.S. dollar, and thereby inhibits
greater imports from the United States.8 The causes of the U.S. trade
deficit with China, or with the rest of the world, while complex, are
rooted in part in macroeconomic factors at home and abroad, such as
national savings and investment decisions, growth levels, monetary and
fiscal policies, changes in domestic and foreign prices, and exchange
rates. For example, when a country's budget deficit or domestic spending
grows without increases in domestic savings, foreign capital inflows can
rise, affecting exchange rates, leading to an increase in imports and
deterioration in the trade balance. China, Japan, and Europe have been the
largest foreign sources of these capital inflows to the United States in
recent years. Some experts remain less concerned about trade deficits
because the inflow of foreign capital allows a higher level of investment,
benefiting the economy as a whole.
China's accession to the WTO in 2001, a complex process that took 15
years, resulted in commitments to further open and liberalize its economy
and offer a more predictable environment for trade and foreign investment
in accordance with WTO rules. In particular, China committed to gradually
eliminate or lower tariffs and nontariff barriers on a broad range of
goods and services.9 A subsequent survey of U.S. companies showed that
they expected China's membership to the WTO to have a positive impact on
their business operations.10 While U.S. firms are progressively gaining
greater market access in China, many issues remain to be solved, from
opaque rules and regulations to intellectual property violations.11
Goods Exports to China Experienced Rapid Growth in the Past Decade, Driven
by China's Economic Growth and Market Liberalization
Although still relatively small, China's market for U.S. goods exports has
become increasingly important. Export growth to China was widespread
across 10 major GAO product categories and accelerated in recent years. In
particular, raw materials and intermediate inputs for manufacturing, such
as cotton for textiles and apparel, experienced the highest growth in
recent years. China's economic development and market liberalization have
been major contributors to the growth in U.S. exports.
China Is an Increasingly Important and Fast-Growing Market for Exports of
U.S. Goods
Although still small relative to some other U.S. trading partners, China's
market for U.S. goods has increased in importance. China progressed from
the 9th-largest market for U.S. goods exports in 1995 to the 5th-largest
in 2004, after Canada, the EU,12 Mexico, and Japan (see fig. 1). In
addition, U.S. goods exports to China exceeded those to any individual EU
country. However, exports to China are still significantly smaller than
exports to the United States' largest trading partners, Canada and Mexico.
In 2004, $33 billion, or 4 percent of total U.S. goods exports, went to
China, compared with $164 billion and $93 billion to Canada and Mexico,
respectively.
Figure 1: U.S. Goods Export Markets in 2004
On the other hand, China is a significant market, and in some cases even
the largest market, for certain U.S. products-mainly raw materials for
manufacturing, building, and agriculture. For example, more than 20
percent of U.S. exports of oil seeds, zinc, cotton products, and raw hides
and skins and almost 13 percent of U.S. iron and steel exports were
destined for China in 2004. Moreover, despite declines in recent years,
China is still the largest market for U.S. fertilizer exports, according
to an industry expert, and trade statistics show that fertilizer exports
to China accounted for more than 35 percent of total U.S. fertilizer
exports in some years. However, there are major exported products for
which China remains a small U.S. market, including pharmaceutical
products, with exports to China of less than 0.5 percent of total U.S.
pharmaceutical exports, and vehicles, with less than 1 percent of U.S.
vehicle exports in 2004.13 (See app. II, tables 8 and 9, for details.)
Over the past decade, U.S. goods exports to China have grown much faster
than overall U.S. goods exports. U.S. exports to China tripled in value
and grew at an annual rate of 13 percent versus 2 percent annually for
overall U.S. exports, from 1995 to 2004, adjusted for inflation (see fig.
2).14 In addition, over the same period, U.S. exports to China grew faster
than U.S. exports to any other major U.S. trading partner.15 Growth rates
for U.S. exports over the decade were 3 percent for Canada, 7 percent for
Mexico, and negative 3 percent for Japan. As a result of the faster
growth, China's share of total U.S. exports more than doubled from 2
percent to over 4 percent from 1995 to 2004.
Figure 2: Value and Share of U.S. Goods Exports to China
Note: We adjusted all data for inflation and expressed them in 2004
constant dollars.
Export Growth Was Widespread among Goods Categories and Subcategories
While U.S. goods exports to China grew overall during the past decade,
growth was also consistent at the more detailed product category and
subcategory level.16 Over a 10-year period, all but 2 of GAO's 10
categories of goods, Aircraft, Vehicles and Other Transportation and
Miscellaneous and Special Provision Goods, had double-digit annual growth
rates from 1995 to 2004, as shown in table 1. The category with the
highest U.S. export value, $12.8 billion in 2004, was Machinery,
Electronics, and High-Tech Apparatus, which grew at an annual rate of 15
percent over the period. Aircraft, Vehicles and Other Transportation had
one of the lowest annual growth rates of 5 percent.
Much of the growth in U.S. goods exports to China occurred in recent
years. As shown in table 1, the overall annual growth rate during the
second 5 years of the decade, 2000 to 2004, was 19 percent, as compared
with 6 percent from 1995 to 1999.17 In fact, 7 of the 10 goods categories
had higher growth rate for the most recent 5-year period than for the
previous 5-year period. For example, Textiles and Apparel, Leather and
Footwear, the bulk of which includes raw cotton (including yarn and woven
fabric),18 had the highest growth rate during the recent 5-year period, or
45 percent annually from 2000 to 2004, as compared with a negative 20
percent growth rate in the previous 5 years. The goods category with the
highest U.S. exports to China by value, Machinery, Electronics, and
High-Tech Apparatus, grew at a rate of 19 percent during the most recent
5-year period versus 9 percent during the previous 5 years.
Table 1: U.S. Exports to China by the Annual Growth Rate (1995-2004) and
Export Value for 2004
Dollars in billions
Overall First 5 years Second 5 years Export value
Goods category
(1995-2004) (1995-1999) (2000-2004) (2004)
Machinery,
electronics, and 15% 9% 19% $12.8
high-tech apparatus
Chemicals, plastics, 10 6 20 5.8
and minerals
Animal and plant 14 (10) 20 3.4
products
Aircraft, vehicles
and other 5 20 6 2.6
transportation
Base metals and
articles of base 23 2 23 2.6
metals
Textiles, apparel,
leather, and 11 (20) 45 2.6
footwear
Wood and paper 17 20 22 1.6
products
Miscellaneous
manufacturing and 4 0 10 0.5
special provision
products
Prepared foods,
beverages, spirits, 18 26 20 0.4
and tobacco
Glassware, precious
metals and stones, 15 14 8 0.3
and jewelry
Total 13% 6% 19% $32.7
Source: GAO analysis of U.S. Census Bureau trade statistics.
Notes:
We calculated the annual growth rates by fitting a trend line through the
inflation adjusted annual data without constraining the line to go through
the first year data. We did not use the average of annual growth rates
because the averages can be skewed by occasional large changes in trade.
We adjusted all data for inflation and expressed them in 2004 constant
dollars.
U.S. export growth to China was also widespread at the more detailed
subcategory level. We found that out of 99 subcategories, exports of 88
subcategories increased in value over the past decade. Comparing the
average gain in export value between the first and second parts of the
decade (1995 to 1999 and 2000 to 2004), we found that most of the value
increase, 59 percent, was driven by the following 5 subcategories (see
app. II, table 10, for details):
o Electric machinery, sound equipment, and television equipment increased
an average of $2 billion per year, 18 percent of the total increase.
o Nuclear reactors, boilers, machinery increased an average of $1.8
billion per year, 15 percent of the total increase.
o Oil seeds, grain, seed, fruit and plant increased an average of $1.6
billion per year, 14 percent of the total increase.19
o Iron and steel increased an average of $800 million per year, 7 percent
of the total increase.
o Optic photo etc, medical or surgical instruments etc. increased an
average of $700 million per year, 6 percent of the total increase.
Far fewer subcategories, 9 out of 99, experienced declines in U.S. goods
exports to China. Comparing the average loss in export value between the
first and second parts of the decade (1995 to 1999 and 2000 to 2004) we
found that 88 percent of the export decline was driven by the following 3
subcategories (see app. II, table 11, for details):
o Fertilizer20 declined an average of $560 million per year, 53 percent of
the total decline.
o Cereals21 declined an average of $185 million per year, 18 percent of
the total decline.
o Animal or vegetable fats, oils etc. and waxes declined an average of
$176 million per year, 17 percent of the total decline.22
Among the Factors Driving U.S. Goods Export Growth Are China's Rapid
Economic Growth and Market Liberalization
Both rapid economic growth in China and the removal and reduction of
Chinese trade barriers have fueled demand for many types of goods in
China, particularly raw materials and intermediate inputs for China's
booming manufacturing sector. First, U.S. exports have benefited from this
increasing demand in China. For example, a Department of Agriculture
report noted that U.S. cotton exports surged primarily because of the
rapid growth of China's textile and apparel industry, especially in 2005
after the expiration of U.S. and other WTO members' import quotas under
the WTO Agreement on Textiles and Clothing. Another contributing factor
was cotton shortage following a poor Chinese harvest in 2003. In addition,
U.S. exports of integrated circuits-a key component of consumer
electronics, such as digital video disk players, cell phones, and global
position system devices-have increased because China has become a major
manufacturer of consumer electronics and China's domestic production of
integrated circuits can only meet around 10 percent to 15 percent of
China's demand, according to a Commerce trade expert. Exports of
electronic circuits and micro assembling have grown at an annual rate of
47 percent since 1995, reaching over $2 billion in 2004. Economic growth
in China also has fueled demand for energy-related equipment. For example,
U.S. exports of gas turbine parts to China increased dramatically in
recent years, reaching $266 million in 2004.
Second, market liberalization has been a factor in the growth of U.S.
goods exports to China. Reduction or removal of trade barriers has created
opportunities for foreign exporters to access China's market. The United
States concluded bilateral negotiations with China on WTO accession in
1999. Then, as part of its 2001 WTO accession agreement, China committed
to reducing or eliminating a variety of market access barriers to foreign
products. In its agreement, China made specific commitments on the tariff
rates for more than 7,000 products covering all imports as well as
commitments on trade-distorting practices, such as state trading and
quotas, affecting more than 900 products. By 2010, the end of the WTO
commitment phase-in period, China's overall average tariff is scheduled to
be less than 10 percent. China has also committed to removing certain
nontariff barriers, such as quotas and licensing, by 2005.
While Overall Services Exports to China Grew during the Past 10 Years,
Growth among Services Categories Varied
China is a small but growing market for U.S. services. From 1995 to 2004,
China moved from the 12th- to the 7th-largest recipient of services
exports, and U.S. services exports to China increased both in dollar value
and as a share of U.S. world exports. However, U.S. services exports are
relatively small, $7 billion in 2004, compared with goods exports of $33
billion in 2004. Like goods, U.S. services exports to China grew faster
than U.S. services exports to the rest of the world. The annual growth
rates for exports varied widely among the 5 main services categories and
their subcategories. The services categories that grew the fastest over
the decade were Royalties and License Fees and Passenger Fares. Among the
faster-growing subcategories were telecommunications and financial
services, while other subcategories, such as business, professional, and
technical services, experienced much slower growth. Also like goods,
overall increases in U.S. services exports are likely due to the sharp
growth of the Chinese economy and the resulting increased demand for
services. Slower export growth in some categories may be due to relatively
slower trade liberalization in China for services. For example, many WTO
services commitments have only recently come into effect or are not yet
scheduled to be phased in.
China Is a Growing Destination for U.S. Services Exports, Which Grew
Faster Than Overall U.S. Services Exports
Although still small, China is a growing market for U.S. services exports,
which grew faster than U.S. services exports to the rest of the world from
1995 to 2004. In 2004, China received 2 percent of total U.S. services
exports and was the 7th-largest market for U.S. services, behind the EU23
at 35 percent, Japan at 11 percent, Canada at 9 percent, Mexico at 6
percent, and South Korea and Switzerland each at 3 percent (see fig. 3).
In 1995, China was the 12th-largest. Since then, China has surpassed
Australia, Hong Kong, Taiwan, Brazil, and Singapore, which were among the
top 12 markets for services exports in 1995.
Figure 3: Top Markets for U.S. Services Exports in 2004
Note: We adjusted all data for inflation and expressed them in 2004
constant dollars.
U.S. exports of services to China have grown significantly, with growth
moderating somewhat in recent years. The annual growth rate for services
exports to China was 10 percent from 1995 to 2004, which was slower than
the growth rate for goods (about 13 percent) and faster than the overall
growth rate for U.S. services exports to the world (3 percent). As shown
in figure 4, from 1995 to 2004, U.S. services exports to China more than
doubled in value from $3 billion to $7 billion, and China's share of total
U.S. services exports to the world also grew from 1 percent to over 2
percent. U.S. services exports grew faster in the first part of the
period-services exports grew about 11 percent from 1995 to 1999 versus 6
percent from 2000 to 2004.
Figure 4: Value and Share of U.S. Services Exports to China and as a Share
of Total U.S. Services Exports, 1995-2004
Note: We adjusted all data for inflation and expressed them in 2004
constant dollars.
U.S. Services Exports to China Grew under All Major Categories, with Some
Variation
While services exports grew overall over the past decade, growth rates
varied among major categories and subcategories.24 From 1995 to 2004, U.S.
services exports to China grew in each of the 5 main services categories:
Travel, Passenger Fares, Other Transportation, Royalties and License Fees,
and Other Private Services. (See app. III for a full description of these
categories and their subcategories). As shown in table 2, Royalties and
License Fees grew the fastest over time, with an annual growth rate of 22
percent from 1995 to 2004. While all services categories grew over time,
growth rates varied from the first half of the 10-year period to the
second half of the period. For example, services in the Other
Transportation category had an annual growth rate of 11 percent for the
whole period and declined by 4 percent from 1995 to 1999, but grew quickly
at a rate of 26 percent from 2000 to 2004.
Table 2: Five Main U.S. Services Exports to China by Annual Growth Rate
(1995-2004) and Export Value for 2004
Dollars in
millions
Annual growth rate
(percent)
First 5 years Second 5 years Export
Services category Overall (1995-2004) (1995-1999) (2000-2004) value
(2004)
Royalties and 22% 37% 33% $928
license fees
Passenger fares 17 64 (17) 221
Other 11 (4) 26 1,804
transportation
Other private 11 12 9 3,392
services
Travel 1 16 (9) 894
Total 10% 11% 6% $7,239
Source: GAO analysis of Department of Commerce, Bureau of Economic
Analysis data.
Notes:
For information about services categories and their definitions, see
appendix III.
We adjusted all data for inflation and expressed them in 2004 constant
dollars.
The U.S. government also collects some data on sales of services to China
at the subcategory level. As shown in table 3, all but 1 subcategory under
the main category of Other Private Services grew overall from 1995 to
2004.25 Growth ranged from 24 percent for insurance services to 8 percent
for the business, professional, and technical services category, and there
was a 1 percent decline for Other Private Services. U.S. export growth
rates under some of these subcategories also varied between the two
periods. For example, exports of financial services grew 12 percent in the
first period, from 1995 to 1999, and 27 percent in the second period, from
2000 to 2004. One large subcategory for services sales was education,
which comprised about half the value of Other Private Services exports,
$1.3 billion in 2004, and consists of tuition and living expenses of
foreign students enrolled in U.S. colleges and universities.
Table 3: Subcategory of U.S. Services Exports to China by the Annual
Growth Rate (1995-2004) and Export Value for 2004
Dollars in millions
Annual growth
rate (percent)
Subcategory of other Overall First 5 Years Second 5 Export
private services (1995-2004) (1995-1999) Years value
(2000-2004) (2004)
Insurance services 25% 14% 20% $23
Financial services 22 27 12 165
Telecommunications 14 10 9 90
Education 10 10 6 1,260
Business, professional, 8 10 9 1,216
and technical services
Othera (1) (9) 5 127
Total 8% 9% 10% $2,882
Source: GAO analysis of Department of Commerce, Bureau of Economic
Analysis data.
Notes:
For information about services categories and their definitions, see
appendix III.
We adjusted all data for inflation and expressed them in 2004 constant
dollars.
aFor other services, growth rates are estimated due to unavailable data
for some years.
The U.S. government collects further data on the subcategory of business,
professional, and technical services, which encompasses a number of key
areas, including legal, advertising, and computer and information
services. As shown in table 4, from 1995 to 2004, growth rates in exports
in these subcategories varied from a 2 percent annual decline for
construction, architectural, and engineering services, to a 21 percent
annual growth for research and development and testing services. Comparing
the first and second half of the decade in table 4, exports in these
services appear to be somewhat volatile, since some industries experienced
declines and then growth or vice versa during the two periods. However,
because exports for subcategories under business, professional, and
technical services are relatively low (less than $100 million in most
cases) changes from one year to the next can drastically affect overall
growth rates.
Table 4: Subcategory of U.S. Services Exports to China by the Annual
Growth Rate (1995-2004) and Export Value for 2004
Dollars in millions
Annual growth
rate (percent)
Subcategory of Overall First 5 Years Second 5 Years Export
business, professional, (1995-2004) (1995-1999) (2000-2004) value
and technical services (2004)
Research and 21% 25% 7% $14
development and testing
Legal 15 24 9 60
Advertisinga 12 12 36 6
Management, consulting, 9 (1) 36 53
and public relations
Installation,
maintenance, and repair 6 (5) 5 199
of equipment
Computer and 5 1 11 48
information
Construction,
architectural, and (2) 6 (1) 328
engineering
Total 8% 10% 9% $1,216
Source: GAO analysis of Department of Commerce, Bureau of Economic
Analysis data
Notes:
For information about the services categories and their definitions, see
appendix III.
We adjusted all data for inflation and expressed them in 2004 constant
dollars.
aBEA did not publish a figure for advertising for 1995, so growth rates
are calculated from 1996 to 2004.
U.S. Services Exports Aided by Chinese Economic Growth but Limited by
Slower Trade Liberalization to Date
Like goods, the growth in U.S. services exports to China over the past
decade was driven in part by China's sharp economic expansion. However, in
contrast to goods, the overall value of services exports is smaller and
individual categories and subcategories experienced more variable growth.
The smaller value of U.S. services exports to China is consistent with
world trade patterns with the United States. Trade in services tends to be
smaller than trade in goods in part because many services require some
type of direct contact or local presence and thus are harder to provide
across international borders. In addition, China is following a common
trend among developing countries, which usually have relatively small
services sectors, according to the World Bank. However, the smaller
overall value of services exports and variable growth rates among services
categories may also be due to the fact that China's services sector is yet
to be fully liberalized. For example, most market access commitments for
services are to be phased in by 2007. Finally, China's export-oriented
growth has depended on the industrial sector, rather than services.
While China's WTO commitments for services are to provide foreign services
providers with increased access to a number of sectors, including business
services, communications services, financial services, and tourism- and
travel-related services, many of these commitments have only recently come
into effect or are yet to be phased in. For example, under financial
services, insurance was scheduled to be fully liberalized over a 5-year
period, thereby relaxing many restrictions, such as selective licensing
processes and geographic limitations. In another example, in the financial
services area, U.S. banks will be able to provide local (Chinese) currency
services without geographic and client limitations by 2006; and
telecommunications is also scheduled to be liberalized by 2007, when
foreign providers will be allowed to offer a broad array of
telecommunications services with no geographic restrictions, although only
through joint ventures with Chinese partners. International Trade
Commission officials contend that joint venture requirements may, in part,
explain the smaller value for U.S. services exports compared with goods
exports to China. Office of the United States Trade Representative (USTR)
officials noted that implementation problems have inhibited market access
for services.26
However, a portion of U.S.-China services trade does not depend upon
market access. For example, some U.S. services exports are delivered to
Chinese residents by virtue of the Chinese residents traveling to the
United States to consume these services. Thus, although exports in the
subcategory of education are among the largest in terms of dollar value, a
good portion of those exports are tuition and living expenses of foreign
students enrolled in U.S. colleges. Similarly, a portion of
telecommunications exports is international calls from China to the United
States.
Finally, a good portion of services trade depends not only upon exports,
but also upon foreign direct investment and establishing commercial
presence, or selling services through local U.S. affiliates.27 This is
also the case in China. A Commerce trade expert told us that cross-border
trade in services is small relative to the Chinese domestic market, since
many services must be provided by firms located in China, and the real
potential for growth in services trade is in affiliate sales. For example,
while exports in telecommunications are growing, the real potential is in
providing telecommunications services to China's domestic market, such as
improving telephone service, which requires setting up local operations.
In another example, according to an official from the Coalition of Service
Industries, business, professional, and technical services are especially
important to coalition members as well as to the Chinese government
because the Chinese are anxious to form joint ventures to increase their
expertise. The official said that it took a smaller investment to locate
services in China compared with a manufacturing plant, especially for
financial services, where coalition members preferred to do business
through joint ventures and branches.28
U.S. Goods Exports Have Not Kept Pace with Other Nations' Exports to China
Although U.S. goods exports to China have grown rapidly, other countries,
particularly a few Asian countries, have experienced even higher export
growth to China, resulting in a drop in total U.S. market share of total
world exports to China.29 Similarly, other large suppliers to China, such
as the EU and Japan, have experienced declines in their shares, while
certain Asian countries, such as South Korea and Taiwan have increased
their shares of overall exports to China. The U.S. decline covers a wide
range of products, including autos and parts, plastics and organic
chemicals, and optical machinery. However, the United States did increase
export share in other products, particularly agricultural goods, such as
prepared meats and fish, and preserved fruits and vegetables.30 The U.S.
share of exports to China has declined partly due to the rise of existing
smaller exporters and partly due to the growing number of new countries
exporting to China. In particular, as local Asian production processes
became more integrated, other East Asian and Southeast Asian countries
became larger suppliers of China's growing manufacturing and assembly
operations. Another reason for the declining market share was the quickly
increasing Chinese imports of natural resources, such as petroleum, for
which the United States is not a major supplier to China. Finally, other
macroeconomic and industry-specific factors may have played a role in the
declining U.S. market share.
U.S. Share of Chinese Import Market Has Declined over the Last Decade
Although the value of U.S. goods exports to China has increased every year
for the past 10 years, the U.S. share of total exports from all countries
to China has declined. The U.S. share of world goods exports to China fell
from about 12 percent in 1995 to about 9 percent in 2004,31 according to
Chinese trade statistics. Figure 5 shows the values of world and U.S.
goods exports to China as well as the U.S. percentage of world exports to
China. As figure 5 shows, overall world exports to China have grown
significantly, more than quadrupling from about $130 billion in 1995 to
about $522 billion in 2004 (unadjusted for inflation), according to
Chinese trade statistics.
Figure 5: U.S. and World Goods Exports to China and U.S. Share of World
Goods Exports to China, 1995-2004
Notes:
Values for U.S. exports to China differ according to whether they are
reported by China or by the United States. The figure reports the Chinese
statistics in order to compare them with overall exports to China. See
appendix I for more discussion of these statistics.
We report Chinese trade statistics in nominal dollars. We were not able to
identify an appropriate trade deflator for Chinese statistics in order to
remove the potential effect of inflation or deflation on the values. See
appendix I for more discussion of these statistics.
At the same time, other large suppliers to China also experienced declines
in their share of world goods exports to China. Japan and the EU lost
overall export share; although, like the United States, they had growing
exports to China during the past decade. For example, Japan's share fell
from 22 percent to 18 percent and the EU's share fell from 16 percent to
13 percent from 1995 to 2004. In contrast, other Asian countries, such as
Indonesia, South Korea, Malaysia, Singapore, and Taiwan, increased their
export share and, in some cases, surpassed the United States. Regionally,
Indonesia, Malaysia, and Singapore are all members of the Association of
Southeast Asian Nations (ASEAN),32 which have increasingly integrated
their production and trade with China.33 The United States was the
3rd-largest exporter to China in 1995, but fell to the 6th-largest in
2004, as shown in figure 6. South Korea, Taiwan, and the ASEAN surpassed
the United States and drew close to overtaking the EU by 2004. The
remaining countries as a group increased their share of China's market as
well, from about 22 percent in 1995 to 24 percent in 2004. Russia was the
7th-largest exporter to China in 2004 (at about 2 percent), followed by
Hong Kong and Australia.34 Japan and the EU have, since at least 1995,
been larger suppliers to the Chinese market than the United States.
Figure 6: Share of Goods Exports to China for the Top Six Suppliers,
1995-2004
Most U.S. Export Categories Have Lost Share of World Goods Exports to
China
Despite overall growth in exports to China, the United States lost share
of world goods exports to China in 7 out of the 10 goods categories
between the first and second half of the 10-year period (average annual
share 1995 to 1999 versus 2000 to 2004),35 as highlighted in table 5. For
example:
o Aircraft, Autos, and Other Transportation: U.S. share dropped 7
percentage points from 28 percent to 21 percent, even though U.S. exports
grew annually on average by 5 percent between 1995 and 2004.
o Chemicals, Plastics, and Minerals: U.S. share fell 4 percentage points,
although U.S. exports grew annually on average by 10 percent, between 1995
and 2004.
o Machinery, Electronics, and High-Tech Apparatus: U.S. share lost 3
percentage points, despite the fact that U.S. exports grew annually on
average by 15 percent between 1995 and 2004, and this was the largest
category by value of U.S. exports, $13 billion in 2004.
Table 5: Changes in U.S. Share of World Exports to China, 1995-2004; and
U.S. Goods Exports to China, 2004
Dollars in
millions
Average U.S.
share of world
exports to
China (percent)
Percentage First 5 years Second 5 years U.S. goods
Goods category point change (1995-1999) (2000-2004) exports to
(A) (B) China
(B minus A) (2004)
Aircraft, autos,
and other (7)% 28% 21% $2,630
transportation
Chemicals,
plastics, and (4) 11 7 5,760
minerals
Machinery,
electronics, and (3) 13 10 12,800
high-tech
apparatus
Glassware,
precious metals (3) 10 7 328
and stones,
jewelry
Miscellaneous (1) 8 7 510
manufacturing
Base metals and
articles of base (1) 6 5 2,620
metals
Wood and paper (1) 15 14 1,640
products
Textiles, apparel,
leather, and 0 7 7 2,550
footwear
Percentage First 5 years Second 5 years U.S. goods
Goods category point change (1995-1999) (2000-2004) exports to
(A) (B) China
(B minus A) (2004)
Prepared food,
beverages, 3 13 16 406
spirits, and
tobacco
Animal and plant 1 24 25 3,410
products
Total (3)% 12% 9% $32,654
Source: GAO analysis of Chinese and U.S. Census Bureau trade statistics.
Notes:
Broad product categories are GAO aggregations of the chapters from the
U.S. Harmonized Tariff Schedule of the United States. For more information
on these categories, see appendix I, table 7.
Shaded product categories indicate a decline in U.S. share of world
exports to China.
The U.S. share of world exports are based on Chinese trade statistics.
U.S. exports to China in 2004 are from U.S. statistics that we adjusted
for inflation and expressed in 2004 constant dollars.
At a more detailed subcategory level, changes in U.S. export share were
mixed. Within the 10 goods categories, we found that a slight majority of
individual subcategories (55 out of 99 subcategories) experienced a
decline in the U.S. share of world exports to China.36 Some subcategories
for which U.S. market share declined had high export values and were major
contributors to export increases (see app. II, table 12, for the top 20
subcategories in terms of market share decline). For example:
o Oil seeds, with $2.4 billion in exports in 2004, lost 12 percentage
points in share between the first and second half of the decade, although
it contributed to 14 percent of the total export increase over the period.
o Optic, photo, medical, with $2 billion in exports in 2004, lost 6
percentage points in share between the first and second half of the
decade, although it contributed to 6 percent of the total export increase
over the period.
The two subcategories that contributed the most to export increases
between the first and second half of the decade also lost market share,
but to a lesser extent.
o Electrical machinery, with $5 billion in exports in 2004, lost 2 percent
market share, although it contributed to 18 percent of the total export
increase over the period. This subcategory includes high-tech products,
such as telecommunications equipment, fiber optics, and computer parts.
o Machinery (other than electrical), with $6 billion in exports in 2004,
lost 2 percent market share, although it contributed to 15 percent of the
total export increase over the period.
Many U.S. Agricultural Goods Have Increased Their Share of World Exports
to China
Only categories related to agricultural goods have gained or maintained
U.S. worldwide market share in China, with the exceptions previously
noted. The largest overall increase was in the category of Prepared Food,
Beverages, Spirits, and Tobacco, in which the United States increased its
share of world exports to China by 3 percentage points, from 13 percent to
16 percent over the decade (see table 5). The U.S. export increase in this
category moved the United States from the 4th-largest supplier to China in
1995 to the 2nd-largest supplier of that category in 2004, behind Peru
(see fig. 7). According to the Department of Agriculture, exports to China
from Peru are primarily fish meal.
Figure 7: Major Suppliers' Share of World Exports to China of Prepared
Food, Beverages, Spirits, and Tobacco, 1995-2004
For the other 2 agriculture-related categories, the United States
increased its share by about 1 percent in Animal and Plant Products, while
its share remained relatively stable in Textiles, Apparel, Leather, and
Footwear at about 7 percent over the decade, on average. (See app. II,
table 13, for the 20 subcategories by increase in the U.S. share of world
goods exports to China.)
Again, at the more detailed subcategory level within these broad
agricultural categories, changes in export share were mixed.37 Most
subcategories under Prepared Food, Beverages, Spirits, and Tobacco have
increased their world export share in China. For example:
o Prepared meats and fish increased by 20 percentage points, from 11
percent to 31 percent over the decade.
o Preserved foods, including a wide range of fruits, vegetables, nuts, and
juices, grew by 14 percentage points, from 31 percent to 45 percent over
the decade.
However, some subcategories under animal and plant products experienced
mixed results. For example:
o Lac, gums and resins grew in share over the decade from 16 percent to 32
percent; edible fruits and nuts increased from 7 percent to 15 percent.
o Edible vegetables and certain roots and tubers declined from 19 percent
to 8 percent; animal or vegetable fats, oils etc. and waxes declined from
13 percent to 3 percent.
Growing Asian Production, Oil Imports, and Macroeconomic Factors Were
among the Reasons for Decreased U.S. Export Share in China
Over the past decade, the U.S. share of world exports to China has
declined for a variety of reasons. The loss in the U.S. share of worldwide
exports to China has occurred as the volume of exports from smaller
exporters has grown and the number of countries exporting to China has
increased. These trends are due to multiple factors. For example, greater
integration of Asian production processes has helped certain other Asian
countries become larger suppliers of China's growing manufacturing and
assembly operations. Also, China's resource-based imports, including those
from oil-producing countries, rose sharply as its rapid economic growth
increased demand for raw materials. In addition, macroeconomic factors
that influence the overall U.S. trade deficit, including exchange rates
with China and other Asian countries, as well as industry-specific
circumstances, are likely to have affected the overall U.S. export share.
Individual countries, particularly those from Asia, have increased their
share of world exports to China at the expense of the United States and
other large suppliers. South Korea, Taiwan, and ASEAN countries, including
Indonesia, Malaysia, and Singapore, have all increased their export share
overall and in many particular products (e.g., autos and parts, and
electronics). There are several reasons why these countries may have
increased their market share in China. Regional economies in Asia have
increasingly integrated their production processes, producing parts for
products in one location and shipping them to another for assembly. China
has become a key component of this process due to its relatively low labor
costs and large-scale production potential. For example, China is a major
producer of electronic products, such as computers and video players,
which may be sold domestically or exported worldwide. As an indication of
this, China's largest import and export subcategory is electrical
machinery, which includes finished products, such as consumer electronics,
as well as components used in their production, such as electronic
circuits.
In addition, this greater integration of production processes can affect
trade trends. For example, U.S. components and parts exports first sent to
other countries and incorporated into those countries' exports to China
are not captured in U.S.-China bilateral trade statistics. Trade
statistics only show direct imports and exports between countries. For
products that are produced by a process that involves a series of
locations, trade statistics generally do not capture the value of inputs
coming from locations other than the last point of export. Therefore, for
some U.S.-made components, such as semiconductors, that are modified and
added to in Malaysia, Singapore, and the Philippines before being sent to
China for use in cell phones and computers, trade statistics do not
generally count them as U.S. exports to China, but as U.S. exports to
Singapore or the Philippines.
Furthermore, as the number of countries that export to China expands,38 1
export category that is particularly relevant is chemicals, plastics, and
minerals, which had the 2nd-highest U.S. export value in 2004 and includes
resource-based products, particularly petroleum products, which United
States exports very little to China. All major suppliers lost overall
export share in this category as a wider range of countries supplied
exports in this category between 2002 and 2004. Petroleum products are one
of the fastest-growing Chinese imports in recent years and accounts for a
substantial share of overall Chinese imports. In fact, imports of crude
oil from petroleum and bituminous minerals39 was the 2nd-largest Chinese
import by value in 2004, worth about $34 billion and accounting for over 6
percent of total Chinese imports, according to Chinese statistics. Many
oil-producing countries' exports to China grew faster than the average
annual
growth rate of 27 percent for all countries from 2000 to 2004. Table 6
lists examples of oil-producing countries with high growth rates.40
Table 6: Examples of Oil-Producing Countries with Higher-Than-Average
Export Growth Rates to China, 2000-2004
Dollars in millions
Country Annual growth rate (2000-2004) Export value (2004)
Chad 1,100% $223
Congo 59 1,569
Saudi Arabia 40 7,518
Angola 35 4,718
United Arab Emirates 33 1,305
Source: GAO analysis of official Chinese trade statistics.
Note: We reported Chinese trade statistics in nominal dollars.
Finally, there are also a variety of other broad macroeconomic factors,
such as exchange rates as well as industry-specific circumstances that may
have affected the U.S share of world exports to China. For example, many
economists believe the Chinese renminbi/yuan is undervalued relative to
the U.S. dollar, and certain Asian currencies that experienced
devaluations during the Asian financial crisis may therefore have a
competitive advantage in China. A higher-valued dollar would be expected
to have a dampening effect on U.S. exports to China by making U.S. exports
more expensive in the Chinese market relative to other countries' exports.
Also, industry-specific circumstances may provide certain countries with
export advantages over those of the United States. For example, some
industries' companies from other countries may have been operating in the
Chinese economy for longer than U.S. companies and may be gaining in
export share due to their greater experience. Also, according to one
Commerce specialist, some countries have provided "tied-aid" to China in
which they provide financial support for certain types of investments such
as environment projects, if their companies, rather than U.S. companies,
are able to supply the materials and components for the project. Also, in
the agricultural sector, Chinese concerns about animal and plant diseases
may restrict, at least temporarily, access of U.S. agricultural products
and reduce U.S. export share.
U.S. Investment in China Has Increased, and Affiliate Sales Surpassed U.S.
Exports
Through increased foreign direct investment in China, U.S. affiliate sales
have exceeded U.S. exports to China, since U.S. companies have
increasingly sold their goods and services directly to the Chinese market
through their local affiliates. Although small, U.S. investment in China
has been growing and investment levels have been similar to that of
China's other trading partners. U.S. companies generally concentrated
their investments in China in the manufacturing sector, in industries such
as transportation equipment, chemicals, and computers and electronic
products. U.S. investment in China funds the creation of U.S. affiliates,
who then sell in China and to other countries, including the United
States, and U.S. affiliate sales of goods and services have become an
important avenue for accessing the Chinese market. In fact, the value of
U.S. affiliate sales in China has exceeded the value of U.S. exports to
China since 2002.41 Factors such as the growing Chinese market, lower
labor costs, and China's WTO accession have allowed U.S. companies to
increase their investment and sales in China, although some challenges
remain.
U.S. Foreign Direct Investment in China Has Grown, Mostly in Manufacturing
U.S. foreign direct investment in China, although relatively small as a
share of total U.S. foreign investment, has grown and is concentrated
mainly in manufacturing (see fig. 8). In 2004, China ranked 12th as a
recipient of U.S. investment, and the cumulative stock of U.S. investment
in China was $15 billion.42 This was a relatively small amount compared
with U.S. investment going to other major U.S. trading partners. For
example, in 2004, the cumulative stock of U.S. investment in the EU,
Canada, and Japan was $952 billion, $217 billion, and $80 billion,
respectively.
However, U.S. investment in China has grown. For example, the cumulative
stock of U.S. investment in China grew from $2 billion in 1995 to $15
billion in 2004. In addition, according to Chinese statistics,
U.S.-realized annual investment flows43 into China grew at about 6 percent
annually from 1995 to 2003. This growth rate matched that of the EU (also
6 percent) and slightly exceeded that of Japan (4 percent) during the same
period.
Figure 8: U.S. Foreign Direct Investment in China, Value of Cumulative
Stock, and Share of Total U.S. Investment, 1995-2004
U.S. investment levels in China were similar to those of its other trading
partners. According to Chinese statistics, in 2003, 8 percent of China's
realized annual investment flows came from the United States, compared
with 7 percent from the EU, 8 percent from Korea, 9 percent from Japan, 6
percent from Taiwan, and 5 percent from the ASEAN. While Chinese
statistics show Hong Kong as providing 34 percent of investment in China,
this figure may be inflated by mainland Chinese investment going through
Hong Kong. In 2003, the United States was the 5th-largest investor with $4
billion of realized annual investment flows in China, behind Hong Kong,
the British Virgin Islands,44 Japan, and Korea (see fig. 9).
Figure 9: Realized Annual Investment Flows in China, from the World, 2003
Notes:
Realized investment represents the actual annual flow of investment. For
example, in a 3-year contract to invest $100 million, the realized annual
investment might be $25 million the 1st year, $50 million the 2nd year,
and $25 million the 3rd year.
Total foreign direct investment in China in 2003 was $53.5 billion.
BEA classifies data on U.S. investment abroad by industry, using a
classification system that is based on sales information, which companies
report in surveys. BEA collects data on foreign affiliates' production of
goods, sales of goods, and services. The major industries for which it
collects data include, among others, mining, utilities, and manufacturing
and wholesale trade. In 2004, U.S. investment in China was concentrated in
manufacturing, with over half of the cumulative stock of U.S. investment
in China, or $8.2 billion. Other broad industry groupings in which U.S.
companies invested their cumulative stock in China in 2004 included
wholesale trade at $1.8 billion, and mining at $1.7 billion (see app. IV,
table 15). BEA also classifies data on U.S. investment by subcategories in
the manufacturing sector. Examples of U.S. investment in manufacturing
subcategories included $1.8 billion in the transportation equipment
industry, $1.6 billion in the chemicals industry, and $1.3 billion in the
computers and electronic products industry (see app. IV, table 16).
U.S. Affiliate Sales in China Surpassed U.S. Exports to China
With their $15 billion investment in Chinese manufacturing and other
sectors, U.S. companies have established local affiliate companies that
increasingly sold their goods and services to the Chinese market. In 2003,
U.S. majority-owned affiliate companies sold about 75 percent of their
goods and services, or about $38 billion,45 in China to the Chinese
market. The remaining 25 percent of goods and services were sold to other
countries. These sales included goods and services that were exported back
to the United States, about 7 percent of the total. This indicates that
most U.S. companies' investment is meant to access the Chinese market,
rather than using China to provide goods and services back to the U.S.
market.
By 2002, U.S. companies sold more goods and services in China through
their local affiliates than they exported from the United States. By 2003,
U.S. affiliates in China sold about $38 billion in goods and services to
China, while U.S. exports to China that same year were $35 billion. The
annual growth rate of affiliate sales was 33 percent between 1995 and
2003, compared with 11 percent for U.S. exports. Figure 10 shows affiliate
sales from 1995 to 2003 and exports from 1995 to 2004.
Figure 10: Growth of Total (Goods and Services) U.S. Affiliate Sales in
China and U.S. Exports to China, 1995-2004
Notes:
Data on U.S. affiliate sales are through 2003.
We adjusted all affiliate sales data for inflation and expressed them in
2004 constant dollars.
For goods alone, U.S. affiliate sales in China have also surpassed U.S.
exports since 2001 (see fig. 11). In 2003, U.S. affiliates sold about $34
billion in goods to the Chinese market, while U.S. companies sold about
$29 billion through exports that same year.46 The annual growth rate of
affiliate sales of goods was 33 percent between 1995 and 2003, compared
with 13 percent for U.S. exports of goods.
Figure 11: Growth of U.S. Affiliate Sales of Goods in China and U.S. Goods
Exports to China, 1995-2004
Notes:
Data on U.S. affiliate sales are through 2003.
We adjusted all data for inflation and expressed them in 2004 constant
dollars.
Unlike goods sales, U.S. companies export more services to China through
cross-border trade than they sell through affiliates. U.S. affiliates'
services sales in China were at levels about two-thirds that of U.S.
services exports in 2003, that is, $4 billion in affiliate sales versus $6
billion in exports (see fig. 12). U.S. affiliates' services sales in China
were growing faster-that is, the annual growth rate of affiliate sales of
services was 36 percent between 1995 and 2003, compared with 10 percent
for U.S. exports of services. However, services are not a major component
of sales by U.S. affiliates in China and accounted for about 10 percent of
all sales by U.S. affiliates located in China.
Figure 12: Growth of U.S. Affiliate Sales of Services in China and U.S.
Services Exports to China, 1995-2004
Notes: Data on U.S. affiliate sales are through 2003.
We adjusted all data for inflation and expressed them in 2004 constant
dollars.
The majority of local sales through U.S. affiliates, 67 percent in 2003,
were in the broad industrial grouping of manufacturing, with over half of
these sales in the computers and electronic products industry (see app.
IV, table 18).47 The other notable industry was wholesale trade, with at
about 20 percent of all local sales by affiliates. Other smaller
industries included professional, scientific, and technical services and
utilities, with both accounting for about 1 percent of total sales (see
app. IV, table 17).
U.S. Companies Are Increasingly Investing in China and Selling through
Affiliates, but Challenges Remain
China's growing domestic market, improving productivity, low labor costs,
and improving infrastructure has made it an increasingly attractive
investment venue for U.S. companies.48 The U.S.-China Business Council
reported in 200449 that China's implementation of its WTO commitments has
increased foreign investors' ability to expand their operations. The trend
of U.S. affiliate sales surpassing U.S. exports to China is consistent
with the pattern of U.S. trade and investment worldwide. U.S.
multinational companies typically sell their goods and services directly
through their foreign affiliates. However, some experts believe that U.S.
investment and affiliate sales in China are particularly important.
According to a 2004 Center for Strategic and International Studies
report,50 China is an attractive venue for foreign investment due to its
large domestic consumption market, improved productivity, better
infrastructure, and higher technology standards and quality control.
Morgan Stanley reported in 200251 that sales of foreign affiliates, rather
than exports, are rapidly becoming the primary means by which U.S.
products are delivered to the Chinese; therefore, U.S. export figures do
not fully capture the true level of U.S. commercial sales in China. The
report said that China's massive consumer and labor markets set it apart
from the rest of the world, and many U.S. firms have no choice but to "be
on the ground there." A Coalition of Service Industries official predicted
that U.S. affiliate sales of services would continue to rise and
eventually overtake service exports, especially in financial services in
which coalition members to do business through joint ventures and
branches. The Center for Strategic and International Studies reported in
2004 that increasing total foreign direct investment in China indicates
that investment is targeting the domestic market for the long term, rather
than focusing on China as an export platform. According to the
International Trade Commission, however, for some countries, such as Asian
countries, investing in China as an export platform is still an important
part of their foreign direct investment.
However, there are some factors that limit or discourage U.S. companies
from investment in China. For example, the Chinese government is still
undergoing market-oriented reforms, such as phasing in many of its WTO
commitments for services; these reforms affect how U.S. companies access
the market for services in China--which may explain why sales of services
through affiliates lagged behind exports of services. According to USTR's
December 2004 report, China's opaque regulatory process and burdensome
licensing and operating requirements continue to frustrate efforts of U.S.
services providers in a number of industries. For example, the report
cited excessive capital requirements for U.S. companies in insurance,
banking, and telecommunications sectors, among others, that might prevent
U.S. services companies from operating in China.
Observations
This analysis reflects a range of issues affecting U.S.-China trade and
investment, including broad factors, such as China's economic development
and exchange rate regime, and more narrowly focused sector-specific
aspects such as China's growing importance as a market for U.S. goods and
services, the rise in integrated production among China's regional trading
partners, China's increasing demand for oil, and China's growing role as
an attractive venue for foreign direct investment. Beyond this broad
overview, further study may be warranted in particular areas, as follows:
o The strong, overall growth in U.S. exports over the past decade shows
that some U.S. companies are successfully selling their goods and services
to China. This growth is despite the current trade frictions between the
two countries, which include allegations that China has not been meeting
all of its WTO commitments and that China is limiting market access for
U.S. companies. An in-depth analysis of the relationship between U.S.
export growth in China and China's WTO commitments might provide useful
insights about the impact of China's reforms.
o U.S. services exports to China, although growing, are still relatively
small and undeveloped, in part because most WTO commitments for services
either have just recently come into effect or will do so in the near
future, and in part because of various Chinese restrictions. Therefore, it
may be best to observe the pattern of U.S. services exports when WTO
commitments have been phased in and given more time to be implemented.
o Integrated production, as China's neighbors, including Japan and South
Korea, use China as an assembly and export platform for their products,
has implications for the nature of the U.S. trade deficit with China.
Examining integrated production, particularly for China's largest import
and export category machinery, electronics, and high-tech apparatus, in
which the United States lost export market share in China to other
countries, may shed light on reasons for the U.S. trade imbalance with
China.
o The rise in U.S. affiliate sales relative to U.S. exports also has
implications for U.S. companies' ability to access the Chinese market. For
example, declines in U.S. vehicle exports to China appear to be offset by
U.S. companies' shifting production to China and selling vehicles directly
to the Chinese market through their affiliates. Exploring the extent and
reasons why affiliate sales have replaced exports as a means of accessing
the Chinese market may be useful.
o The significance of exchange rates to the U.S.-China trade relationship
is likely to remain an issue of continuing policy interest. While China's
exchange rate has changed only slightly since the Chinese government
announced a policy modification in July, further changes could, over time,
provide additional opportunities to study the relationship between
exchange rates and trade patterns.
Agency Comments
We provided USTR, the Departments of Agriculture and Commerce, and the
International Trade Commission with a draft of this report for their
review and comment. All four agencies chose to provide technical comments
from their staff. Their comments focused on descriptions of data sources,
methodologies for computing data, and explanations of trends in the data.
We modified the report in response to their suggestions.
We will send copies of this report to the appropriate congressional
committees, the U.S. Trade Representative, the Departments of Agriculture
and Commerce, and the International Trade Commission. We also will make
copies available to others upon request. In addition, the report will be
available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff has any questions concerning this report, please
contact me at (202) 512-2717 or at [email protected]. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on the
last page of this report. A GAO contact and staff acknowledgments are
listed in appendix V.
Loren Yager Director, International Affairs and Trade
Objectives, Scope, and Methodologies Appendix I
As part of a long-term body of work that the Chairman and the Ranking
Minority Member of the Senate Committee on Finance as well as the Chairman
and the Ranking Minority Member of the House Committee on Ways and Means
requested, we (1) analyzed U.S. goods exports to China and how they have
changed over time, (2) analyzed U.S. services exports to China and how
they have changed over time, (3) assessed how U.S. exports to China have
fared against other major trading partners' exports to China, and (4)
analyzed U.S. investment and affiliate sales in China.
In order to examine U.S. goods exports to China, we collected annual U.S.
export statistics from 1995 to 2004 at various levels of detail from the
Department of Commerce, U.S. Census Bureau. We used U.S. Bureau of Labor
Statistics export price deflators to deflate the U.S. trade data so that
all of the values reported are in 2004 constant dollars. We did not
deflate the foreign direct investment data since we report U.S. investment
abroad on an historical cost basis, which reflects the prices of earlier
periods in which the investment was made and represents the accumulated
stock of these investments. Although Commerce's U.S. Bureau of Economic
Analysis (BEA) calculates investments at current prices for aggregate
investment (which could then be deflated), it does not do so on a
bilateral basis. Therefore, we do not have an appropriate way to adjust
these values for any potential effects of inflation.
We used the U.S. harmonized tariff schedule (HTS) chapter level deflators
when available; otherwise, we used the corresponding section deflators.
For the few cases where section deflators were missing as well, we used
the general export price deflator. To facilitate a broad analysis of U.S.
exports to China, we grouped imports and exports into higher-level
categories of goods on the basis of the HTS product codes and our
discussions with tariff experts. We took the 22 section headings of the
HTS and grouped them into 10 broader categories. Table 7 shows these
groupings in detail. We studied the composition of exports by grouping
products into 10 categories. We compared the annual growth rate of U.S.
exports to China with U.S. exports to the world from 1995 to 2004 and also
from 2001 to 2004 at the overall level and the products level. We
identified products with the highest growth and decline in terms of both
value and percentage. We (1) analyzed the importance of China as an export
market for the United States by looking at the share of exports going to
China at various HTS levels and (2) identified products for which exports
to China accounted for a significant share. We interviewed a range of
government and industry experts to obtain contextual information on
selected export products we identified in our data analysis. Throughout
this report, we relied on secondary sources and did not independently
review Chinese law and regulations to determine their effect on sales and
investment.
Table 7: Concordance between 10 GAO Categories and the U.S. Harmonized
Tariff Schedule Section Headings
GAO category HTS section heading
1. Live animals, animal products
1. Animal and plant products 2. Vegetable products
3. Animal or vegetable fats and oils,
edible fats, waxes
2. Prepared foods, beverages, 4. Prepared foodstuffs, beverages,
spirits, and tobacco spirits, and vinegar; tobacco
5. Mineral products
3. Chemicals, plastics, and 6. Products of chemical or allied
minerals industries
7. Plastics and articles thereof,
rubber
9. Wood and articles of wood
4. Wood and paper products
10. Pulp of wood, paper, and
paperboard
8. Leather, travel goods, handbags
5. Textiles, apparel, leather, and 11. Textiles and textile articles
footwear (apparel)
12. Footwear, headgear, umbrellas,
etc.
13. Articles of stone, plaster,
6. Glassware, precious metals and ceramics, glass, and glassware
stones, and jewelry
14. Pearls, precious or semiprecious
stones, precious metals, jewelry, coin
7. Base metals and articles of base 15. Base metals and articles of base
metals metals (except tools and implements)
15. Base metals and articles of base
metals (tools and implements)
16. Machinery and mechanical
8. Machinery, electronics, and appliances, electrical equipment,
high-tech apparatus sound recorders, televisions
18. Optical, photographic,
cinematographic, measuring, and other
apparatus (except clocks and watches,
musical instruments)
9. Autos and other vehicles and 17. Vehicles, aircraft, vessels, and
parts associated transport equipment
18. Optical, photographic,
cinematographic, measuring, and other
apparatus (clocks and watches, musical
instruments)
19. Arms and ammunition
10. Miscellaneous manufacturing and
special provision products 20. Miscellaneous manufactured
articles
21. Works of art, collectors' pieces,
antiques
22. Special classification provisions
Sources: GAO and the international harmonized system nomenclature (World
Customs Organization).
To analyze U.S. services exports to China, we collected annual U.S. export
statistics from 1995 to 2004 from BEA. We used BEA price indices for major
service categories from the National Income and Product Accounts to
convert the trade data so that all values reported are, unless noted
otherwise, in 2004 constant dollars. We identified the importance of China
as a U.S. services export destination by looking at China's overall share
of U.S. services exports. We calculated the growth rates for services
categories and subcategories using a log function, so that we could
examine the categories with the highest growth. In some cases, when BEA
did not publish values for some categories in some years, we estimated the
missing values and based the growth rate on those estimations. We also
interviewed several government and industry experts to obtain contextual
information about services trade with China.
To assess how U.S. exports to China fared against other major trading
partners' exports to China, we collected official Chinese trade statistics
from Global Trade Information Services, a licensed contractor with the
Chinese government. We reviewed these data, including comparing them with
comparable United States, European Union (EU), and Japanese trade
statistics. These data differ from the U.S. statistics, particularly on
the Chinese export side, given that a portion of China's trade passes
through Hong Kong before going to its ultimate destination. However, after
reviewing the academic literature on this discrepancy and general reviews
of China's statistics, we found that the Chinese import statistics (which
we use in this report) should generally record the country of origin of
its imports accurately, despite whether products first transit through
Hong Kong. On the basis of our review of these statistics and the
literature, we found that these data were sufficiently reliable for
comparing the relative U.S. share of world exports to China over time to
other major trading partners, such as the EU and Japan. We analyzed the
U.S. share of world exports to China from 1995 to 2004 at a broad GAO
category level (see table 7) as well as at a more detailed subcategory
level. We compared the trends over two, 5-year periods (as discussed in
this report). In addition, we also compared the trends over 3-year periods
to confirm that the results still generally held. We calculated the
average share across these time periods by taking the average of the share
in each of the years (e.g., the average of the share for 1995, 1996, 1997,
1998, and 1999 in order to get the average share in 1995 to 1999).
However, we also calculated the weighted average share across these time
periods (using the value of trade as weights) in order to confirm that our
results still generally held. When we report the value of Chinese trade
flows (as opposed to the share of China's trade) using Chinese trade
statistics, it is in nominal dollars. We were not able to identify an
appropriate trade deflator for Chinese statistics in order to remove the
potential effect of inflation or deflation on the values. Finally, we also
interviewed industry experts from the Departments of Agriculture and
Commerce, and the International Trade Commission, and reviewed government
and academic reports to obtain contextual information about the trends in
U.S. share of world exports to China.
To study growth in affiliate sales and foreign direct investment, we
collected annual U.S. affiliate sales statistics from 1995 to 2003 and
investment statistics from 1995 to 2004 from BEA. We identified China's
importance as a foreign direct investment destination by looking at
China's overall share of U.S. foreign direct investment, and examined the
United States's importance as a foreign direct investor in China by
looking at the overall share of U.S. foreign direct investment in China
compared with other countries. We calculated the growth rates for
investment categories and subcategories using a log function, so that we
could examine which categories had the highest growth and decline both in
terms of value and percentage. BEA reports data on foreign direct
investment on an historical cost basis. We evaluated the growth in
affiliate sales of goods and services and compared these values to the
growth in cross-border trade in goods and services. We calculated the
growth rates for affiliate sales categories and subcategories using a log
function. In some cases, when BEA did not publish values for some
categories in some years, we estimated the missing values and based the
growth rate on those estimations. In one case, for foreign direct
investment in the finance and insurance category, we had to use an average
annual growth rate instead of a log function because BEA reported the
value of sales as a negative number. We used Chinese Consumer Price Index
data to deflate the affiliate sales to 2004 constant dollars. We also
interviewed several government and industry experts to obtain contextual
information about U.S. investment in and affiliate sales to China.
For each of the data sets that we used, we examined the data and found
them sufficiently reliable for the purposes of our report. In addition,
although Chinese data on U.S. exports have limitations and differ from
U.S. statistics, we found them to be sufficiently reliable to present
individual countries' relative shares of China's trade.
We performed our work from April 2005 to December 2005 in accordance with
generally accepted government auditing standards.
U.S. Goods Exports and U.S. Share of World Goods Exports to China Appendix
II
U.S. exports of goods to China have grown rapidly over the past decade,
while the U.S. share of world exports to China has fallen during the same
period. These trends are evident at a broad category level and at a more
detailed subcategory level. This appendix provides detailed information on
these changes as well as selected information on particular products.
Specifically, the tables that follow provide additional information on
subcategories of products. Table 8 lists subcategories whose exports to
China accounted for more than 10 percent of total U.S. exports in that
category in 2004; table 9 lists subcategories whose exports to China
accounted for less than 1 percent of total U.S. exports in 2004; table 10
list subcategories with the largest increases in export value over the
decade; table 11 lists subcategories with the largest declines in export
value; table 12 lists subcategories with the largest declines the U.S.
share of world exports to China; and table 13 lists subcategories with the
largest increases in the U.S. share of world exports to China. Finally,
table 14 provides complete data on U.S. exports to China and the U.S.
share of world exports to China for the 10 broad categories of goods and
their 99 subcategories.
China is a major market for some U.S. goods exports. Table 8 lists the
products for which exports to China accounted for more than 10 percent of
U.S. exports in that category in 2004. In particular, there were four
products for which more than one-quarter of total U.S. exports were
destined for China in 2004.
Table 8: Goods Subcategories for Which U.S. Goods Exports to China
Accounted for More Than 10 Percent of Total U.S. Goods Exports in 2004
Dollars in millions
Exports to Total exports China's share
Goods subcategory HTS chapter China (2004) (2004) of total U.S.
exports
Vegetable plaiting
materials & products 14 $10 $35 28.90%
nesoi
Oil seeds etc.; misc
grain, seed, fruit, 12 2,370 8,500 27.88
plant etc
Zinc and articles 79 37 142 26.27
thereof
Silk, including yarns 50 6 25 25.08
and woven fabric
Cotton, including
yarn and woven fabric 52 1,420 6,280 22.61
thereof
Raw hides and skins
(no fur skins) and 41 579 2,730 21.21
leather
Fur skins and
artificial fur; 43 41 209 19.47
manufactures thereof
Copper and articles 74 616 3,270 18.84
thereof
Wood pulp etc;
recovered (waste & 47 730 4,500 16.22
scrap) paper and
paper board
Iron and steel 72 1,080 8,520 12.68
Manmade staple
fibers, yarns & woven 55 209 1,680 12.44
fabrics
Fertilizers 31 311 $2,610 11.92
Source: GAO analysis of Department of Commerce, U.S. Census Bureau data.
Notes:
HTS is the U.S. Harmonized Tariff Schedule.
We adjusted all data for inflation and expressed them in 2004 constant
dollars.
China is an insignificant market for some other U.S. goods exports. Table
9 lists products for which less than 1 percent of U.S. exports went to
China in 2004. Some of these products are among major U.S. exports, such
as vehicles and pharmaceutical products, which had an overall export of
$67 billion and almost $19 billion in 2004, respectively.
Table 9: Goods Subcategories for Which U.S. Goods Exports to China
Accounted for Less Than 1 percent of Total U.S. Goods Exports in 2004
Dollars in millions
Exports to China's share
Goods subcategory HTS chapter China Total exports of total U.S.
(2004) exports
(2004)
Clocks and watches and 91 $2 $271 0.91%
parts thereof
Headgear and parts 65 1 102 0.90
thereof
Vehicles, except
railway or tramway, and 87 602 67,000 0.90
parts etc
Nat etc pearls,
precious etc. stones, 71 79 9,970 0.79
pr met etc; coin
Explosives;
pyrotechnics; matches; 36 4 484 0.79
pyro alloys etc
Textile art nesoi;
needlecraft sets; worn 63 7 905 0.76
text art
Prep cereal, flour,
starch or milk; bakers 19 12 1,730 0.71
wares
Milling products; malt;
starch; inulin; wheat 11 4 667 0.67
gluten
Mfr of straw, esparto
etc.; basket ware & 46 0 21 0.60
wickerwork
Live animals 1 3 506 0.55
Apparel articles and
accessories, not knit 62 8 1,590 0.52
etc.
Edible vegetables & 7 10 1,910 0.50
certain roots & tubers
Pharmaceutical products 30 94 18,900 0.50
Carpets and other 57 4 767 0.48
textile floor coverings
Works of art,
collectors' pieces and 97 6 1,320 0.46
antiques
Live trees, plants,
bulbs etc.; cut flowers 6 1 282 0.46
etc.
Beverages, spirits and 22 9 2,180 0.42
vinegar
Apparel articles and
accessories, knit or 61 8 2,430 0.34
crochet
Coffee, tea, mate & 9 1 269 0.32
spices
Knitted or crocheted 60 5 1,630 0.29
fabrics
Arms and ammunition;
parts and accessories 93 5 2,240 0.24
thereof
Source: GAO analysis of Department of Commerce, U.S. Census Bureau trade
statistics.
Notes:
HTS is the U.S. Harmonized Tariff Schedule.
We adjusted all data for inflation and expressed them in 2004 constant
dollars.
U.S. goods exports to China for the majority, 88 out of 99 goods
subcategories, increased in value over the past decade. High-value
subcategories, such as electric machinery, and those experiencing the
highest growth rates, such as oilseeds, were the main contributors to the
overall export value increase. As shown in table 10, the top 5
subcategories accounted for close to 60 percent of the total export
increase for the period.
Table 10: Goods Subcategories with the Highest Value Increase in U.S.
Exports to China (Average 1995-1999 Versus Average 2000-2004)
Dollars in millions
Average
exports
Change in Share of
1995-1999 2000-2004 5-year change in
Goods subcategory HTS chapter (B) periods 5-year
(A) (C)a periods
(D)b
Electric machinery
etc; sound equip; 85 $1,249 $3,370 $2,121 17.53%
television equipment;
pts
Nuclear reactors,
boilers, machinery 84 2,290 4,080 1,790 14.80
etc.; parts
Oil seeds etc.; misc.
grain, seed, fruit, 12 385 2,030 1,645 13.60
plant etc
Iron and steel 72 149 950 802 6.63
Optic, photo etc,
medic or surgical 90 569 1,308 739 6.11
instruments etc
Plastics and articles 39 441 1,169 727 6.01
thereof
Organic chemicals 29 303 920 617 5.10
Copper and articles 74 111 500 389 3.21
thereof
Raw hides and skins
(no fur skins) and 41 147 451 304 2.51
leather
Wood pulp etc;
recovered (waste & 47 203 494 291 2.41
scrap) paper and paper
board
Wood and articles of 44 41 229 188 1.55
wood; wood charcoal
Miscellaneous chemical 38 119 297 178 1.47
products
Aluminum and articles 76 181 357 176 1.46
thereof
Cotton, including yarn
and woven fabric 52 330 497 167 1.38
thereof
Vehicles, except
railway or tramway, 87 202 366 164 1.36
and parts etc
All other products 4,019 5,819 1,799 15
Source: GAO analysis of Department of Commerce, U.S. Census Bureau trade
statistics.
Notes:
HTS is the U.S. Harmonized Tariff Schedule.
We adjusted all data for inflation and expressed them in 2004 constant
dollars.
aValues in column (C) are derived by subtracting columns (A) from (B).
bPercentages in column (D) are derived by dividing each value in colunm
(C) by the summation of all items in column (C).
Far fewer, 9 of 99 of the goods subcategories, experienced declines in
export value in the past decade.1 Fertilizer experienced the highest
decline, with the annual average dropping $560 million for the second 5
years from the previous 5 years, accounting for more than half of the
total export decline.
Table 11: Products with the Highest Value Decrease in Exports to China
(Average 1995-1999 Versus Average 2000-2004)
Dollars in millions
Average
exports
Change in Share of
HTS 1995-1999 2000-2004 5-year change in
Goods subcategory chapter (A) (B) periods 5-year
(C)a periods
(D)b
Fertilizers 31 $1,107 $547 $(560) 53.25%
Cereals 10 311 126 (185) 17.59
Animal or vegetable fats, 15 217 42 (176) 16.73
oils etc. & waxes
Mineral fuel, oil etc.;
bitumin substitute; 27 197 142 (55) 5.24
mineral wax
Toys, games & sport
equipment; parts & 95 76 29 (46) 4.40
accessories
Food industry residues & 23 109 86 (23) 2.22
waste; prep animal feed
Carpets and other textile 57 7 4 (3) 0.26
floor coverings
Wool & animal hair,
including yarn & woven 51 7 5 (2) 0.23
fabric
Textile art; needlecraft 63 6 5 (1) 0.09
sets; worn text art
Source: GAO analysis of Department of Commerce, U.S. Census Bureau trade
statistics.
Notes:
HTS is the U.S. Harmonized Tariff Schedule.
We adjusted all data for inflation and expressed them in 2004 constant
dollars.
aValues in column (C) are derived by subtracting columns (A) from (B).
bPercentages in column (D) are derived by dividing each value in column
(C) by the summation of all items in column (C).
U.S. share of world goods exports to China declined overall from 1995 to
2004. Table 12 shows the top 20 products that experienced declines in
share between 1995 to 1999 and 2000 to 2004, as well as information on the
overall value of U.S. exports to China in 2004. Carpets and other textile
floor coverings experienced the largest decline of any subcategory,
falling from 42 percent of the world exports to China between 1995 and
1999, to only 13 percent between 2000 and 2004, on average. U.S. exports
to China of carpets and other textile floor coverings in 2004 were $4
million. However, the table shows that a range of products experienced
declines, including tobacco, toys, some agricultural products, and
fertilizers.
Table 12: Top 20 Declines in U.S. Share of World Exports to China,
1995-2004
Dollars in millions
U.S. share
of world
exports to
China
Percentage Average Average Export
Subcategory HTS point (1995-1999) (2000-2004) value
chapter change(A) (A) (B) (2004)
minus (B)a
Carpets and other 57 (29)% 42% 13% $4
textile floor coverings
Tobacco 24 (18) 22 4 27
Misc. grain, seed, fruit 12 (12) 52 40 2,370
Toys and sports 95 (12) 20 8 52
equipment
Vegetables 7 (11) 19 8 10
Fats and oils 15 (10) 13 3 35
Explosives 36 (10) 42 32 4
Fertilizers 31 (10) 41 31 311
Dairy, eggs, honey, etc. 4 (9) 19 10 38
Live animals 1 (8) 26 18 3
Milling; malt; starch 11 (8) 13 5 4
Cotton and yarn, fabric 52 (7) 18 11 1,420
Art and antiques 97 (6) 15 9 6
Railway;trf sign eq 86 (6) 9 3 47
Cereals 10 (6) 17 11 496
Optic,nt 8544;med 90 (6) 23 17 1,980
instruments
Other base metals, etc. 81 (5) 15 10 94
Fur skin, artificial fur 43 (6) 8 2 41
Glass and glassware 70 (5) 11 6 126
Other vegetable 14 (5) 16 11 10
Source: GAO analysis of Department of Commerce, U.S. Census Bureau trade
statistics and official Chinese trade statistics.
Notes:
HTS is the U.S. Harmonized Tariff Schedule.
We adjusted all data for inflation and expressed them in 2004 constant
dollars.
aThe percentage point change is derived by subtracting the value in column
(B) from the value in column (A).
Although, as previously discussed, 55 of the 99 subcategories of U.S.
exports to China experienced a decline in the share of world exports to
China, 42 subcategories experience a rise from the first half of the
decade (1995 to 1999) to the second half (2000 to 2004).2 Table 13 shows
the top 20 of these 42 categories that experienced increases in share.
Miscellaneous edible preparations-which are types of prepared foodstuffs,
including certain products, such as mayonnaise, mixed seasonings, and
certain sauces and syrups-experienced the largest increase over the
decade, growing from a 14 percent share to a 40 percent share of world
exports, on average. Once again, the subcategories that experienced
increases covered a wide range of products, including gums and resins,
printed books and newspapers, and aircraft. However, many of these, as
shown in table 13, were agricultural products.
Table 13: Top 20 Increases in U.S. Share of World Goods Exports to China,
1995-2004
Dollars in millions
U.S. share
of world
exports to
china
Percentage Average Average Export
Subcategory HTS point (1995-1999) (2000-2004) value
chapter change(B) (A) (B) (2004)
minus (A)a
Miscellaneous edible 21 26% 14% 40% $178
preparations
Edible preparations of
meat, fish, crustaceans 16 20 11 31 12
etc
Lac; gums, resins &
other vegetable sap & 13 16 16 32 14
extract
Prep vegetables, fruit,
nuts or other plant 20 14 31 45 55
parts
Products of animal 5 11 26 37 44
origin, nesoi
Leather art; saddlery
etc; handbags etc; gut 42 9 2 11 8
art
Wadding, felt etc; sp 56 9 3 12 71
yarn; twine, ropes etc.
Edible fruit & nuts;
citrus fruit or melon 8 8 7 15 71
peel
Printed books,
newspapers etc; 49 6 7 13 49
manuscripts etc
Soap etc; waxes, polish
etc; candles; dental 34 4 13 17 124
preps
Aircraft, spacecraft, 88 3 51 54 1,950
and parts thereof
Essential oils etc;
perfumery, cosmetic etc 33 4 23 27 82
preps
Mfr of straw, esparto
etc.; basket ware & 46 4 2 6 0
wickerwork
Footwear 64 3 15 18 31
Cocoa and cocoa 18 3 12 15 8
preparations
Art of stone, plaster,
cement, asbestos, mica 68 3 9 12 77
etc.
Ceramic products 69 3 10 13 46
Sugars and sugar 17 3 2 5 40
confectionary
Coffee, tea, mate & 9 3 6 9 1
spices
Hides and skins 41 3 13 16 579
Source: GAO analysis of Department of Commerce, U.S. Census Bureau trade
statistics and official Chinese trade statistics.
Notes:
HTS is the U.S. Harmonized Tariff Schedule.
We adjusted all data for inflation and expressed them in 2004 constant
dollars.
aThe percentage point change is derived by subtracting the value in column
(B) from the value in column (A).
Finally, table 14 provides information across all 10 broad categories and
the 99 subcategories that comprise them on the average annual growth of
U.S. exports to China from 1995 to 1999, 2000 to 2004, and over the whole
decade of 1995 to 2004. The table also shows U.S. exports to China in 2004
and the average U.S. share of world exports to China in 1995 to 1999, 2000
to 2004, and over the whole time period. Finally, the table shows the
difference between U.S. share of exports in 1995 to 1999 and 2000 to 2004.
Table 14: U.S. Goods Exports and U.S. Share of World Goods Exports to
China-All Categories and Subcategories, 1995-2004
Dollars in millions
Average annual growth
Category or subcategory HTS chapter
(1995-2004)
Group 1: Animal and plant products 14%
Live Animals 1 (4)
Meat and Edible Meat Offal 2 7
Fish, Crustaceans, and Aquatic 3 12
Invertebrates
Dairy Products; Birds, Eggs; Honey; 4 28
Edible Animal Products NESOI
Products of Animal Origin NESOI 5 13
Live Trees, Plants, Bulbs, Etc.; Cut 6 15
Flowers, Etc.
Edible Vegetables and Certain Roots and 7 30
Tubers
Edible Fruit and Nuts; Citrus Fruit or 8 55
Melon Peel
Coffee, Tea, Mate and Spices 9 18
Cereals 10 (15)
Milling Products; Malt; Starch; Inulin; 11 18
Wheat Gluten
Oil Seeds, Etc.; Misc Grain, Seed, 12 40
Fruit, Plant, Etc.
Lac; Gums, Resins, and Other Vegetable 13 60
Sap and Extract
Vegetable Plaiting Materials and 14 2
Products NESOI
Animal or Vegetable Fats, Oils. Etc. and 15 (2)
Waxes
Group 2: Prepared food, beverages, 18%
spirits, and tobacco
Edible Preparations of Meat, Fish, 16 21
Crustaceans, Etc.
Sugars and Sugar Confectionary 17 34
Cocoa and Cocoa Preparations 18 11
Prepared Cereal, Flour, Starch or Milk; 19 26
Bakers Wares
Prepared Vegetables, Fruit, Nuts, or 20 44
Other Plant Parts
Miscellaneous Edible Preparations 21 41
Beverages, Spirits, and Vinegar 22 10
Food Industry Residues and Waste; 23 4
Prepared Animal Feed
Tobacco and Manufactured Tobacco 24 7
Substitutes
Group 3: Chemicals, plastics, and 10%
minerals
Salt; Sulfur; Earth and Stone; Lime and 25 24
Cement Plaster
Ores, Slag, and Ash 26 3
Average annual growth
Category or subcategory HTS chapter
(1995-2004)
Mineral Fuel, Oil, Etc.; Bitumin 27 5
Substances; Mineral Wax
Inorganic Chemicals; Precious and
Rare-Earth Metals and Radioactive 28 25
Compounds
Organic Chemicals 29 22
Pharmaceutical Products 30 13
Fertilizers 31 (13)
Tanning and Dye Ext, Etc.; Dye, Paint, 32 20
Putty, Etc.; Inks
Essential Oils, Etc.; Perfumery, 33 25
Cosmetic, Etc. Preparations
Soap, Etc.; Waxes, Polish, Etc; Candles; 34 32
Dental Preparations
Albuminoidal Substances; Modified 35 43
Starch; Glue; Enzymes
Explosives; Pyrotechnics; Matches; Pyro 36 8
Alloys, Etc.
Photographic or Cinematographic Goods 37 46
Miscellaneous Chemical Products 38 19
Plastics and Plastic Articles 39 20
Rubber and Rubber Articles 40 37
Group 4: Wood and paper products 17%
Wood and Wood Articles; Wood Charcoal 44 37
Cork and Cork Articles 45 1
Articles of Straw, Esparto, Etc.; basket 46 14
ware and wicker ware
Wood Pulp, Etc.; Recovered (Waste and 47 18
Scrap) Paper and Paperboard
Paper and Paperboard and Articles 48 12
(Including Paper Pulp Articles)
Printed Books, Newspapers, Etc.; 49 11
Manuscripts, Etc.
Group 5: Textiles, apparel, leather, and 11%
footwear
Raw Hides and Skins (No Fur skins) and 41 23
Leather
Leather Articles; Saddlery, Etc.; 42 13
Handbags. Etc,; Gut Articles
Fur skins and Artificial Fur and 43 28
Articles
Silk, Including Yarns and Woven Fabric 50 52
Wool and Animal Hair, Including Yarn and 51 (7)
Woven Fabric
Cotton, Including Yarn and Woven Fabric 52 4
Vegetable Textile Fibers NESOI;
Vegetable Fibers and Paper Yarns and 53 29
Woven Fabric
Average annual growth
Category or subcategory HTS chapter
(1995-2004)
Manmade Filaments, Including Yarns and 54 25
Woven Fabrics
Manmade Staple Fibers, Including Yarns 55 5
and Woven Fabrics
Wadding, Felt, Etc.; Special Yarn; 56 41
Twine, Ropes, Etc.
Carpets and Other Textile Floor 57 (8)
Coverings
Special Woven Fabrics; Tufted Fabric; 58 44
Lace; Tapestries, Etc.
Impregnated, Etc. Textile Fabrics; 59 35
Textile Articles For Industry
Knitted or Crocheted Fabrics 60 12
Apparel Articles and Accessories, Knit 61 4
or Crochet
Apparel Articles and Accessories, Not 62 21
Knit, Etc.
Textile Art NESOI; Needlecraft Sets; 63 (1)
Worn Textile Articles
Footwear, Gaiters, Etc. and Parts 64 17
Headgear and Parts 65 23
Umbrellas, Walking-Sticks, Riding-Crops, 66 23
Etc, Parts
Prepared Feathers, Down, Etc.; 67 30
Artificial Flowers; H Hair Articles
Group 6: Glassware, precious metals and 15%
stones, jewelry
Articles of Stone, Plaster, Cement, 68 18
Asbestos, Mica, Etc.
Ceramic Products 69 13
Glass and Glassware 70 13
Natural and Other Pearls, Precious and
Other Stones, Precious Metals, Etc.; 71 19
Coins
Group 7: Base metals and articles of 23%
base metals
Iron and Steel 72 37
Articles of Iron or Steel 73 3
Copper and Copper Articles 74 27
Nickel and Nickel Articles 75 29
Aluminum and Aluminum Articles 76 13
Lead and Lead Articles 78 48
Zinc and Zinc Articles 79 62
Tin and Tin Articles 80 11
Base Metals NESOI; Ceramic Metals; 81 21
Articles Thereof
Miscellaneous Articles of Base Metals 83 9
Average annual growth
Category or subcategory HTS chapter
(1995-2004)
Group 8: Machinery, electronics, and 15%
high-tech apparatus
Tools, Cutlery Etc. of Base Metal; Parts 82 15
Nuclear Reactors, Boilers, Machinery, 84 11
Etc.; Parts
Electric Machinery, Etc.; Sound and TV 85 20
Equipment; Parts
Optic, Photo, Etc. Medical or Surgical 90 17
Instruments, Etc.
Group 9: Aircraft, autos, and other 5%
transportation
Railway or Tramway Stock, Etc.; Traffic 86 15
Signal Equipment
Vehicles, Except Railway or Tramway, and 87 13
Parts, Etc.
Aircraft and Spacecraft; Parts 88 3
Ships, Boats, and Floating Structures 89 16
Group 10: Miscellaneous manufacturing 4%
Clocks and Watches; Parts 91 15
Musical Instruments; Parts and 92 28
Accessories
Arms and Ammunition; Parts and 93 (13)
Accessories
Furniture; Bedding, Etc.; Lamps NESOI, 94 3
Etc.; Prefabricated Bedding
Toys, Games and Sport Equipment; Parts 95 (13)
and Accessories
Miscellaneous Manufactured Articles 96 16
Works of Art, Collectors' Pieces, and 97 13
Antiques
Special Classification Provisions, NESOI 98 9
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U.S.
share
U.S. of
exports to world
China exports
to
China
Average Average Share Percentage
annual annual of U.S. Export Average Average point
growth growth exports value (1995-1999) (2000-2004) change(B)
(1995-1999) (2000-2004) to the (2004) (A) (B) minus (A)a
world
(10)% 20% 8% $3,409 24% 25% 1%
(11) (18) 1 3 26 18 (8)
11 3 1 64 65 67 2
4 15 8 249 10 8 (2)
40 20 3 38 19 10 (9)
41 0 8 44 26 37 11
78 (9) 0 1 5 4 (1)
101 0 1 10 19 8 (11)
36 19 1 71 7 15 8
65 (16) 0 1 6 9 3
(49) 73 4 496 17 11 (6)
22 (7) 1 4 13 5 (8)
48 18 28 2,370 52 40 (12)
173 3 4 14 16 32 16
19 (11) 29 10 16 11 (5)
(20) 34 2 35 13 3 (10)
26% 20% 2% $406 13% 16% 3%
(6) 0 1 12 11 31 20
34 16 6 40 2 5 3
10 10 1 8 12 15 3
23 6 1 12 13 12 (1)
49 22 3 55 31 45 14
27 52 5 178 14 40 26
14 27 0 9 7 3 (4)
31 (5) 2 65 14 15 1
33 79 1 27 22 4 (18)
6% 20% 4% $5,760 11% 7% (4)%
30 4 5 90 11 7 (4)
(31) 40 8 144 1 1 0
Source: GAO analysis of Department of Commerce, U.S. Census Bureau, and
official Chinese data.
Notes:
HTS is the U.S. Harmonized Tariff Schedule.
We adjusted these data for inflation and expressed them in 2004 constant
dollars.
HTS chapter 77 is reserved for future use. Chapter 99 consists of
temporary legislation, temporary modifications, proclaimed pursuant to
trade agreements legislation, and additional import restrictions
proclaimed pursuant to section 22 of the Agricultural Adjustment Act, as
amended.
aThe percentage point change is derived by subtracting the value in column
(B) from the value in column (A).
Services Trade Categories and Their Definitions Appendix III
Source: Department of Commerce, Bureau of Economic Analysis.
U.S. Foreign Direct Investment and U.S. Affiliate Sales in China Appendix
IV
U.S. Foreign Direct Investment in China
From 1995 to 2004, U.S. foreign direct investment in all industries in
China grew at about a 21 percent average annual rate. BEA classifies U.S.
foreign investment into broad industry groups, such as wholesale trade,
manufacturing, mining, finance, and utilities. Growth among industries
varied, as shown in tables 15 and 16.
Table 15: Industry Group U.S. Foreign Direct Investment to China by Annual
Growth Rate (1995-2004) and Value Foreign Direct Investment for 2004
Dollars in millions
Annual growth
rate (percent)
Industry group Foreign
receiving Overal First 5 years Second 5 years direct
investment (1995-2004) (1995-1999) (2000-2004) investment
(2004)
Information 39% NAa 36% $368
Other industries 34 74% 3 1,375b
Wholesale trade 32 27 49 1,825
Depository 26 (8) 69 534
institutions
Manufacturing 23 53 2 8,222
Professional,
scientific, and 17 52 20 688
technical services
Mining 10 NAa 1 1,740
Finance (except
depository 5 62 (53) (2)
institutions) and
insurancec
Utilities (2) NAa (0.2) 565b
Total 21% 42% 7% $15,430
Source: GAO analysis of Department of Commerce, Bureau of Economic
Analysis data.
Note: We did not adjust these data for inflation.
aForeign direct investment data for information, mining, and utilities are
not available from 1995 to 1998. Therefore, we could not calculate the
growth rate for the first 5 years. For information and mining, the overall
growth rates were calculated from 1999 to 2004. For utilities, the overall
growth rate was calculated from 1999 to 2003.
bThis figure is from 2003. BEA did not publish this figure for 2004.
cThe growth rates for finance and insurance were calculated in a different
way from the other categories because of negative values in some years for
insurance sales. See appendix I for more information.
Table 16: Manufacturing Industry Group U.S. Foreign Direct Investment to
China by the Annual Growth Rate (1995-2004) and Value Foreign Direct
Investment 2004
Dollars in million
Annual growth
rate (percent)
Foreign
Manufacturing industry Overall First 5 years Second 5 direct
group (1995-2004) (1995-1999) years investment
(2000-2004)
(2004)
Transportation 67% 241% 31% $1,832
equipment
Chemicals 28 44 11 1,643
Food 22 35 21 593
Primary and fabricated 11 72 (2) 149
metals
Machinery 9 49 20 455
Electrical equipment,
appliances and (8) (13) 2 493
components
Computers and (16) NAa (25) 1,341
electronic products
Total 23% 53% 2% $8,222
Source: GAO analysis of Department of Commerce, Bureau of Economic
Analysis data.
Note: We did not adjust these data for inflation.
aForeign direct investment data for computer and electronic products are
not available from 1995 to 1998. Therefore, we cannot calculate the growth
rate for the first 5 years. The overall growth rate was calculated from
1999 to 2004.
U.S. Affiliate Sales in China
In 2003, U.S. affiliates in China sold about $38 billion in goods and
services to the Chinese market. BEA collects data on U.S. affiliate sales
under generally the same industry groups as foreign direct investment, as
shown in tables 17 and 18. These industry groups may include operations
that produce goods and services. For example, although U.S. affiliates in
the manufacturing industry generally produce goods, they may also produce
some services.
Table 17: Affiliate industry Group Sales in China by Annual Growth Rate
(1995-2003) and Sales Value in 2003
Dollars in millions
Annual growth
rate (percent)
Overall First 5 years Last 4 years Sales
Affiliate industry group (1995-2003) (1995-1999) (2000-2003) value
(2003)
Information 50% NAa 50% $475
Other industriesb 45 48% 27 1,616
Manufacturing 36 44 26 25,154
Wholesale Trade 33 33 30 7,736
Professional,
scientific, and 16 23 14 497
technical services
Utilities 16 NAa 16 246
Finance (except
depository institutions 15 15 14 265
and insurance)c
Miningd NA NA (5) 453
Total 33% 39% 26% $37,757
Source: GAO analysis of Department of Commerce, Bureau of Economic
Analysis data.
Note: We adjusted these data for inflation and expressed them in 2004
constant dollars.
aAffiliate sales data for information and utilities are not available from
1995 to 1998. Therefore, we could not calculate the growth rate for the
first 5 years for these categories. The overall growth rates for these
categories were calculated from 1999 to 2003.
bAffiliate sales data for other industries were only available for 1996,
2000, and 2001. We estimated figures for 1997, 1998, and 1999. We
calculated the growth rate for the first period from 1996 to 1999, and for
the last period from 2000 to 2001. The overall growth rate for this
category was calculated from 1996 to 2001.
cAffiliate sales data for finance and insurance are not available for 2002
and 2003. Therefore, we calculated the growth rate for the last period
from 2000 to 2001. The overall growth rate for this category was
calculated from 1995 to 2001.
dAffiliate sales data for mining are not available from 1995 to 1999.
Therefore, we could only calculate the growth rate for 2000 to 2003.
Table 18: Manufacturing Affiliate Industry Group Sales in China by Annual
Growth Rate (1995-2003) and Sales Value in 2003
Dollars in millions
Annual growth
rate (percent)
Manufacturing affiliate Overall First 5 years Last 4 years Sales
industry group (1995-2003) (1995-1999) (2000-2003) value
(2003)
Transportation equipment 47% 90% 32% $1,098
Computers and electronic 39 NAa 35 13,223
products
Chemicals 24 38 14 3,894
Food 25 52 13 721
Primary and fabricated 23 45 12 753
metals
Machinery 14 25 9 1,163
Electrical equipment,
appliances, and (9) (6) 28 873
components
Total 36% 44% 26% $25,154
Source: GAO analysis of Department of Commerce, Bureau of Economic
Analysis data.
Note: We adjusted these data for inflation and expressed them in 2004
constant dollars.
aBEA does not have figures for computers and electronic products from 1995
to 1998.
GAO Contact and Staff AcknowledgmentsAppendix V
Loren Yager (202) 512-4128
In addition to the individual named above, Adam Cowles, Assistant
Director; Ming Chen; Leah DeWolf; Grace Lui; Jamie McDonald; Yesook
Merrill; Nina Pfeiffer; Paul Revesz; Tim Wedding; and Seyda Wentworth also
provided assistance.
(320344)
www.gao.gov/cgi-bin/getrpt?GAO-06-162.
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Loren Yager at (202) 512-4128 or
[email protected].
Highlights of GAO-06-162, a report to congressional committees
December 2005
CHINA TRADE
U.S. Exports, Investment, Affiliate Sales Rising, but Export Share Falling
China is important to the global economy and a major U.S. trading partner.
By joining the World Trade Organization (WTO) in 2001, China pledged to
further liberalize its trade regime and follow global trade rules. While
U.S.-Chinese commercial relations have expanded, controversies have
emerged, including the size and growth of the U.S. trade deficit with
China, China's lack of intellectual property protection, and China's
implementation of its WTO obligations. Despite these challenges, China's
vast consumer and labor markets present huge opportunities for U.S.
exporters and investors. GAO (1) analyzed U.S. goods and services exports
to China, (2) assessed how U.S. exports to China have fared against those
of other major trading partners, and (3) analyzed U.S. investment and
affiliate sales in China.
We provided the Office of the U.S. Trade Representative, the Departments
of Agriculture and Commerce, and the International Trade Commission with a
draft of this report for their review and comment. These agencies chose to
provide technical comments from their staff. We incorporated their
suggestions as appropriate.
China is a rapidly growing market for U.S. goods and services. Although
still small, accounting for only 4 percent of U.S. goods exports in 2004,
U.S. goods exports to China tripled, from $11 billion to $33 billion, and
increased across virtually all major categories from 1995 to 2004. Over
the same period, China went from the ninth-largest to the fifth-largest
U.S. market for goods behind Canada, the European Union, Mexico, and
Japan. Although smaller, U.S. services exports grew from $3 billion to $7
billion, from 1995 to 2004. Economic growth in China and liberalization of
its market, including joining the WTO, are among the factors driving the
impressive export growth.
Despite rapid growth, U.S. goods exports to China have not kept pace with
those of other countries, particularly exports from Asia. The U.S. share
of world goods exports to China declined from 12 percent to 9 percent,
from 1995 to 2004, while South Korea and Taiwan's shares increased and at
times surpassed that of the United States. The decline is partly due to
increased integrated production among China's neighbors; growing
resource-based exports, such as oil, from smaller countries; and
macroeconomic factors, including exchange rates.
Sales to China by U.S. affiliates located in China grew faster and
exceeded U.S. exports to China in 2003, $38 billion versus $35 billion,
while U.S. foreign direct investment grew from $2 billion to $15 billion
from 1995 to 2004. Growth in U.S. investment and affiliate sales,
particularly for goods, is due at least in part to China's attraction as a
growing economy, including its burgeoning domestic market, high
productivity and low labor costs, and developing infrastructure.
U.S. and World Goods Exports to China Are Rising, but U.S. Share of World
Goods Exports to China Is Falling (1995-2004)
*** End of document. ***