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Report to Congressional Committees: 

December 2005: 

China Trade: 

U.S. Exports, Investment, Affiliate Sales Rising, but Export Share 
Falling: 

GAO-06-162: 

GAO Highlights: 

Highlights of GAO-06-162, a report to congressional committees: 

Why GAO Did This Study: 

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. 

What GAO Found: 

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): 

[See PDF for image] 

[End of figure] 

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 yagerl@gao.gov.

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Goods Exports to China Experienced Rapid Growth in the Past Decade, 
Driven by China's Economic Growth and Market Liberalization: 

While Overall Services Exports to China Grew during the Past 10 Years, 
Growth among Services Categories Varied: 

U.S. Goods Exports Have Not Kept Pace with Other Nations' Exports to 
China: 

U.S. Investment in China Has Increased, and Affiliate Sales Surpassed 
U.S. Exports: 

Observations: 

Agency Comments: 

Appendixes: 

Appendix I: Objectives, Scope, and Methodologies: 

Appendix II: U.S. Goods Exports and U.S. Share of World Goods Exports 
to China: 

Appendix III: Services Trade Categories and Their Definitions: 

Appendix IV: U.S. Foreign Direct Investment and U.S. Affiliate Sales in 
China: 

U.S. Foreign Direct Investment in China: 

U.S. Affiliate Sales in China: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: U.S. Exports to China by the Annual Growth Rate (1995-2004) 
and Export Value for 2004: 

Table 2: Five Main U.S. Services Exports to China by Annual Growth Rate 
(1995-2004) and Export Value for 2004: 

Table 3: Subcategory of U.S. Services Exports to China by the Annual 
Growth Rate (1995-2004) and Export Value for 2004: 

Table 4: Subcategory of U.S. Services Exports to China by the Annual 
Growth Rate (1995-2004) and Export Value for 2004: 

Table 5: Changes in U.S. Share of World Exports to China, 1995-2004; 
and U.S. Goods Exports to China, 2004: 

Table 6: Examples of Oil-Producing Countries with Higher-Than-Average 
Export Growth Rates to China, 2000-2004: 

Table 7: Concordance between 10 GAO Categories and the U.S. Harmonized 
Tariff Schedule Section Headings: 

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: 

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: 

Table 10: Goods Subcategories with the Highest Value Increase in U.S. 
Exports to China (Average 1995-1999 Versus Average 2000-2004): 

Table 11: Products with the Highest Value Decrease in Exports to China 
(Average 1995-1999 Versus Average 2000-2004): 

Table 12: Top 20 Declines in U.S. Share of World Exports to China, 1995-
2004: 

Table 13: Top 20 Increases in U.S. Share of World Goods Exports to 
China, 1995-2004: 

Table 14: U.S. Goods Exports and U.S. Share of World Goods Exports to 
China--All Categories and Subcategories, 1995-2004: 

Table 15: Industry Group U.S. Foreign Direct Investment to China by 
Annual Growth Rate (1995-2004) and Value Foreign Direct Investment for 
2004: 

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: 

Table 17: Affiliate industry Group Sales in China by Annual Growth Rate 
(1995-2003) and Sales Value in 2003: 

Table 18: Manufacturing Affiliate Industry Group Sales in China by 
Annual Growth Rate (1995-2003) and Sales Value in 2003: 

Figures: 

Figure 1: U.S. Goods Export Markets in 2004

Figure 2: Value and Share of U.S. Goods Exports to China

Figure 3: Top Markets for U.S. Services Exports in 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

Figure 5: U.S. and World Goods Exports to China and U.S. Share of World 
Goods Exports to China, 1995-2004

Figure 6: Share of Goods Exports to China for the Top Six Suppliers, 
1995-2004

Figure 7: Major Suppliers' Share of World Exports to China of Prepared 
Food, Beverages, Spirits, and Tobacco, 1995-2004

Figure 8: U.S. Foreign Direct Investment in China, Value of Cumulative 
Stock, and Share of Total U.S. Investment, 1995-2004

Figure 9: Realized Annual Investment Flows in China, from the World, 
2003

Figure 10: Growth of Total (Goods and Services) U.S. Affiliate Sales in 
China and U.S. Exports to China, 1995-2004

Figure 11: Growth of U.S. Affiliate Sales of Goods in China and U.S. 
Goods Exports to China, 1995-2004

Figure 12: Growth of U.S. Affiliate Sales of Services in China and U.S. 
Services Exports to China, 1995-2004: 

Abbreviations: 

ASEAN: Association of Southeast Asian Nations: 

BEA: U.S. Bureau of Economic Analysis: 

EU: European Union: 

HTS: U.S. Harmonized Tariff Schedule: 

USTR: U.S. Trade Representative: 

WTO: World Trade Organization: 

Letter December 9, 2005: 

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,[Footnote 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,[Footnote 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.[Footnote 
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.[Footnote 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 
billion[Footnote 5] 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 2003[Footnote 6] 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,[Footnote 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 policy 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.[Footnote 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.[Footnote 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.[Footnote 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.[Footnote 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,[Footnote 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: 

[See PDF for image] 

[End of figure] 

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.[Footnote 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).[Footnote 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.[Footnote 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: 

[See PDF for image] 

Note: We adjusted all data for inflation and expressed them in 2004 
constant dollars. 

[End of figure] 

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.[Footnote 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.[Footnote 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),[Footnote 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. 

Goods category: Machinery, electronics, and high-tech apparatus; 
Annual growth rate: (percent): Overall: (1995-2004): 15%; 
Annual growth rate: First 5 years: (1995-1999): 9%; 
Annual growth rate: Second 5 years: (2000-2004): 19%; 
Export value (2004): $12.8. 

Goods category: Chemicals, plastics, and minerals; 
Annual growth rate: (percent): Overall: (1995-2004): 10%; 
Annual growth rate: First 5 years: (1995-1999): 6%; 
Annual growth rate: Second 5 years: (2000-2004): 20%; 
Export value (2004): $5.8. 

Goods category: Animal and plant products; 
Annual growth rate: (percent): Overall: (1995-2004): 14%; 
Annual growth rate: First 5 years: (1995-1999): (10%); 
Annual growth rate: Second 5 years: (2000-2004): 20%; 
Export value (2004): $3.4. 

Goods category: Aircraft, vehicles and other transportation; 
Annual growth rate: (percent): Overall: (1995-2004): 5%; 
Annual growth rate: First 5 years: (1995-1999): 20%; 
Annual growth rate: Second 5 years: (2000-2004): 6%; 
Export value (2004): $2.6. 

Goods category: Base metals and articles of base metals; 
Annual growth rate: (percent): Overall: (1995-2004): 23%; 
Annual growth rate: First 5 years: (1995-1999): 2%; 
Annual growth rate: Second 5 years: (2000-2004): 23%; 
Export value (2004): $2.6. 

Goods category: Textiles, apparel, leather, and footwear; 
Annual growth rate: (percent): Overall: (1995-2004): 11%; 
Annual growth rate: First 5 years: (1995-1999): (20%); 
Annual growth rate: Second 5 years: (2000-2004): 45%; 
Export value (2004): $2.6. 

Goods category: Wood and paper products; 
Annual growth rate: (percent): Overall: (1995-2004): 17%; 
Annual growth rate: First 5 years: (1995-1999): 20%; 
Annual growth rate: Second 5 years: (2000-2004): 22%; 
Export value (2004): $1.6. 

Goods category: Miscellaneous manufacturing and special provision 
products; 
Annual growth rate: (percent): Overall: (1995-2004): 4%; 
Annual growth rate: First 5 years: (1995-1999): 0%; 
Annual growth rate: Second 5 years: (2000-2004): 10%; 
Export value (2004): $0.5. 

Goods category: Prepared foods, beverages, spirits, and tobacco; 
Annual growth rate: (percent): Overall: (1995-2004): 18%; 
Annual growth rate: First 5 years: (1995-1999): 26%; 
Annual growth rate: Second 5 years: (2000-2004): 20%; 
Export value (2004): $0.4. 

Goods category: Glassware, precious metals and stones, and jewelry; 
Annual growth rate: (percent): Overall: (1995-2004): 15%; 
Annual growth rate: First 5 years: (1995-1999): 14%; 
Annual growth rate: Second 5 years: (2000-2004): 8%; 
Export value (2004): $0.3. 

Total; 
Annual growth rate: (percent): Overall: (1995-2004): 13%; 
Annual growth rate: First 5 years: (1995-1999): 6%; 
Annual growth rate: Second 5 years: (2000-2004): 19%; 
Export value (2004): $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. 

[End of table] 

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): 

* Electric machinery, sound equipment, and television equipment 
increased an average of $2 billion per year, 18 percent of the total 
increase. 

* Nuclear reactors, boilers, machinery increased an average of $1.8 
billion per year, 15 percent of the total increase. 

* Oil seeds, grain, seed, fruit and plant increased an average of $1.6 
billion per year, 14 percent of the total increase.[Footnote 19] 

* Iron and steel increased an average of $800 million per year, 7 
percent of the total increase. 

* 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): 

* Fertilizer[Footnote 20] declined an average of $560 million per year, 
53 percent of the total decline. 

* Cereals[Footnote 21] declined an average of $185 million per year, 18 
percent of the total decline. 

* Animal or vegetable fats, oils etc. and waxes declined an average of 
$176 million per year, 17 percent of the total decline.[Footnote 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 EU[Footnote 23] 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: 

[See PDF for image] 

Note: We adjusted all data for inflation and expressed them in 2004 
constant dollars. 

[End of figure] 

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: 

[See PDF for image] 

Note: We adjusted all data for inflation and expressed them in 2004 
constant dollars. 

[End of figure] 

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.[Footnote 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. 

Royalties and license fees; 
Annual growth rate (percent): Overall (1995-2004): 22%; 
Annual growth rate (percent): First 5 years (1995-1999): 37%; 
Annual growth rate (percent): Second 5 years (2000-2004): 33%; 
Export value (2004): $928. 

Passenger fares; 
Annual growth rate (percent): Overall (1995-2004): 17%; 
Annual growth rate (percent): First 5 years (1995-1999): 64%; 
Annual growth rate (percent): Second 5 years (2000-2004): (17%); 
Export value (2004): $221. 

Other transportation; 
Annual growth rate (percent): Overall (1995-2004): 11%; 
Annual growth rate (percent): First 5 years (1995-1999): (4%); 
Annual growth rate (percent): Second 5 years (2000-2004): 26%; 
Export value (2004): $1,804. 

Other private services; 
Annual growth rate (percent): Overall (1995-2004): 11%; 
Annual growth rate (percent): First 5 years (1995-1999): 12%; 
Annual growth rate (percent): Second 5 years (2000-2004): 9%; 
Export value (2004): $3,392. 

Travel; 
Annual growth rate (percent): Overall (1995-2004): 1%; 
Annual growth rate (percent): First 5 years (1995-1999): 16%; 
Annual growth rate (percent): Second 5 years (2000-2004): (9%); 
Export value (2004): $894. 

Total; 
Annual growth rate (percent): Overall (1995-2004): 10%; 
Annual growth rate (percent): First 5 years (1995-1999): 11%; 
Annual growth rate (percent): Second 5 years (2000-2004): 6%; 
Export value (2004): $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. 

[End of table] 

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.[Footnote 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. 

Subcategory of other private services: Insurance services; 
Annual growth rate (percent): Overall (1995-2004): 25%; 
Annual growth rate (percent): First 5 Years (1995-1999): 14%; 
Annual growth rate (percent): Second 5 Years (2000-2004): 20%; 
Export value (2004): $23. 

Subcategory of other private services: Financial services; 
Annual growth rate (percent): Overall (1995-2004): 22%; 
Annual growth rate (percent): First 5 Years (1995-1999): 27%; 
Annual growth rate (percent): Second 5 Years (2000-2004): 12%; 
Export value (2004): $165. 

Subcategory of other private services: Telecommunications; 
Annual growth rate (percent): Overall (1995-2004): 14%; 
Annual growth rate (percent): First 5 Years (1995-1999): 10%; 
Annual growth rate (percent): Second 5 Years (2000-2004): 9%; 
Export value (2004): $90. 

Subcategory of other private services: Education; 
Annual growth rate (percent): Overall (1995-2004): 10%; 
Annual growth rate (percent): First 5 Years (1995-1999): 10%; 
Annual growth rate (percent): Second 5 Years (2000-2004): 6%; 
Export value (2004): $1,260. 

Subcategory of other private services: Business, professional, and 
technical services; 
Annual growth rate (percent): Overall (1995-2004): 8%; 
Annual growth rate (percent): First 5 Years (1995-1999): 10%; 
Annual growth rate (percent): Second 5 Years (2000-2004): 9%; 
Export value (2004): $1,216. 

Subcategory of other private services: Other[A]; 
Annual growth rate (percent): Overall (1995-2004): (1%); 
Annual growth rate (percent): First 5 Years (1995-1999): (9%); 
Annual growth rate (percent): Second 5 Years (2000-2004): 5%; 
Export value (2004): $127. 

Total; 
Annual growth rate (percent): Overall (1995-2004): 8%; 
Annual growth rate (percent): First 5 Years (1995-1999): 9%; 
Annual growth rate (percent): Second 5 Years (2000-2004): 10%; 
Export value (2004): $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. 

[A] For other services, growth rates are estimated due to unavailable 
data for some years. 

[End of table] 

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. 

Subcategory of business, professional, and technical services: Research 
and development and testing; 
Annual growth rate (percent): Overall (1995-2004): 21%; 
Annual growth rate (percent): First 5 Years (1995-1999): 25%; 
Annual growth rate (percent): Second 5 Years (2000-2004): 7%; 
Export value (2004): $14. 

Subcategory of business, professional, and technical services: Legal; 
Annual growth rate (percent): Overall (1995-2004): 15%; 
Annual growth rate (percent): First 5 Years (1995-1999): 24%; 
Annual growth rate (percent): Second 5 Years (2000-2004): 9%; 
Export value (2004): $60. 

Subcategory of business, professional, and technical services: 
Advertising[A]; 
Annual growth rate (percent): Overall (1995-2004): 12%; 
Annual growth rate (percent): First 5 Years (1995-1999): 12%; 
Annual growth rate (percent): Second 5 Years (2000-2004): 36%; 
Export value (2004): $6. 

Subcategory of business, professional, and technical services: 
Management, consulting, and public relations; 
Annual growth rate (percent): Overall (1995-2004): 9%; 
Annual growth rate (percent): First 5 Years (1995-1999): (1%); 
Annual growth rate (percent): Second 5 Years (2000-2004): 36%; 
Export value (2004): $53. 

Subcategory of business, professional, and technical services: 
Installation, maintenance, and repair of equipment; 
Annual growth rate (percent): Overall (1995-2004): 6%; 
Annual growth rate (percent): First 5 Years (1995-1999): (5%); 
Annual growth rate (percent): Second 5 Years (2000-2004): 5%; 
Export value (2004): $199. 

Subcategory of business, professional, and technical services: Computer 
and information; 
Annual growth rate (percent): Overall (1995-2004): 5%; 
Annual growth rate (percent): First 5 Years (1995-1999): 1%; 
Annual growth rate (percent): Second 5 Years (2000-2004): 11%; 
Export value (2004): $48. 

Subcategory of business, professional, and technical services: 
Construction, architectural, and engineering; 
Annual growth rate (percent): Overall (1995-2004): (2%); 
Annual growth rate (percent): First 5 Years (1995-1999): 6%; 
Annual growth rate (percent): Second 5 Years (2000-2004): (1%); 
Export value (2004): $328. 

Total; 
Annual growth rate (percent): Overall (1995-2004): 8%; 
Annual growth rate (percent): First 5 Years (1995-1999): 10%; 
Annual growth rate (percent): Second 5 Years (2000-2004): 9%; 
Export value (2004): $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. 

[A] BEA did not publish a figure for advertising for 1995, so growth 
rates are calculated from 1996 to 2004. 

[End of table] 

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.[Footnote 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.[Footnote 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.[Footnote 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.[Footnote 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.[Footnote 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,[Footnote 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: 

[See PDF for image] 

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. 

[End of figure] 

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),[Footnote 32] which have increasingly 
integrated their production and trade with China.[Footnote 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.[Footnote 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: 

[See PDF for image] 

[End of figure] 

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),[Footnote 35] 
as highlighted in table 5. For example: 

* 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. 

* 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. 

* 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. 

Goods category: Aircraft, autos, and other transportation; 
Average U.S. share of world exports to China (percent): Percentage 
point change: (B minus A): (7%); 
Average U.S. share of world exports to China (percent): First 5 years 
(1995-1999) (A): 28%; 
Average U.S. share of world exports to China (percent): Second 5 years 
(2000-2004) (B): 21%; 
U.S. goods exports to China (2004): $2,630. 

Goods category: Chemicals, plastics, and minerals; 
Average U.S. share of world exports to China (percent): Percentage 
point change: (B minus A): (4%); 
Average U.S. share of world exports to China (percent): First 5 years 
(1995-1999) (A): 11%; 
Average U.S. share of world exports to China (percent): Second 5 years 
(2000-2004) (B): 7%; 
U.S. goods exports to China (2004): $5,760. 

Goods category: Machinery, electronics, and high-tech apparatus; 
Average U.S. share of world exports to China (percent): Percentage 
point change: (B minus A): (3%); 
Average U.S. share of world exports to China (percent): First 5 years 
(1995-1999) (A): 13%; 
Average U.S. share of world exports to China (percent): Second 5 years 
(2000-2004) (B): 10%; 
U.S. goods exports to China (2004): $12,800. 

Goods category: Glassware, precious metals and stones, jewelry; 
Average U.S. share of world exports to China (percent): Percentage 
point change: (B minus A): (3%); 
Average U.S. share of world exports to China (percent): First 5 years 
(1995-1999) (A): 10%; 
Average U.S. share of world exports to China (percent): Second 5 years 
(2000-2004) (B): 7%; 
U.S. goods exports to China (2004): $328. 

Goods category: Miscellaneous manufacturing; 
Average U.S. share of world exports to China (percent): Percentage 
point change: (B minus A): (1%); 
Average U.S. share of world exports to China (percent): First 5 years 
(1995-1999) (A): 8%; 
Average U.S. share of world exports to China (percent): Second 5 years 
(2000-2004) (B): 7%; 
U.S. goods exports to China (2004): $510. 

Goods category: Base metals and articles of base metals; 
Average U.S. share of world exports to China (percent): Percentage 
point change: (B minus A): (1%); 
Average U.S. share of world exports to China (percent): First 5 years 
(1995-1999) (A): 6%; 
Average U.S. share of world exports to China (percent): Second 5 years 
(2000-2004) (B): 5%; 
U.S. goods exports to China (2004): $2,620. 

Goods category: Wood and paper products; 
Average U.S. share of world exports to China (percent): Percentage 
point change: (B minus A): (1%); 
Average U.S. share of world exports to China (percent): First 5 years 
(1995-1999) (A): 15%; 
Average U.S. share of world exports to China (percent): Second 5 years 
(2000-2004) (B): 14%; 
U.S. goods exports to China (2004): $1,640. 

Goods category: Textiles, apparel, leather, and footwear; 
Average U.S. share of world exports to China (percent): Percentage 
point change: (B minus A): 0%; 
Average U.S. share of world exports to China (percent): First 5 years 
(1995-1999) (A): 7%; 
Average U.S. share of world exports to China (percent): Second 5 years 
(2000-2004) (B): 7%; 
U.S. goods exports to China (2004): $2,550. 

Goods category: Prepared food, beverages, spirits, and tobacco; 
Average U.S. share of world exports to China (percent): Percentage 
point change: (B minus A): 3%; 
Average U.S. share of world exports to China (percent): First 5 years 
(1995-1999) (A): 13%; 
Average U.S. share of world exports to China (percent): Second 5 years 
(2000-2004) (B): 16%; 
U.S. goods exports to China (2004): $406. 

Goods category: Animal and plant products; 
Average U.S. share of world exports to China (percent): Percentage 
point change: (B minus A): 1%; 
Average U.S. share of world exports to China (percent): First 5 years 
(1995-1999) (A): 24%; 
Average U.S. share of world exports to China (percent): Second 5 years 
(2000-2004) (B): 25%; 
U.S. goods exports to China (2004): $3,410. 

Total; 
Average U.S. share of world exports to China (percent): Percentage 
point change: (B minus A): (3%); 
Average U.S. share of world exports to China (percent): First 5 years 
(1995-1999) (A): 12%; 
Average U.S. share of world exports to China (percent): Second 5 years 
(2000-2004) (B): 9%; 
U.S. goods exports to China (2004): $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. 

[End of table] 

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.[Footnote 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: 

* 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. 

* 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. 

* 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. 

* 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: 

[See PDF for image] 

[End of figure] 

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.[Footnote 
37] Most subcategories under Prepared Food, Beverages, Spirits, and 
Tobacco have increased their world export share in China. For example: 

* Prepared meats and fish increased by 20 percentage points, from 11 
percent to 31 percent over the decade. 

* 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: 

* 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. 

* 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,[Footnote 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 minerals[Footnote 39] 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.[Footnote 40] 

Table 6: Examples of Oil-Producing Countries with Higher-Than-Average 
Export Growth Rates to China, 2000-2004: 

Dollars in millions. 

Country: Chad; 
Annual growth rate (2000-2004): 1,100%; 
Export value (2004): $223. 

Country: Congo; 
Annual growth rate (2000-2004): 59%; 
Export value (2004): $1,569. 

Country: Saudi Arabia; 
Annual growth rate (2000-2004): 40%; 
Export value (2004): $7,518. 

Country: Angola; 
Annual growth rate (2000-2004): 35%; 
Export value (2004): $4,718. 

Country: United Arab Emirates; 
Annual growth rate (2000-2004): 33%; 
Export value (2004): $1,305. 

Source: GAO analysis of official Chinese trade statistics. 

Note: We reported Chinese trade statistics in nominal dollars. 

[End of table] 

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.[Footnote 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.[Footnote 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 flows[Footnote 43] 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: 

[See PDF for image] 

[End of figure] 

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,[Footnote 
44] Japan, and Korea (see fig. 9). 

Figure 9: Realized Annual Investment Flows in China, from the World, 
2003: 

[See PDF for image] 

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. 

[End of figure] 

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,[Footnote 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: 

[See PDF for image] 

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. 

[End of figure] 

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.[Footnote 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: 

[See PDF for image] 

Notes: 

Data on U.S. affiliate sales are through 2003. 

We adjusted all data for inflation and expressed them in 2004 constant 
dollars. 

[End of figure] 

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: 

[See PDF for image] 

Notes: Data on U.S. affiliate sales are through 2003. 

We adjusted all data for inflation and expressed them in 2004 constant 
dollars. 

[End of figure] 

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).[Footnote 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.[Footnote 48] The U.S.-
China Business Council reported in 2004[Footnote 49] 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,[Footnote 
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 2002[Footnote 51] 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: 

* 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. 

* 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. 

* 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. 

* 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. 

* 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 [Hyperlink, yagerl@gao.gov]. 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. 

[See PDF for image] 

[End of figure] 

Loren Yager: 
Director, International Affairs and Trade: 

[End of section] 

Appendixes: 

Appendix I: Objectives, Scope, and Methodologies: 

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: 1. Animal and plant products; 
HTS section heading: 1. Live animals, animal products; 
2. Vegetable products; 
3. Animal or vegetable fats and oils, edible fats, waxes. 

GAO category: 2. Prepared foods, beverages, spirits, and tobacco; 
HTS section heading: 4. Prepared foodstuffs, beverages, spirits, and 
vinegar; tobacco. 

GAO category: 3. Chemicals, plastics, and minerals; 
HTS section heading: 5. Mineral products; 
6. Products of chemical or allied industries; 
7. Plastics and articles thereof, rubber. 

GAO category: 4. Wood and paper products; 
HTS section heading: 9. Wood and articles of wood; 
10. Pulp of wood, paper, and paperboard. 

GAO category: 5. Textiles, apparel, leather, and footwear; 
HTS section heading: 8. Leather, travel goods, handbags; 
11. Textiles and textile articles (apparel); 
12. Footwear, headgear, umbrellas, etc. 

GAO category: 6. Glassware, precious metals and stones, and jewelry; 
HTS section heading: 13. Articles of stone, plaster, ceramics, glass, 
and glassware; 
14. Pearls, precious or semiprecious stones, precious metals, jewelry, 
coin. 

GAO category: 7. Base metals and articles of base metals; 
HTS section heading: 15. Base metals and articles of base metals 
(except tools and implements). 

GAO category: 8. Machinery, electronics, and high-tech apparatus; 
HTS section heading: 15. Base metals and articles of base metals (tools 
and implements); 
16. Machinery and mechanical appliances, electrical equipment, sound 
recorders, televisions; 
18. Optical, photographic, cinematographic, measuring, and other 
apparatus (except clocks and watches, musical instruments). 

GAO category: 9. Autos and other vehicles and parts; 
HTS section heading: 17. Vehicles, aircraft, vessels, and associated 
transport equipment. 

GAO category: 10. Miscellaneous manufacturing and special provision 
products; 
HTS section heading: 18. Optical, photographic, cinematographic, 
measuring, and other apparatus (clocks and watches, musical 
instruments); 
19. Arms and ammunition; 
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). 

[End of table] 

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. 

[End of section] 

Appendix II: U.S. Goods Exports and U.S. Share of World Goods Exports 
to China: 

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. 

Goods subcategory: Vegetable plaiting materials & products nesoi; 
HTS chapter: 14; 
Exports to China (2004): $10; 
Total exports (2004): $35; 
China's share of total U.S. exports: 28.90%. 

Goods subcategory: Oil seeds etc; misc grain, seed, fruit, plant etc; 
HTS chapter: 12; 
Exports to China (2004): $2,370; 
Total exports (2004): $8,500; 
China's share of total U.S. exports: 27.88%. 

Goods subcategory: Zinc and articles thereof; 
HTS chapter: 79; 
Exports to China (2004): $37; 
Total exports (2004): $142; 
China's share of total U.S. exports: 26.27%. 

Goods subcategory: Silk, including yarns and woven fabric; 
HTS chapter: 50; 
Exports to China (2004): $6; 
Total exports (2004): $25; 
China's share of total U.S. exports: 25.08%. 

Goods subcategory: Cotton, including yarn and woven fabric thereof; 
HTS chapter: 52; 
Exports to China (2004): $1,420; 
Total exports (2004): $6,280; 
China's share of total U.S. exports: 22.61%. 

Goods subcategory: Raw hides and skins (no fur skins) and leather; 
HTS chapter: 41; 
Exports to China (2004): $579; 
Total exports (2004): $2,730; 
China's share of total U.S. exports: 21.21%. 

Goods subcategory: Fur skins and artificial fur; manufactures thereof; 
HTS chapter: 43; 
Exports to China (2004): $41; 
Total exports (2004): $209; 
China's share of total U.S. exports: 19.47%. 

Goods subcategory: Copper and articles thereof; 
HTS chapter: 74; 
Exports to China (2004): $616; 
Total exports (2004): $3,270; 
China's share of total U.S. exports: 18.84%. 

Goods subcategory: Wood pulp etc; recovered (waste & scrap) paper and 
paper board; 
HTS chapter: 47; 
Exports to China (2004): $730; 
Total exports (2004): $4,500; 
China's share of total U.S. exports: 16.22%. 

Goods subcategory: Iron and steel; 
HTS chapter: 72; 
Exports to China (2004): $1,080; 
Total exports (2004): $8,520; 
China's share of total U.S. exports: 12.68%. 

Goods subcategory: Manmade staple fibers, yarns & woven fabrics; 
HTS chapter: 55; 
Exports to China (2004): $209; 
Total exports (2004): $1,680; 
China's share of total U.S. exports: 12.44%. 

Goods subcategory: Fertilizers; 
HTS chapter: 31; 
Exports to China (2004): $311; 
Total exports (2004): $2,610; 
China's share of total U.S. exports: 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. 

[End of table] 

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. 

Goods subcategory: Clocks and watches and parts thereof; 
HTS chapter: 91; 
Exports to China: (2004): $2; 
Total exports (2004): $271; 
China's share of total U.S. exports: 0.91%. 

Goods subcategory: Headgear and parts thereof; 
HTS chapter: 65; 
Exports to China: (2004): $1; 
Total exports (2004): $102; 
China's share of total U.S. exports: 0.90%. 

Goods subcategory: Vehicles, except railway or tramway, and parts etc; 
HTS chapter: 87; 
Exports to China: (2004): $602; 
Total exports (2004): $67,000; 
China's share of total U.S. exports: 0.90%. 

Goods subcategory: Nat etc pearls, precious etc. stones, pr met etc; 
coin; 
HTS chapter: 71; 
Exports to China: (2004): $79; 
Total exports (2004): $9,970; 
China's share of total U.S. exports: 0.79%. 

Goods subcategory: Explosives; pyrotechnics; matches; pyro alloys etc; 
HTS chapter: 36; 
Exports to China: (2004): $4; 
Total exports (2004): $484; 
China's share of total U.S. exports: 0.79%. 

Goods subcategory: Textile art nesoi; needlecraft sets; worn text art; 
HTS chapter: 63; 
Exports to China: (2004): $7; 
Total exports (2004): $905; 
China's share of total U.S. exports: 0.76%. 

Goods subcategory: Prep cereal, flour, starch or milk; bakers wares; 
HTS chapter: 19; 
Exports to China: (2004): $12; 
Total exports (2004): $1,730; 
China's share of total U.S. exports: 0.71%. 

Goods subcategory: Milling products; malt; starch; inulin; wheat 
gluten; 
HTS chapter: 11; 
Exports to China: (2004): $4; 
Total exports (2004): $667; 
China's share of total U.S. exports: 0.67%. 

Goods subcategory: Mfr of straw, esparto etc; basket ware & wickerwork; 
HTS chapter: 46; 
Exports to China: (2004): $0; 
Total exports (2004): $21; 
China's share of total U.S. exports: 0.60%. 

Goods subcategory: Live animals; 
HTS chapter: 1; 
Exports to China: (2004): $3; 
Total exports (2004): $506; 
China's share of total U.S. exports: 0.55%. 

Goods subcategory: Apparel articles and accessories, not knit etc; 
HTS chapter: 62; 
Exports to China: (2004): $8; 
Total exports (2004): $1,590; 
China's share of total U.S. exports: 0.52%. 

Goods subcategory: Edible vegetables & certain roots & tubers; 
HTS chapter: 7; 
Exports to China: (2004): $10; 
Total exports (2004): $1,910; 
China's share of total U.S. exports: 0.50%. 

Goods subcategory: Pharmaceutical products; 
HTS chapter: 30; 
Exports to China: (2004): $94; 
Total exports (2004): $18,900; 
China's share of total U.S. exports: 0.50%. 

Goods subcategory: Carpets and other textile floor coverings; 
HTS chapter: 57; 
Exports to China: (2004): $4; 
Total exports (2004): $767; 
China's share of total U.S. exports: 0.48%. 

Goods subcategory: Works of art, collectors' pieces and antiques; 
HTS chapter: 97; 
Exports to China: (2004): $6; 
Total exports (2004): $1,320; 
China's share of total U.S. exports: 0.46%. 

Goods subcategory: Live trees, plants, bulbs etc; cut flowers etc; 
HTS chapter: 6; 
Exports to China: (2004): $1; 
Total exports (2004): $282; 
China's share of total U.S. exports: 0.46%. 

Goods subcategory: Beverages, spirits and vinegar; 
HTS chapter: 22; 
Exports to China: (2004): $9; 
Total exports (2004): $2,180; 
China's share of total U.S. exports: 0.42%. 

Goods subcategory: Apparel articles and accessories, knit or crochet; 
HTS chapter: 61; 
Exports to China: (2004): $8; 
Total exports (2004): $2,430; 
China's share of total U.S. exports: 0.34%. 

Goods subcategory: Coffee, tea, mate & spices; 
HTS chapter: 9; 
Exports to China: (2004): $1; 
Total exports (2004): $269; 
China's share of total U.S. exports: 0.32%. 

Goods subcategory: Knitted or crocheted fabrics; 
HTS chapter: 60; 
Exports to China: (2004): $5; 
Total exports (2004): $1,630; 
China's share of total U.S. exports: 0.29%. 

Goods subcategory: Arms and ammunition; parts and accessories thereof; 
HTS chapter: 93; 
Exports to China: (2004): $5; 
Total exports (2004): $2,240; 
China's share of total U.S. exports: 0.24%. 

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. 

[End of table] 

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. 

Goods subcategory: Electric machinery etc; sound equip; television 
equipment; pts; 
Average exports: HTS chapter: 85; 
Average exports: 1995-1999: (A): $1,249; 
Average exports: 2000-2004 (B): $3,370; 
Average exports: Change in 5-year periods (C)[A]: $2,121; 
Average exports: Share of change in 5-year periods (D)[B]: 17.53%. 

Goods subcategory: Nuclear reactors, boilers, machinery etc; parts; 
Average exports: HTS chapter: 84; 
Average exports: 1995-1999: (A): $2,290; 
Average exports: 2000-2004 (B): $4,080; 
Average exports: Change in 5-year periods (C)[A]: $1,790; 
Average exports: Share of change in 5-year periods (D)[B]: 14.80%. 

Goods subcategory: Oil seeds etc; misc. grain, seed, fruit, plant etc; 
Average exports: HTS chapter: 12; 
Average exports: 1995-1999: (A): $385; 
Average exports: 2000-2004 (B): $2,030; 
Average exports: Change in 5-year periods (C)[A]: $1,645; 
Average exports: Share of change in 5-year periods (D)[B]: 13.60%. 

Goods subcategory: Iron and steel; 
Average exports: HTS chapter: 72; 
Average exports: 1995-1999: (A): $149; 
Average exports: 2000-2004 (B): $950; 
Average exports: Change in 5-year periods (C)[A]: $802; 
Average exports: Share of change in 5-year periods (D)[B]: 6.63%. 

Goods subcategory: Optic, photo etc, medic or surgical instruments etc; 
Average exports: HTS chapter: 90; 
Average exports: 1995-1999: (A): $569; 
Average exports: 2000-2004 (B): $1,308; 
Average exports: Change in 5-year periods (C)[A]: $739; 
Average exports: Share of change in 5-year periods (D)[B]: 6.11%. 

Goods subcategory: Plastics and articles thereof; 
Average exports: HTS chapter: 39; 
Average exports: 1995-1999: (A): $441; 
Average exports: 2000-2004 (B): $1,169; 
Average exports: Change in 5-year periods (C)[A]: $727; 
Average exports: Share of change in 5-year periods (D)[B]: 6.01%. 

Goods subcategory: Organic chemicals; 
Average exports: HTS chapter: 29; 
Average exports: 1995-1999: (A): $303; 
Average exports: 2000-2004 (B): $920; 
Average exports: Change in 5-year periods (C)[A]: $617; 
Average exports: Share of change in 5-year periods (D)[B]: 5.10%. 

Goods subcategory: Copper and articles thereof; 
Average exports: HTS chapter: 74; 
Average exports: 1995-1999: (A): $111; 
Average exports: 2000-2004 (B): $500; 
Average exports: Change in 5-year periods (C)[A]: $389; 
Average exports: Share of change in 5-year periods (D)[B]: 3.21%. 

Goods subcategory: Raw hides and skins (no fur skins) and leather; 
Average exports: HTS chapter: 41; 
Average exports: 1995-1999: (A): $147; 
Average exports: 2000-2004 (B): $451; 
Average exports: Change in 5-year periods (C)[A]: $304; 
Average exports: Share of change in 5-year periods (D)[B]: 2.51%. 

Goods subcategory: Wood pulp etc; recovered (waste & scrap) paper and 
paper board; 
Average exports: HTS chapter: 47; 
Average exports: 1995-1999: (A): $203; 
Average exports: 2000-2004 (B): $494; 
Average exports: Change in 5-year periods (C)[A]: $291; 
Average exports: Share of change in 5-year periods (D)[B]: 2.41%. 

Goods subcategory: Wood and articles of wood; wood charcoal; 
Average exports: HTS chapter: 44; 
Average exports: 1995-1999: (A): $41; 
Average exports: 2000-2004 (B): $229; 
Average exports: Change in 5-year periods (C)[A]: $188; 
Average exports: Share of change in 5-year periods (D)[B]: 1.55%. 

Goods subcategory: Miscellaneous chemical products; 
Average exports: HTS chapter: 38; 
Average exports: 1995-1999: (A): $119; 
Average exports: 2000-2004 (B): $297; 
Average exports: Change in 5-year periods (C)[A]: $178; 
Average exports: Share of change in 5-year periods (D)[B]: 1.47%. 

Goods subcategory: Aluminum and articles thereof; 
Average exports: HTS chapter: 76; 
Average exports: 1995-1999: (A): $181; 
Average exports: 2000-2004 (B): $357; 
Average exports: Change in 5-year periods (C)[A]: $176; 
Average exports: Share of change in 5-year periods (D)[B]: 1.46%. 

Goods subcategory: Cotton, including yarn and woven fabric thereof; 
Average exports: HTS chapter: 52; 
Average exports: 1995-1999: (A): $330; 
Average exports: 2000-2004 (B): $497; 
Average exports: Change in 5-year periods (C)[A]: $167; 
Average exports: Share of change in 5-year periods (D)[B]: 1.38%. 

Goods subcategory: Vehicles, except railway or tramway, and parts etc; 
Average exports: HTS chapter: 87; 
Average exports: 1995-1999: (A): $202; 
Average exports: 2000-2004 (B): $366; 
Average exports: Change in 5-year periods (C)[A]: $164; 
Average exports: Share of change in 5-year periods (D)[B]: 1.36%. 

Goods subcategory: All other products; 
Average exports: 1995-1999: (A): $4,019; 
Average exports: 2000-2004 (B): $5,819; 
Average exports: Change in 5-year periods (C)[A]: $1,799; 
Average exports: Share of change in 5-year periods (D)[B]: 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. 

[A] Values in column (C) are derived by subtracting columns (A) from 
(B). 

[B] Percentages in column (D) are derived by dividing each value in 
column (C) by the summation of all items in column (C). 

[End of table] 

Far fewer, 9 of 99 of the goods subcategories, experienced declines in 
export value in the past decade.[Footnote 52] 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. 

Goods subcategory: Fertilizers; 
HTS chapter: 31; 
Average exports: 1995-1999 (A): $1,107; 
Average exports: 2000-2004 (B): $547; 
Average exports: Change in 5-year periods (C)[A]: ($560); 
Average exports: Share of change in 5-year periods (D)[B]: 53.25%. 

Goods subcategory: Cereals; 
HTS chapter: 10; 
Average exports: 1995-1999 (A): $311; 
Average exports: 2000-2004 (B): $126; 
Average exports: Change in 5-year periods (C)[A]: ($185); 
Average exports: Share of change in 5-year periods (D)[B]: 17.59%. 

Goods subcategory: Animal or vegetable fats, oils etc. & waxes; 
HTS chapter: 15; 
Average exports: 1995-1999 (A): $217; 
Average exports: 2000-2004 (B): $42; 
Average exports: Change in 5-year periods (C)[A]: ($176); 
Average exports: Share of change in 5-year periods (D)[B]: 16.73%. 

Goods subcategory: Mineral fuel, oil etc; bitumin substitute; mineral 
wax; 
HTS chapter: 27; 
Average exports: 1995-1999 (A): $197; 
Average exports: 2000-2004 (B): $142; 
Average exports: Change in 5-year periods (C)[A]: ($55); 
Average exports: Share of change in 5-year periods (D)[B]: 5.24%. 

Goods subcategory: Toys, games & sport equipment; parts & accessories; 
HTS chapter: 95; 
Average exports: 1995-1999 (A): $76; 
Average exports: 2000-2004 (B): $29; 
Average exports: Change in 5-year periods (C)[A]: ($46); 
Average exports: Share of change in 5-year periods (D)[B]: 4.40%. 

Goods subcategory: Food industry residues & waste; prep animal feed; 
HTS chapter: 23; 
Average exports: 1995-1999 (A): $109; 
Average exports: 2000-2004 (B): $86; 
Average exports: Change in 5-year periods (C)[A]: ($23); 
Average exports: Share of change in 5-year periods (D)[B]: 2.22%. 

Goods subcategory: Carpets and other textile floor coverings; 
HTS chapter: 57; 
Average exports: 1995-1999 (A): $7; 
Average exports: 2000-2004 (B): $4; 
Average exports: Change in 5-year periods (C)[A]: ($3); 
Average exports: Share of change in 5-year periods (D)[B]: 0.26%. 

Goods subcategory: Wool & animal hair, including yarn & woven fabric; 
HTS chapter: 51; 
Average exports: 1995-1999 (A): $7; 
Average exports: 2000-2004 (B): $5; 
Average exports: Change in 5-year periods (C)[A]: ($2); 
Average exports: Share of change in 5-year periods (D)[B]: 0.23%. 

Goods subcategory: Textile art; needlecraft sets; worn text art; 
HTS chapter: 63; 
Average exports: 1995-1999 (A): $6; 
Average exports: 2000-2004 (B): $5; 
Average exports: Change in 5-year periods (C)[A]: ($1); 
Average exports: Share of change in 5-year periods (D)[B]: 0.09%. 

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. 

[A] Values in column (C) are derived by subtracting columns (A) from 
(B). 

[B] Percentages in column (D) are derived by dividing each value in 
column (C) by the summation of all items in column (C). 

[End of table] 

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. 

Subcategory: Carpets and other textile floor coverings; 
HTS chapter: 57; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (29%); 
U.S. share of world exports to China: Average (1995-1999) (A): 42%; 
U.S. share of world exports to China: Average (2000-2004) (B): 13%; 
Export value (2004): $4. 

Subcategory: Tobacco; 
HTS chapter: 24; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (18%); 
U.S. share of world exports to China: Average (1995-1999) (A): 22%; 
U.S. share of world exports to China: Average (2000-2004) (B): 4%; 
Export value (2004): $27. 

Subcategory: Misc. grain, seed, fruit; 
HTS chapter: 12; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (12%); 
U.S. share of world exports to China: Average (1995-1999) (A): 52%; 
U.S. share of world exports to China: Average (2000-2004) (B): 40%; 
Export value (2004): $2,370. 

Subcategory: Toys and sports equipment; 
HTS chapter: 95; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (12%); 
U.S. share of world exports to China: Average (1995-1999) (A): 20%; 
U.S. share of world exports to China: Average (2000-2004) (B): 8%; 
Export value (2004): $52. 

Subcategory: Vegetables; 
HTS chapter: 7; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (11%); 
U.S. share of world exports to China: Average (1995-1999) (A): 19%; 
U.S. share of world exports to China: Average (2000-2004) (B): 8%; 
Export value (2004): $10. 

Subcategory: Fats and oils; 
HTS chapter: 15; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (10%); 
U.S. share of world exports to China: Average (1995-1999) (A): 13%; 
U.S. share of world exports to China: Average (2000-2004) (B): 3%; 
Export value (2004): $35. 

Subcategory: Explosives; 
HTS chapter: 36; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (10%); 
U.S. share of world exports to China: Average (1995-1999) (A): 42%; 
U.S. share of world exports to China: Average (2000-2004) (B): 32%; 
Export value (2004): $4. 

Subcategory: Fertilizers; 
HTS chapter: 31; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (10%); 
U.S. share of world exports to China: Average (1995-1999) (A): 41%; 
U.S. share of world exports to China: Average (2000-2004) (B): 31%; 
Export value (2004): $311. 

Subcategory: Dairy, eggs, honey, etc; 
HTS chapter: 4; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (9%); 
U.S. share of world exports to China: Average (1995-1999) (A): 19%; 
U.S. share of world exports to China: Average (2000-2004) (B): 10%; 
Export value (2004): $38. 

Subcategory: Live animals; 
HTS chapter: 1; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (8%); 
U.S. share of world exports to China: Average (1995-1999) (A): 26%; 
U.S. share of world exports to China: Average (2000-2004) (B): 18%; 
Export value (2004): $3. 

Subcategory: Milling; malt; starch; 
HTS chapter: 11; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (8%); 
U.S. share of world exports to China: Average (1995-1999) (A): 13%; 
U.S. share of world exports to China: Average (2000-2004) (B): 5%; 
Export value (2004): $4. 

Subcategory: Cotton and yarn, fabric; 
HTS chapter: 52; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (7%); 
U.S. share of world exports to China: Average (1995-1999) (A): 18%; 
U.S. share of world exports to China: Average (2000-2004) (B): 11%; 
Export value (2004): $1,420. 

Subcategory: Art and antiques; 
HTS chapter: 97; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (6%); 
U.S. share of world exports to China: Average (1995-1999) (A): 15%; 
U.S. share of world exports to China: Average (2000-2004) (B): 9%; 
Export value (2004): $6. 

Subcategory: Railway;trf sign eq; 
HTS chapter: 86; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (6%); 
U.S. share of world exports to China: Average (1995-1999) (A): 9%; 
U.S. share of world exports to China: Average (2000-2004) (B): 3%; 
Export value (2004): $47. 

Subcategory: Cereals; 
HTS chapter: 10; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (6%); 
U.S. share of world exports to China: Average (1995-1999) (A): 17%; 
U.S. share of world exports to China: Average (2000-2004) (B): 11%; 
Export value (2004): $496. 

Subcategory: Optic,nt 8544;med instruments; 
HTS chapter: 90; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (6%); 
U.S. share of world exports to China: Average (1995-1999) (A): 23%; 
U.S. share of world exports to China: Average (2000-2004) (B): 17%; 
Export value (2004): $1,980. 

Subcategory: Other base metals, etc; 
HTS chapter: 81; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (5%); 
U.S. share of world exports to China: Average (1995-1999) (A): 15%; 
U.S. share of world exports to China: Average (2000-2004) (B): 10%; 
Export value (2004): $94. 

Subcategory: Fur skin, artificial fur; 
HTS chapter: 43; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (6%); 
U.S. share of world exports to China: Average (1995-1999) (A): 8%; 
U.S. share of world exports to China: Average (2000-2004) (B): 2%; 
Export value (2004): $41. 

Subcategory: Glass and glassware; 
HTS chapter: 70; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (5%); 
U.S. share of world exports to China: Average (1995-1999) (A): 11%; 
U.S. share of world exports to China: Average (2000-2004) (B): 6%; 
Export value (2004): $126. 

Subcategory: Other vegetable; 
HTS chapter: 14; 
U.S. share of world exports to China: Percentage point change (A) minus 
(B)[A]: (5%); 
U.S. share of world exports to China: Average (1995-1999) (A): 16%; 
U.S. share of world exports to China: Average (2000-2004) (B): 11%; 
Export value (2004): $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. 

[A] The percentage point change is derived by subtracting the value in 
column (B) from the value in column (A). 

[End of table] 

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).[Footnote 53] 
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. 

Subcategory: Miscellaneous edible preparations; 
HTS chapter: 21; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 26%; 
U.S. share of world exports to China: Average (1995-1999) (A): 14%; 
U.S. share of world exports to China: Average (2000-2004) (B): 40%; 
U.S. share of world exports to China: Export value (2004): $178. 

Subcategory: Edible preparations of meat, fish, crustaceans etc; 
HTS chapter: 16; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 20; 
U.S. share of world exports to China: Average (1995-1999) (A): 11; 
U.S. share of world exports to China: Average (2000-2004) (B): 31; 
U.S. share of world exports to China: Export value (2004): $12. 

Subcategory: Lac; gums, resins & other vegetable sap & extract; 
HTS chapter: 13; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 16; 
U.S. share of world exports to China: Average (1995-1999) (A): 16; 
U.S. share of world exports to China: Average (2000-2004) (B): 32; 
U.S. share of world exports to China: Export value (2004): $14. 

Subcategory: Prep vegetables, fruit, nuts or other plant parts; 
HTS chapter: 20; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 14; 
U.S. share of world exports to China: Average (1995-1999) (A): 31; 
U.S. share of world exports to China: Average (2000-2004) (B): 45; 
U.S. share of world exports to China: Export value (2004): $55. 

Subcategory: Products of animal origin, nesoi; 
HTS chapter: 5; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 11; 
U.S. share of world exports to China: Average (1995-1999) (A): 26; 
U.S. share of world exports to China: Average (2000-2004) (B): 37; 
U.S. share of world exports to China: Export value (2004): $44. 

Subcategory: Leather art; saddlery etc; handbags etc; gut art; 
HTS chapter: 42; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 9; 
U.S. share of world exports to China: Average (1995-1999) (A): 2; 
U.S. share of world exports to China: Average (2000-2004) (B): 11; 
U.S. share of world exports to China: Export value (2004): $8. 

Subcategory: Wadding, felt etc; sp yarn; twine, ropes etc; 
HTS chapter: 56; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 9; 
U.S. share of world exports to China: Average (1995-1999) (A): 3; 
U.S. share of world exports to China: Average (2000-2004) (B): 12; 
U.S. share of world exports to China: Export value (2004): $71. 

Subcategory: Edible fruit & nuts; citrus fruit or melon peel; 
HTS chapter: 8; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 8; 
U.S. share of world exports to China: Average (1995-1999) (A): 7; 
U.S. share of world exports to China: Average (2000-2004) (B): 15; 
U.S. share of world exports to China: Export value (2004): $71. 

Subcategory: Printed books, newspapers etc; manuscripts etc; 
HTS chapter: 49; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 6; 
U.S. share of world exports to China: Average (1995-1999) (A): 7; 
U.S. share of world exports to China: Average (2000-2004) (B): 13; 
U.S. share of world exports to China: Export value (2004): $49. 

Subcategory: Soap etc; waxes, polish etc; candles; dental preps; 
HTS chapter: 34; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 4; 
U.S. share of world exports to China: Average (1995-1999) (A): 13; 
U.S. share of world exports to China: Average (2000-2004) (B): 17; 
U.S. share of world exports to China: Export value (2004): $124. 

Subcategory: Aircraft, spacecraft, and parts thereof; 
HTS chapter: 88; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 3; 
U.S. share of world exports to China: Average (1995-1999) (A): 51; 
U.S. share of world exports to China: Average (2000-2004) (B): 54; 
U.S. share of world exports to China: Export value (2004): $1,950. 

Subcategory: Essential oils etc; perfumery, cosmetic etc preps; 
HTS chapter: 33; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 4; 
U.S. share of world exports to China: Average (1995-1999) (A): 23; 
U.S. share of world exports to China: Average (2000-2004) (B): 27; 
U.S. share of world exports to China: Export value (2004): $82. 

Subcategory: Mfr of straw, esparto etc; basket ware & wickerwork; 
HTS chapter: 46; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 4; 
U.S. share of world exports to China: Average (1995-1999) (A): 2; 
U.S. share of world exports to China: Average (2000-2004) (B): 6; 
U.S. share of world exports to China: Export value (2004): $0. 

Subcategory: Footwear; 
HTS chapter: 64; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 3; 
U.S. share of world exports to China: Average (1995-1999) (A): 15; 
U.S. share of world exports to China: Average (2000-2004) (B): 18; 
U.S. share of world exports to China: Export value (2004): $31. 

Subcategory: Cocoa and cocoa preparations; 
HTS chapter: 18; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 3; 
U.S. share of world exports to China: Average (1995-1999) (A): 12; 
U.S. share of world exports to China: Average (2000-2004) (B): 15; 
U.S. share of world exports to China: Export value (2004): $8. 

Subcategory: Art of stone, plaster, cement, asbestos, mica etc; 
HTS chapter: 68; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 3; 
U.S. share of world exports to China: Average (1995-1999) (A): 9; 
U.S. share of world exports to China: Average (2000-2004) (B): 12; 
U.S. share of world exports to China: Export value (2004): $77. 

Subcategory: Ceramic products; 
HTS chapter: 69; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 3; 
U.S. share of world exports to China: Average (1995-1999) (A): 10; 
U.S. share of world exports to China: Average (2000-2004) (B): 13; 
U.S. share of world exports to China: Export value (2004): $46. 

Subcategory: Sugars and sugar confectionary; 
HTS chapter: 17; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 3; 
U.S. share of world exports to China: Average (1995-1999) (A): 2; 
U.S. share of world exports to China: Average (2000-2004) (B): 5; 
U.S. share of world exports to China: Export value (2004): $40. 

Subcategory: Coffee, tea, mate & spices; 
HTS chapter: 9; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 3; 
U.S. share of world exports to China: Average (1995-1999) (A): 6; 
U.S. share of world exports to China: Average (2000-2004) (B): 9; 
U.S. share of world exports to China: Export value (2004): $1. 

Subcategory: Hides and skins; 
HTS chapter: 41; 
U.S. share of world exports to China: Percentage point change (B) minus 
(A)[A]: 3; 
U.S. share of world exports to China: Average (1995-1999) (A): 13; 
U.S. share of world exports to China: Average (2000-2004) (B): 16; 
U.S. share of world exports to China: Export value (2004): $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. 

[A] The percentage point change is derived by subtracting the value in 
column (B) from the value in column (A). 

[End of table] 

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. 

[See PDF for image] 

[End of table] 

[End of section] 

Appendix III: Services Trade Categories and Their Definitions: 

Category: Travel; 
Definition: Goods and services purchased by U.S. persons traveling 
abroad and by foreign travelers in the United States. 

Category: Passenger Fares; 
Definition: Fares received by U.S. air carriers from foreign residents 
for travel between the United States and foreign countries and between 
two foreign points. 

Category: Other Transportation; 
Definition: U.S. international transactions arising from the 
transportation of goods by ocean, air, land, pipeline, and inland 
waterway carriers to and from the United States and between two foreign 
points. 

Category: Royalties and License Fees; 
Definition: Transactions with nonresidents that involve patented and 
unpatented techniques, processes, and formulas, as well as trademarks, 
copyrights, franchises, broadcast rights, and other intangible rights, 
including rights to distribute, use, and reproduce general-use computer 
software. 

Other Private Services: 

Category: Education; 
Definition: Expenditures for tuition and living expenses by foreign 
students enrolled in U.S. colleges and universities and by U.S. 
students for study abroad. 

Category: Financial services; 
Definition: Funds management, credit card services, fees and 
commissions on transactions in securities, implicit fees paid and 
received on bond trading, fees on credit-related activities, and other 
financial services. 

Category: Insurance services; 
Definition: Investment income of insurance companies on funds that are 
treated as belonging to policyholders, and auxiliary services such as 
agents' commissions, actuarial services, insurance brokering, and 
agency services. 

Category: Telecommunication; 
Definition: Receipts and payments between U.S. and foreign 
communications companies for the transmission of messages between the 
United States and other countries. 

Category: Other services; 
Definition: Expenditures (except employee compensation) by foreign 
governments in the United States for services such as maintaining their 
embassies and consulates, as well as expenditures by international 
organizations headquartered in the United States and of foreign 
residents employed temporarily in the United States. 

Business, Professional, and Technical Services: 

Category: Computer and information; 
Definition: Computer and data processing services and database and 
other information services. 

Category: Management and consulting; 
Definition: Management services, except management of health care 
facilities, and consulting services, except consulting engineering 
services related to actual or proposed construction projects and 
computer consulting, and public relations services, except those that 
are an integral part of an advertising campaign. 

Category: Research and development; 
Definition: Commercial and noncommercial research, product development 
services, and testing services. 

Category: Operational leasing; 
Definition: Rentals for computer and data processing equipment, and 
transportation equipment (such as ships, aircraft, railway cars, etc.) 
without crew or operators. 

Category: Other business, professional, and technical services; 
Definition: Examples include accounting, auditing, and bookkeeping, 
advertising, construction, and legal services. 

Source: Department of Commerce, Bureau of Economic Analysis. 

[End of table] 

[End of section] 

Appendix IV: U.S. Foreign Direct Investment and U.S. Affiliate Sales in 
China: 

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. 

Industry group receiving investment: Information; 
Annual growth rate (percent): Overall (1995-2004): 39%; 
Annual growth rate (percent): First 5 years (1995-1999): NA[A]; 
Annual growth rate (percent): Second 5 years (2000-2004): 36%; 
Foreign direct investment (2004): $368. 

Industry group receiving investment: Other industries; 
Annual growth rate (percent): Overall (1995-2004): 34%; 
Annual growth rate (percent): First 5 years (1995-1999): 74%; 
Annual growth rate (percent): Second 5 years (2000-2004): 3%; 
Foreign direct investment (2004): $1,375[B]. 

Industry group receiving investment: Wholesale trade; 
Annual growth rate (percent): Overall (1995-2004): 32%; 
Annual growth rate (percent): First 5 years (1995-1999): 27%; 
Annual growth rate (percent): Second 5 years (2000-2004): 49%; 
Foreign direct investment (2004): $1,825. 

Industry group receiving investment: Depository institutions; 
Annual growth rate (percent): Overall (1995-2004): 26%; 
Annual growth rate (percent): First 5 years (1995-1999): (8%); 
Annual growth rate (percent): Second 5 years (2000-2004): 69%; 
Foreign direct investment (2004): $534. 

Industry group receiving investment: Manufacturing; 
Annual growth rate (percent): Overall (1995-2004): 23%; 
Annual growth rate (percent): First 5 years (1995-1999): 53%; 
Annual growth rate (percent): Second 5 years (2000-2004): 2%; 
Foreign direct investment (2004): $8,222. 

Industry group receiving investment: Professional, scientific, and 
technical services; 
Annual growth rate (percent): Overall (1995-2004): 17%; 
Annual growth rate (percent): First 5 years (1995-1999): 52%; 
Annual growth rate (percent): Second 5 years (2000-2004): 20%; 
Foreign direct investment (2004): $688. 

Industry group receiving investment: Mining; 
Annual growth rate (percent): Overall (1995-2004): 10%; 
Annual growth rate (percent): First 5 years (1995-1999): NA[A]; 
Annual growth rate (percent): Second 5 years (2000-2004): 1%; 
Foreign direct investment (2004): $1,740. 

Industry group receiving investment: Finance (except depository 
institutions) and insurance[C]; 
Annual growth rate (percent): Overall (1995-2004): 5%; 
Annual growth rate (percent): First 5 years (1995-1999): 62%; 
Annual growth rate (percent): Second 5 years (2000-2004): (53%); 
Foreign direct investment (2004): $(2). 

Industry group receiving investment: Utilities; 
Annual growth rate (percent): Overall (1995-2004): (2%); 
Annual growth rate (percent): First 5 years (1995-1999): NA[A]; 
Annual growth rate (percent): Second 5 years (2000-2004): (0.2%); 
Foreign direct investment (2004): $565[B]. 

Total; 
Annual growth rate (percent): Overall (1995-2004): 21%; 
Annual growth rate (percent): First 5 years (1995-1999): 42%; 
Annual growth rate (percent): Second 5 years (2000-2004): 7%; 
Foreign direct investment (2004): $15,430. 

Source: GAO analysis of Department of Commerce, Bureau of Economic 
Analysis data. 

Note: We did not adjust these data for inflation. 

[A] Foreign 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. 

[B] This figure is from 2003. BEA did not publish this figure for 2004. 

[C] The 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. 

[End of table] 

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 millions. 

Manufacturing industry group: Transportation equipment; 
Annual growth rate (percent): Overall (1995-2004): 67%; 
Annual growth rate (percent): First 5 years (1995-1999): 241%; 
Annual growth rate (percent): Second 5 years (2000-2004): 31%; 
Foreign direct investment (2004): $1,832. 

Manufacturing industry group: Chemicals; 
Annual growth rate (percent): Overall (1995-2004): 28%; 
Annual growth rate (percent): First 5 years (1995-1999): 44%; 
Annual growth rate (percent): Second 5 years (2000-2004): 11%; 
Foreign direct investment (2004): $1,643. 

Manufacturing industry group: Food; 
Annual growth rate (percent): Overall (1995-2004): 22%; 
Annual growth rate (percent): First 5 years (1995-1999): 35%; 
Annual growth rate (percent): Second 5 years (2000-2004): 21%; 
Foreign direct investment (2004): $593. 

Manufacturing industry group: Primary and fabricated metals; 
Annual growth rate (percent): Overall (1995-2004): 11%; 
Annual growth rate (percent): First 5 years (1995-1999): 72%; 
Annual growth rate (percent): Second 5 years (2000-2004): (2%); 
Foreign direct investment (2004): $149. 

Manufacturing industry group: Machinery; 
Annual growth rate (percent): Overall (1995-2004): 9%; 
Annual growth rate (percent): First 5 years (1995-1999): 49%; 
Annual growth rate (percent): Second 5 years (2000-2004): 20%; 
Foreign direct investment (2004): $455. 

Manufacturing industry group: Electrical equipment, appliances and 
components; 
Annual growth rate (percent): Overall (1995-2004): (8%); 
Annual growth rate (percent): First 5 years (1995-1999): (13%); 
Annual growth rate (percent): Second 5 years (2000-2004): 2%; 
Foreign direct investment (2004): $493. 

Manufacturing industry group: Computers and electronic products; 
Annual growth rate (percent): Overall (1995-2004): (16%); 
Annual growth rate (percent): First 5 years (1995-1999): NA[A]; 
Annual growth rate (percent): Second 5 years (2000-2004): (25%); 
Foreign direct investment (2004): $1,341. 

Total; 
Annual growth rate (percent): Overall (1995-2004): 23%; 
Annual growth rate (percent): First 5 years (1995-1999): 53%; 
Annual growth rate (percent): Second 5 years (2000-2004): 2%; 
Foreign direct investment (2004): $8,222. 

Source: GAO analysis of Department of Commerce, Bureau of Economic 
Analysis data. 

Note: We did not adjust these data for inflation. 

[A] Foreign 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. 

[End of table] 

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. 

Affiliate industry group: Information; 
Annual growth rate (percent): Overall (1995-2003): 50%; 
Annual growth rate (percent): First 5 years (1995-1999): NA[A]; 
Annual growth rate (percent): Last 4 years (2000-2003): 50%; 
Annual growth rate (percent): Sales value (2003): $475. 

Affiliate industry group: Other industries[B]; 
Annual growth rate (percent): Overall (1995-2003): 45%; 
Annual growth rate (percent): First 5 years (1995-1999): 48%; 
Annual growth rate (percent): Last 4 years (2000-2003): 27%; 
Annual growth rate (percent): Sales value (2003): $1,616. 

Affiliate industry group: Manufacturing; 
Annual growth rate (percent): Overall (1995-2003): 36%; 
Annual growth rate (percent): First 5 years (1995-1999): 44%; 
Annual growth rate (percent): Last 4 years (2000-2003): 26%; 
Annual growth rate (percent): Sales value (2003): $25,154. 

Affiliate industry group: Wholesale Trade; 
Annual growth rate (percent): Overall (1995-2003): 33%; 
Annual growth rate (percent): First 5 years (1995-1999): 33%; 
Annual growth rate (percent): Last 4 years (2000-2003): 30%; 
Annual growth rate (percent): Sales value (2003): $7,736. 

Affiliate industry group: Professional, scientific, and technical 
services; 
Annual growth rate (percent): Overall (1995-2003): 16%; 
Annual growth rate (percent): First 5 years (1995-1999): 23%; 
Annual growth rate (percent): Last 4 years (2000-2003): 14%; 
Annual growth rate (percent): Sales value (2003): $497. 

Affiliate industry group: Utilities; 
Annual growth rate (percent): Overall (1995-2003): 16%; 
Annual growth rate (percent): First 5 years (1995-1999): NA[A]; 
Annual growth rate (percent): Last 4 years (2000-2003): 16%; 
Annual growth rate (percent): Sales value (2003): $246. 

Affiliate industry group: Finance (except depository institutions and 
insurance)[C]; 
Annual growth rate (percent): Overall (1995-2003): 15%; 
Annual growth rate (percent): First 5 years (1995-1999): 15%; 
Annual growth rate (percent): Last 4 years (2000-2003): 14%; 
Annual growth rate (percent): Sales value (2003): $265. 

Affiliate industry group: Mining[D]; 
Annual growth rate (percent): Overall (1995-2003): NA; 
Annual growth rate (percent): First 5 years (1995-1999): NA; 
Annual growth rate (percent): Last 4 years (2000-2003): (5)%; 
Annual growth rate (percent): Sales value (2003): $453. 

Total; 
Annual growth rate (percent): Overall (1995-2003): 33%; 
Annual growth rate (percent): First 5 years (1995-1999): 39%; 
Annual growth rate (percent): Last 4 years (2000-2003): 26%; 
Annual growth rate (percent): Sales value (2003): $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. 

[A] Affiliate 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. 

[B] Affiliate 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. 

[C] Affiliate 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. 

[D] Affiliate sales data for mining are not available from 1995 to 
1999. Therefore, we could only calculate the growth rate for 2000 to 
2003. 

[End of table] 

Table 18: Manufacturing Affiliate Industry Group Sales in China by 
Annual Growth Rate (1995-2003) and Sales Value in 2003: 

Dollars in millions. 

Manufacturing affiliate industry group: Transportation equipment; 
Annual growth rate (percent): Overall (1995-2003): 47%; 
Annual growth rate (percent): First 5 years (1995-1999): 90%; 
Annual growth rate (percent): Last 4 years (2000-2003): 32%; 
Sales value (2003): $1,098. 

Manufacturing affiliate industry group: Computers and electronic 
products; 
Annual growth rate (percent): Overall (1995-2003): 39%; 
Annual growth rate (percent): First 5 years (1995-1999): NA[A]; 
Annual growth rate (percent): Last 4 years (2000-2003): 35%; 
Sales value (2003): $13,223. 

Manufacturing affiliate industry group: Chemicals; 
Annual growth rate (percent): Overall (1995-2003): 24%; 
Annual growth rate (percent): First 5 years (1995-1999): 38%; 
Annual growth rate (percent): Last 4 years (2000-2003): 14%; 
Sales value (2003): $3,894. 

Manufacturing affiliate industry group: Food; 
Annual growth rate (percent): Overall (1995-2003): 25%; 
Annual growth rate (percent): First 5 years (1995-1999): 52%; 
Annual growth rate (percent): Last 4 years (2000-2003): 13%; 
Sales value (2003): $721. 

Manufacturing affiliate industry group: Primary and fabricated metals; 
Annual growth rate (percent): Overall (1995-2003): 23%; 
Annual growth rate (percent): First 5 years (1995-1999): 45%; 
Annual growth rate (percent): Last 4 years (2000-2003): 12%; 
Sales value (2003): $753. 

Manufacturing affiliate industry group: Machinery; 
Annual growth rate (percent): Overall (1995-2003): 14%; 
Annual growth rate (percent): First 5 years (1995-1999): 25%; 
Annual growth rate (percent): Last 4 years (2000-2003): 9%; 
Sales value (2003): $1,163. 

Manufacturing affiliate industry group: Electrical equipment, 
appliances, and components; 
Annual growth rate (percent): Overall (1995-2003): (9%); 
Annual growth rate (percent): First 5 years (1995-1999): (6%); 
Annual growth rate (percent): Last 4 years (2000-2003): 28%; 
Sales value (2003): $873. 

Total; 
Annual growth rate (percent): Overall (1995-2003): 36%; 
Annual growth rate (percent): First 5 years (1995-1999): 44%; 
Annual growth rate (percent): Last 4 years (2000-2003): 26%; 
Sales value (2003): $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. 

[A] BEA does not have figures for computers and electronic products 
from 1995 to 1998. 

[End of table] 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Loren Yager (202) 512-4128: 

Staff Acknowledgments: 

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): 

FOOTNOTES 

[1] Intellectual property is nontangible property that is the creation 
of the mind. The government protects the intellectual property through 
means such as copyrights and patents. 

[2] All U.S. goods exports statistics are in 2004 constant dollars. See 
appendix I. 

[3] All U.S. service exports statistics are in 2004 constant dollars. 
See appendix I. 

[4] While Chinese goods trade data are available, bilateral Chinese 
services data are not available to allow an analysis of how the United 
States compares with other services exporters to China. See appendix I. 

[5] Data for U.S. investment in China are provided on an historical 
cost basis. 

[6] At the time of publication, data on affiliate sales were available 
through 2003. 

[7] GAO calculations are based on data from China's National Bureau of 
Statistics. 

[8] Many experts believe China has maintained an undervalued exchange 
rate relative to the dollar, which would tend to make U.S. exports to 
China relatively more expensive and China's exports to the United 
States relatively less expensive. In July 2005, China announced some 
changes in how it manages its exchange rate, and its currency has 
depreciated slightly against the dollar. For a discussion of U.S.-China 
exchange rate issues, see GAO, International Trade: Treasury 
Assessments Have Not Found Currency Manipulation, but Concerns about 
Exchange Rates Continue, GAO-05-351 (Washington, D.C. Apr. 19, 2005). 

[9] For further information about China's obligations under the WTO, 
see GAO, World Trade Organization: Analysis of China's Commitments to 
Other Members, GAO-03-04 (Washington, D.C. Oct. 3, 2002). 

[10] See GAO, World Trade Organization: U.S. Companies' Views on 
China's Implementation of Its Commitment, GAO-04-508 (Washington, D.C. 
Mar. 24, 2004); and World Trade Organization: Selected U.S. Company 
Views About China's Membership, GAO-02-892 (Washington, D.C. Sept. 23, 
2002). 

[11] See GAO, U.S.-China Trade: Opportunities to Improve U.S. 
Government Efforts to Ensure China's Compliance with World Trade 
Organization, GAO-05-53 (Washington, D.C. Oct. 6, 2004); and 
Intellectual Property: U.S. Efforts Have Contributed to Strengthened 
Laws Overseas, but Challenges Remain, GAO-04-912 (Washington, D.C. 
Sept. 8, 2004). 

[12] Unless noted otherwise, the EU refers to the 15 countries that 
have been members of the EU over the past 10 years, rather than the 
current full membership of 25 countries. These 15 countries include 
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, 
Italy, Luxembourg, the Netherlands, Portugal, Sweden, Spain, and the 
United Kingdom. (Ten additional members acceded to the EU in 2004, and 
adding them would change the numbers presented in figure 1 only 
slightly.) 

[13] The reasons why China is an insignificant market for some U.S. 
exports are complex and better understanding calls for further 
investigation. It may be a result of business decisions to sell through 
their foreign affiliates in China rather than through exports, and it 
may also reflect business concerns over intellectual property 
violations in China. 

[14] We have adjusted all U.S. goods exports statistics for inflation 
and expressed them as 2004 constant dollars. 

[15] Small countries, such as Iraq and Afghanistan, which previously 
had very low levels of exports, have recently experienced larger 
increases in U.S. exports. 

[16] The broad product categories, 10 to be specific, are GAO 
aggregations of the 99 chapter headings of the HTS. These aggregations 
are shown in appendix I, table 7. The subcategories are the 99 chapters 
from the schedule (see app. II, table 14). 

[17] The finding that exports have accelerated in recent years is 
robust. The results that latter years have higher growth rates than 
earlier years hold true using different break points. 

[18] This category includes raw cotton and hides and skins, which 
together account for nearly $2 billion of the $2.6 billion in U.S. 
exports in the category in 2004. 

[19] According to the Department of Agriculture officials, soybeans 
account for the majority of the increase in exports in this 
subcategory. 

[20] The Office of the United States Trade Representative noted various 
market access issues on fertilizer exports to China. These issues 
include value-added tax rebate and tariff rate quota administration. 
The value-added tax rebate was intended to encourage domestic 
fertilizer production, and the fertilizer exporters complained about 
the complex tariff rate quota administration. An industry expert told 
us that China's increasing domestic production capacity has driven down 
the demand for imported fertilizer. For example, according to the data 
from The Fertilizer Institute, China's capacity for processed 
phosphate, the main U.S. fertilizer export, increased nearly 33 percent 
from 2001 to 2004. One other factor driving the decline of fertilizer 
export was increasing freight cost, which makes importing bulk 
commodities such as fertilizer more expensive. 

[21] Large grain surpluses accumulated during the mid-to late-1990s 
kept China's grain imports unusually low from 1997 to 2003. However, 
wheat and rice imports both rose in 2004. 

[22] According to Department of Agriculture officials, the decline in 
this subcategory is a reflection of increasing palm oil imports from 
Southeast Asia, as well as a dramatic increase in China's domestic oil 
seed crushing and refining capacity. 

[23] For 2004, BEA only provides data on U.S. exports of services to 
all 25 current EU member countries, and does not break out the 15 
original members. The current 25 EU member countries include Austria, 
Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, 
Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, 
Luxembourg, Malta, the Netherlands, Poland, Portugal, Slovakia, 
Slovenia, Spain, Sweden, and the United Kingdom. 

[24] Services categories and subcategories are those used by BEA. See 
appendix III for full definitions of these categories and 
subcategories. 

[25] At this level, however, only unaffiliated data are available. BEA 
does not publish country-specific affiliated services data at the 
subcategory level. 

[26] For a thorough discussion of Chinese WTO compliance problems, see 
United States Trade Representative, 2004 Report to Congress on China's 
WTO Compliance (December 2004). 

[27] A U.S. affiliate abroad is an incorporated or unincorporated 
enterprise in which an investor, who is resident in another economy, 
owns a stake that permits a lasting interest in the management of that 
enterprise (an equity stake of 10 percent). 

[28] U.S. foreign direct investment and affiliate sales in China are 
discussed later in this report. 

[29] Bilateral Chinese services data are not available to allow an 
analysis of how the United States compares with other services 
exporters to China. Therefore, the discussion in this section is 
focused solely on goods and not services. See appendix I. 

[30] Our analysis of the U.S. share of world exports to China is based 
on official Chinese trade statistics, which we express in nominal 
dollars. We were not able to identify an appropriate trade deflator for 
Chinese trade statistics in order to remove the potential effect of 
inflation or deflation on the values. 

[31] See appendix I for a discussion of the reliability of Chinese 
trade statistics. We use Chinese trade statistics in this section in 
order to compare how U.S. exports to China fare relative to other 
countries' exports to China. U.S. and Chinese trade statistics differ 
substantially in the value of trade they report between the two 
countries. 

[32] The ASEAN has 10 member countries, including Brunei Darussalam, 
Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, 
Singapore, Thailand, and Vietnam. 

[33] In the discussion and figure that follow, we calculate trade 
statistics for ASEAN countries as a group. 

[34] Chinese trade statistics include "China" as one of the supplying 
countries. This represents the reimports of Chinese-produced products 
that have been temporarily exported outside of China, but were then 
reimported without substantial transformation in the receiving country. 
We exclude these reimports from our analysis of Chinese trade 
statistics. 

[35] Since annual export shares can vary a great deal from year to 
year, averaging the two 5-year periods and comparing them removes some 
of this annual fluctuation and focuses on broader changes. For 
verification, we also examined the annual and 3-year average export 
shares to confirm the results presented here. 

[36] Of the 99 subcategories, 42 grew in their export share from the 
first half of the decade (1995 to 1999) compared with the second half 
(2000 to 2004). The subcategories are the 99 chapters from the HTS 
schedule (see app. II, table 14). 

[37] Appendix II, table 13, shows the top 20 subcategories by increase 
in U.S. share of world exports to China. 

[38] Between 1995 and 1997, the number of countries that exported to 
China increased from 203 to 224. Between 1995 and 1997, the top 10 
exporters accounted for 74 percent of world exports to China. This 
percentage fell to 70 percent between 2002 and 2004. Similarly, the top 
20 suppliers dropped from 89 percent of world exports to China between 
1995 and 1997 to 85 percent between 2002 and 2004. 

[39] Crude oil from petroleum and bituminous minerals is a product 
description at the four-digit level of detail in the HTS. 

[40] We report growth rates based on Chinese trade statistics in 
nominal dollars since there is no appropriate deflator readily 
available. However, because the time span is only 5 years, the real 
growth rate is not likely to be significantly different. 

[41] Sales by U.S. affiliates are the total value of sales by U.S. 
majority-owned affiliates located in China to the Chinese market. Data 
on sales by all U.S. affiliates (majority and minority-owned) are not 
available for just the Chinese market, but include any sales by these 
affiliates to China or another country. 

[42] The U.S. foreign direct position in China is measured on an 
historical cost basis by BEA. The historical cost basis represents the 
book value of U.S. direct investor's equity in, and net outstanding 
loans to, their foreign affiliates. 

[43] The Chinese Statistical Yearbook reports the total amount of 
realized foreign direct investment, which represents the annual flow of 
investment into China, rather than the cumulative stock. 

[44] Some foreign firms, including U.S. companies, are registered in 
the British Virgin Islands for taxes. 

[45] The affiliate sales data were available through 2003. We adjusted 
the data for inflation and expressed them in 2004 constant dollars. 

[46] BEA also collects data from U.S. industries on their affiliates' 
total goods sales and total services sales. However, BEA does not 
collect goods data or services data by industry. 

[47] BEA provides data on affiliates' local sales in China by the 
industry of the affiliate. It also provides data on total sales of both 
goods and services, but does not report more detail on specific types 
of goods or services. 

[48] As we previously reported, WTO rules generally do not cover 
members' investment policies, although China committed to eliminating 
some investment requirements, such as complying fully with the WTO's 
Agreement on Trade-Related Investment Measures and eliminating policies 
requiring trade and foreign exchange balancing, local content, and 
export performance. See GAO-03-04. 

[49] The U.S.-China Business Council, Trade with China: Opportunities 
and Challenges (submission to the Senate Committee on Finance, June 23, 
2005). 

[50] Center for Strategic and International Studies, Bates Gill and Sue 
Anne Tay, Partners and Competitors: Coming to Terms with the U.S.-China 
Economic Relationship (April 2004). 

[51] Morgan Stanley Equity Research Global, America's Trade Deficit 
with China: Why It's Here to Stay (Mar. 22, 2002). 

[52] The United States did not export goods to China in the remaining 2 
(of 99) subcategories. 

[53] The United States did not export goods to China in the remaining 2 
(of 99) subcategories. 

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