The Balance of Payments (BoP) is a systematic record of a country's economic transactions with the rest of the world over a specified period. It includes all transactions between entities in the domestic economy and entities in the rest of the world, such as exports and imports of goods and services, financial capital, and financial transfers. The BoP is composed of two main accounts: the Current Account and the Capital and Financial Account. Apple, as a prominent multinational corporation, exemplifies the complexities in BoP and Customs data due to its extensive global supply chain and manufacturing operations.
The Zhengzhou Bonded Zone is a special economic area in China that operates under tax-advantaged arrangements. It serves as a hub for international trade and manufacturing, attracting numerous multinational enterprises and domestic contractors. Apple's partnership with Foxconn, which operates a large-scale manufacturing facility in the Zhengzhou Bonded Zone, provides a clear example of how the BoP and Customs data can diverge due to different methodologies in recording trade transactions. Foxconn assembles iPhone components within the zone, and the final products are then exported globally.
In the BoP, trade transactions are recorded based on the change of ownership principle, meaning that exports and imports are recorded when the ownership of goods is transferred between residents and nonresidents. This is regardless of whether the goods physically cross the border. On the other hand, Customs data record trade transactions based on the physical movement of goods across the border, regardless of ownership changes.
For instance, if Apple imports components into the Zhengzhou Bonded Zone and Foxconn assembles them into iPhones, the BoP would record an export when Foxconn sells the assembled iPhones to Apple, even if the goods remain within the bonded zone. If Apple then sells these iPhones in China, an import is recorded in the BoP. Customs, however, would not record these transactions as the goods never physically cross the border.
The methodological differences lead to a lower trade surplus recorded in the BoP compared to Customs data. For example, if Apple sells the iPhones produced by Foxconn in the Zhengzhou Bonded Zone to a third country, the ex-factory price (recorded in the BoP) is typically lower than the wholesale price (recorded by Customs). This results in a lower export value in the BoP compared to Customs.
The table below illustrates this difference:
| Scenario | BoP | Customs |
|---|---|---|
| Apple components imported into the bonded zone | Import: 50, Balance: -50 | Import: 50, Balance: -50 |
| Assembled iPhones sold in China | Export: 60, Import: -100, Balance: -40 | Export: 0, Import: 0, Balance: 0 |
| Assembled iPhones exported to third countries | Export: 60, Import: 0, Balance: 60 | Export: 100, Import: 0, Balance: 100 |
The Zhengzhou Bonded Zone, particularly through Apple's operations, exemplifies the complexities and divergences in trade data recording between the BoP and Customs. The switch to direct reporting of financial records by large enterprises in China has helped align BoP data more closely with the change of ownership principle, reducing discrepancies. However, the ongoing global manufacturing arrangements, as highlighted by Apple's supply chain, continue to pose challenges in accurately recording trade transactions. According to the IMF Report (2024), these methodological differences are significant and require ongoing attention to ensure accurate economic analysis and policy-making. Specifically, Appendix VII of the IMF Report provides detailed insights into these discrepancies and their implications.
For more detailed information, please refer to the IMF Report and its Appendix VII.