Trade Mispricing and Misreporting : A Study of China’s Foreign Trade 1998-2009

According to common sense, China’s exports to Norway should be the same as Norway’s imports from China. However, if we look at the data reported by China and Norway, we find a huge gap. Comparing reported exports and imports, we have what is called mirror data on international trade. Looking at such data for many countries, we find a shocking dispersion of values. In this thesis, we review the theoretical and empirical literature relevant for the analysis of mirror data, and we undertake an empirical study of mirror data on China’s trade with 147 countries in the world during 1998-2009. We use a new approach of decomposing the bilateral value of the CIF-FOB ratio into a CIF-FOB price index and a quantity ratio for each trade partner. The main finding of the paper is that price effect, which is related to trade mispricing, is an important factor explaining mirror data variation in case of Chinese exports. While quantity effect, which is related to misreporting of origin, explains the larger part of variation in mirror data for Chinese imports