BEIJING, Jan 16 China needs to create a statistical system that better accounts for forei

BEIJING, Jan 16 (Reuters) China needs to create a statistical system that better accounts for foreign firms' large contribution to its ballooning trade surplus, two government researchers have suggested.

Yao Zhizhong and Liu Shiguo of the Chinese Academy of Social Sciences said that calculating trade flows on the basis of goods changing hands between companies or individuals from different countries would paint a vastly different picture from the one portrayed by statistics on cross-border movement of goods.

China posted a record trade surplus of $177.47 billion in 2006, according to customs data, jumping from $102 billion in 2005 and $32 billion in 2004 -- figures that have provided ammunition to critics of Beijing's currency policy, who say that an undervalued yuan is giving Chinese exporters an unfair edge.

Writing in the latest issue of China Economist magazine, Yao and Liu estimated that, measured by ownership, China has actually been racking up a growing trade deficit with other countries -- going from $21 billion in 1998 to $138.7 billion in 2004.

''A comparison between cross-border trade and ownership-based trade may clearly show that foreign companies are in fact creating China's imbalance with foreign countries,'' they wrote.

The two estimated that in 2005 foreign companies accounted for 58 percent of China's exports and 59 percent of its imports when measured by customs data, contributing 56 percent of the overall 2005 trade surplus.

The alternative method showed a 2004 trade surplus with the United States of just $1.2 billion, compared with the $80.4 billion reported by China's customs administration, they said.

''A close observation of Sino-U.S. ownership-based trade may reveal that China's trade surplus in Sino-U.S. trade does not actually exist,'' Yao and Liu wrote.

The ''ownership-based'' system for calculating trade statistics that they propose includes all purchases and sales by companies and individuals from a particular country to those of another, regardless of whether those goods crossed a national border.

For instance, purchases by foreign firms from Chinese firms within China would count as Chinese exports, while sales by a foreign-owned factory in China to retailers in its own country would not.

Yao and Liu noted that customs figures were still relevant as a guide to the imbalances that were feeding China's rapid accumulation of foreign exchange reserves -- which hit $1,066.3 billion at the end of 2006 -- and to the rate of the yuan , as what mattered for them was cross-border flows.

They also acknowledged that, while foreign firms had contributed to China's imbalances, they had also provided an impetus for the country's rapid economic growth, introducing new technology and management techniques.

REUTERS PV BS1528