The sophistication of exports: Is China special?

Recent studies have found that China is “special” in exporting highly sophisticated goods not comparable with its income level. In this paper we identify two measurement biases that account for this “China is special” observation. First, product quality has not been fully considered in the measurement of sophistication, which has caused an overestimation of the sophistication of China's exports. Second, the average income of China has been used to measure the export capability of China, which has caused an underestimation of China's capability of exporting sophisticated goods. After correcting the two measurement biases, China appears much less as an outlier in the cross-country comparison of the sophistication of exports.     

Does the Domestic Value Added Induced by China＇s Exports Really Belong to China？

Since 2001, the exports of foreign‐invested enterprises (FIEs) have accounted for more than 50 percent of China's total exports. As foreign capital occupies a high proportion of the total capital of FIEs, most FIEs' capital gains are foreign factor income. Although these gains are calculated as a part of China's GDP, they do not belong to China's national income. To determine the real contribution of exports to China's welfare, the present paper analyses the impact of exports on China's national income using a non‐competitive input–output model capturing processing trade. The results show that every US$1000 of China's exports generates US$506.8 of national income. The real contribution of exports to China's welfare is much smaller than what we expected. This suggests that China should endeavor to improve the gains from international markets or find another engine to maintain its economic growth.     

Tracing value added in gross exports of China: Comparison with the USA,Japan, Korea,and India based on generalized LMDI

This study first traces value added in gross exports of China during 2000–2014 to four components, namely domestic value added absorbed abroad (DVA), domestic value added return home (RDV), foreign value added (FVA), and pure double-counted terms (PDC), then compares these four components in China's exports with those in exports of the USA, Japan, Korea, and India. Second, this paper proposes a generalized logarithmic mean Divisia index (GLMDI) method and combines additive and multiplicative decomposition to decompose DVA gaps between China and the other four countries into value added coefficient effect, input-output structure effect, domestic scale effect and foreign scale effect. The aggregate value added coefficient effect is then attributed to sectoral level. Results show that DVA always occupied the largest share in the gross exports of China, which ranged from 74.60–82.84% during 2000–2014. Before 2011, DVA share of China's exports was generally the second smallest among five countries; since 2011, DVA share of China's exports increased, and China had the largest DVA share in 2014 (81.39%). Sectors having a large FVA share in China's exports usually had a large DVA share, such as “Mining” (MIN), “Computers, Electronic and Optical” (CEO), and “Basic Metals” (BAS). Additive and multiplicative decomposition analyses indicate that value added coefficients had a negative and increased effect on DVA gaps between China and the other four countries. Attribution analysis revealed that CEO sector had the largest negative value added coefficient effect in comparison between China and the USA, Japan, and Korea and its effect increased in comparison between China and the other four countries. Policy implications derived are finally discussed.     

Blue Box Policy Reform in the Doha Round Negotiations： Effects and China＇s Position

This paper uses an agricultural trade policy simulation model to quantitatively evaluate the effects of Blue Box policy reform on agricultural production and trade, and further provides specific proposals regarding China ＇ s reform position. The results indicate that, if the reform could achieve a reduction in distorting supports in more developed countries, China＇ s total agricultural production would increase, accompanied by a decrease in agricultural imports and a slight increase in exports. In terms of social welfare, producers would gain significantly, consumers would lose and government would not suffer greatly, which is in accordance with current agricultural policies in China. As a core member of G20, China should approve a subsidy level as low as possible required by Blue Box to achieve ＂substantial reductions in trade-distorting domestic supports＂.     

What are China's real gains within global value chains? Measuring domestic value added in China's exports of manufactures

This paper aims to investigate China's gains of participating in global value chains (GVCs) in terms of GDP in exports (DVA - domestic value added) and the factors affecting China's gains. The paper decomposes the gross exports of China so as to get the components that make up total GDP in the exports of the country, namely the value-added exports and DVA that are returned from abroad. Then the two components are measured to obtain the scale of GDP in China's exports both on country and sector level. The results show that, firstly, both value-added exports and the GDP in China's exports are less than the traditional gross trade statistics, indicating that there is a gap of real trade gains under GVCs. Secondly, comparing whether the proportion of DVA in total exports, the proportion of DVA in exports of manufactures or the proportion of RDV in total DVA, the gaps between China and the developed countries such as the United States, Germany and Japan do exist. Especially, considering the RDV of China, the proportion is significantly lower than that of major developed countries such as the United States and Germany, indicating that China lags far behind developed countries in the capabilities of supplying high value-added intermediate goods. Lastly, the empirical results suggest that DVA in China's exports has progressively increased in response to the productivity enhancement; research and development (R&D) inputs and capital formation, and the synergies between R&D and vertical specialization affect China's DVA growth in exports positively.     

Empirical Analysis of the Structure of Sino-US Agricultural Trade

This paper empirically analyzes the structure of agricultural trade between China and the USA from 1996 to 2005, using different trade indexes such as the Grubel—Lloyd Index, the Revealed Comparative Advantage Index, the Finger—Kreinin Similitude Index and the Export Diversification Index, with a focus on the issues impeding Sino‐US agricultural trade. We found that over the period of 1996 to 2005, inter‐industry trade outweighed intra‐industry trade in Sino‐US agricultural trade, and that bilateral trade was more complementary than competitive. At the same time, China's agricultural exports were more diversified than USA exports, but China's degree of diversification steadily declined during the sample period. The findings indicate that there exists great potential for further development of agricultural trade between China and the USA, and that positive and effective trade policies will result in maximization of potential agricultural trade development and will bring forth mutual benefits to both countries.     

Two sides of the same coin: The economic and environmental effects of China's international trade from a global value chain perspective

China's accession to the World Trade Organization (WTO) has led to rapid economic growth and international trade development. However, China is also challenged with a heavy environmental burden due to the massive carbon emissions transferred through trade. By splitting production activities into traditional trade and global value chain (GVC) activities, this paper uses an intercountry input-output (ICIO) framework to study the imbalances of the economic and environmental effects between China's imports and exports at different levels. We define the indices value added per embodied emission in imports and exports (VPM and VPX, respectively). Additionally, we find a large gap between China's VPM and VPX, primarily because developed economies gain much higher value added per embodied emission than China gained through exports in GVC activities. Then, we study how to narrow the gap between China's VPM and VPX. The application of multiplicative structural decomposition analysis (SDA) and the logarithmic mean Divisia index I (LMDI-I) approach reveals the total and bilateral-sectoral contributions of the driving factor effects to the changes in China's VPM and VPX. The results provide tailored implications for promoting the comprehensive economic and environmental benefits of China's imports and exports.     

Vertical trade and China's export dynamics

This paper examines how China's exports are affected by exchange rate shocks from countries that supply intermediate inputs to China. We build a simple small open economy model with intermediate goods trade to show that due to the intra-regional trade in intermediate goods, a devaluation of other Asian currencies does not necessarily hurt China's exports, as imported intermediate goods could become cheaper. The effect of intermediate goods costs depends critically on the share of intermediate goods used in China's export goods production and the degree of exchange rate pass-through in imported intermediate goods prices. If prices for intermediate goods are not very sticky, the effect through this channel could be large, and China's exports could even benefit. We find that these findings do not depend on China's choice of currency invoicing between the RMB and the US dollar or the choice between fixed and flexible exchange rate regimes.     

Processing trade,exchange rates and China's bilateral trade balances

This paper analyzes the role of processing trade in China's bilateral trade balances and the impact of the yuan's appreciation on China's processing trade. The analysis is based on panel data covering bilateral processing trade between China and its partners from 1993 to 2008. The empirical results show that: (1) processing trade accounted for 100% of China's annual trade surplus during the period; (2) China's processing trade showed a significant regional bias—77% of processing imports originated from East Asia while only 29% of processing exports was destined to the region in 2008; and (3) a real appreciation of the yuan would negatively affect both processing imports and exports—specifically, a 10% real appreciation of the yuan would reduce not only China's processing exports by 9.1% but also its processing imports by 5.0%. Based on these empirical findings we conclude that the combined effect of the yuan's appreciation on the balance of processing trade and thus China's overall trade balance will be limited.     

Remedy or Poison: Impacts of China's Outward Direct Investment on Its Exports

During the past decade, China's outward direct investment (ODI) and exports have experienced rapid growth, drawing increasing attention to the relationship between them. Using the gravity model based on panel data on China's ODI and trade to 174 countries and regions during 2003–2012, the present paper investigates the impacts of China's ODI on exports. We find that China's ODI to a host country significantly promotes China's trade with that economy: a 10‐percent increase in ODI stock can lead to a 2.14‐percent increase in exports, a 2.07‐percent increase in imports and a 2.87‐percent increase in net exports. The scale of the host country's economy, its infrastructure and its distance to China also have significant impacts on China's exports. Therefore, growth in ODI will facilitate China's trade and integration into the global economy, and enhance industrial upgrading in China by transferring the low‐end industries abroad.     

Do High-technology Exports Cause More Technology Spillover in China？

The volume of China’s high-technology exports has grown sharply since the implementation of its export promotion strategy "Revitalizing Trade through Science and Technology" in 1999.This paper investigates whether technology spillover effects are greater for hightechnology exports than for primary manufactured goods exports.We present a generalized multi-sector spillover model to identify both between spillover effects from exports towards non-exporters and within-spillover effects among export sectors.Using panel data for 31 provinces in China over the period from 1998 to 2005,we find that although high-technology export sectors have higher productivity compared with other sectors,this productivity advantage does not lead to technology spillover to both domestic sectors and other export sectors,and export technology spillover mainly derives from traditional export sectors rather than high-technology export sectors.As such findings can be largely attributed to the fact that China’s high-technology exports depend significantly on processing trade by foreign- invested firms,policy implications are discussed in relation to how to best promote the role of China’s high-technology exports during economic expansion.     

What＇s So Special about China＇s Exports？ A Comment

Dani Rodrik argues that China's exports are unusually sophisticated for a country at its income level. He also claims that China's export sophistication reflects the government's successful industrial policy and has been instrumental in the recent acceleration of its economic growth. Although Rodrik's interpretation of China's economic growth is broadly correct, the accuracy of his empirical analysis is questionable. This note identifies several problems regarding the “export sophistication” index used in his empirical work and casts doubt on his analysis.     

Economic Benefits and Environmental Costs of China's Exports: A Comparison with the USA Based on Network Analysis

This paper decomposes economic benefits (value‐added) and environmental costs (CO₂) of exports according to their sources, and maps the global value network (GVN) and the global emissions network (GEN) for China's exports during 1995–2009 from national, sectoral and national–sectoral perspectives. A comparison is conducted between China and the USA. National GVN and GEN show that shares of value‐added and CO₂ emissions from China in its GVN and GEN both decreased first then increased after 2006, while shares from the USA in its GVN and GEN generally decreased. Sectoral GVN and GEN show that among China's exports, “electrical and optical equipment” and “electricity, gas and water supply” were, respectively, the sectors that obtained the most value‐added and emitted the most CO₂. National–sectoral GVN and GEN for China exhibited reciprocal and disassortative patterns, and in‐strengths and out‐strengths of GVN and GEN for China's exports were mainly captured by several domestic country–sector pairs.     

Can Cultural Affinity Promote Trade ? HSK Test Data from the Belt and Road Countries

As Chinese culture is “going out,” more and more non‐native Chinese speakers are beginning to study Mandarin and are taking the Hanyu Shuiping Kaoshi (HSK) test. Mandarin has become a very important trade language for the Belt and Road countries. This paper uses the difference‐in‐difference model and the Mahalanobis distance and the nearest neighbor distance matching methods to study the internal relationship between culture “going out” and foreign trade. We find that cultural affinity is an important factor in promoting trade, and that the HSK project has expanded China's exports to the Belt and Road countries. Culture's promotion effect in Asia is stronger than that in Europe. Culture's promotion effect shows the characteristics of regional differences, a time‐lag and a fluctuating upward trend. Therefore, further enhancing the international influence of its culture would help China to find a new source of export growth.     

What Caused the Sharp Downturn in the Chinese Economy during the Global Financial Crisis？ A Critical Note on Causality in Trade Linkage

In responding to a view that attributes sharp downturns in the Chinese economy in late 2008 and early 2009 to the ＂collapse of external demand,＂ the present paper scrutinizes three relevant issues： How have large Chinese importers behaved in a demand-price setting？ How have Chinese commodity imports and exports interacted in recent years？ Did the downturns in China＇s export growth come earlier and were they deeper than those in Chinese import growth？ All answers appear to suggest a conclusion contrary to the abovementioned view： sharp downturns in China＇s trade and economy during the reeent global financial crisis were, to a large extent, caused by certain domestic factors, or by factors that should not be regarded as entirely ＂external. ＂ Insomuch as globalization has advanced, a large economy like China＇s today faces new potential sources of macroeeonomic disturbances, from inside and outside.     

US and China aid to Africa: Impact on the donor-recipient trade relations

This paper investigates the impact of the US and China's foreign aids to Africa on trade flows between donor and recipient countries. Evidence from the gravity model estimates reveals that the two donors' exports are strengthened by their aids to African partners. Interestingly, China's aid shows a positive effect on its total volume of trade and imports from Africa, while the aid from the US exhibits little impact on the US-Africa total trade and its imports from Africa. A possible explanation for such a difference could be due to the dissimilar national interests of donors in Africa. This study finally suggests that African countries should accelerate the pace of advancing domestic economies and rely less on foreign assistance, in order to establish a fairer and more equal international economic order.     

Is the Chinese Economy Moving in the Direction of Tertiarization？

Drawing upon output, employment, consumption and trade data, this article examtnes whether there is an economic tertiarization trend in China ＇s economy and evaluates the common factors driving current trends. It shows that the tertiarization trend is evident for the overall economy and most regions in terms of the service nominal value-added ratio and service employment and consumption. However, the tertiarization trend is not significant in terms of the service real value-added ratio, and there is even some concurrent ＂detertiarization ＂ because of the decreasing proportion of services in imports and exports. lndeed, China ＇s tertiarization trend is far behind its industrialization trend The rise in the relative prices of services explains the rising proportion of household service consumption expenditure and further illuminates why the service real value-added ratio has not grown. The main cause for the growing percentage of service employment is the lag in service labor productivity growth in interaction with the price inelasticity of service demand ＂Cost disease ＂ has appeared in service consumption.     

Effects of China's Structural Change on the Exports of East Asian Economies

The Chinese economy is slowing down and is in the midst of a structural transformation from export‐led and investment‐led growth to domestic demand‐led and consumption‐led growth. While there are widespread concerns among China's trading partners about the effect of the slowdown in China's growth on their exports, China's structural changes are also likely to have a significant impact: for example, China will import fewer machines and more cosmetics. The central objective of the present paper is to empirically examine the effect of China's structural transformation on the exports of East Asian economies, which have close trade linkages with China. We find that economies that have failed to increase the share of consumption goods in their exports to China have suffered larger declines in their quantities of exports to China. In addition, economies that have suffered losses in their shares of China's parts and components imports have faced reductions in their shares in China's total imports.     

How China's accession to the WTO affects global welfare?

Conventional wisdom suggests that, if a large nation reduces tariffs, the Rest of the World (RoW) as a whole should immediately experience gains from trade. However, little simulation evidence has been provided to evaluate the welfare effects of China's tariff reduction upon its WTO accession on each of its trade partners. This paper addresses the above issue under both the perfectly competitive model and the monopolistic competition framework à la Eaton and Kortum (2002) and Melitz (2003). Armed by the method of Dekle, Eaton, and Kortum (2007, 2008) to quantify the individual countries' responses to the “China (trade liberalization) shock” at equilibrium, we could check the extent to which global welfare benefit from the import tariff reduction after China's entry into the WTO. The quantitative results show that, both China and the RoW benefit from Chinese participation into the WTO, with estimated welfare gains falling in a range of [1.4697%, 3.8743%] and [0.0743%, 0.1015%], respectively. That is to say, about 58.24% of total benefits extracted from China's accession into the WTO worldwide flow to countries other than China under perfect competition; while under monopolistic competition, the whole world enjoys a 0.1571% welfare increases if firms' entry is restricted, of which 42.64% are injected into the RoW, an equivalent amount of 23.3903 billion US dollars. Since allowing for firms' entry and exit would lead to adjustments in both aggregate price indices and government tariff revenues, welfare gains of the world significantly increase (0.2474%), but these adjustments would slightly distort the welfare changes for other countries in the sense that only 36.50%, which is equivalent to 32.1008 billion US dollars, overflow to the RoW. As a result, some countries gain more, while some less.