Li Xina and Xu Dianqingb

　　a Beijing Normal University

　　b University of Western Ontario

　　Abstract: The distortion of GDP and foreign trade data has exaggerated China’s foreign trade dependence degree and external imbalance degree. The distortion of GDP is mainly caused by the difference between the exchange rate method and purchasing power parity (PPP) estimation. The distortion of trade data includes double counting of customs statistics as well as the discrepancy between the international trade flows of goods and of capital caused by the ownership issue. The re-estimation of China’s trade dependence degree and external imbalance degree reveals that according to official statistics, in 2007 the dependence degree of China’s foreign trade decreased to 31.59 percent from 68.02 percent and its imbalance degree decreased to 2.11 percent from 10.13 percent.Therefore, it is utterly groundless to accuse China of “manipulating the exchange rate.”

　　Keywords: foreign trade dependence degree, external imbalance degree, processing trade, foreign-funded ownership