New Features of the International Industrial Labor Division and Its Impact on China’s Economy

Abstract

This paper studies the new features of international industrial structure adjustment and transfer, which is driven by economic globalization and scientific and technological advancements since the 1990s. It mainly analyzes the major impacts on the economy of China by international industries’ accelerated transfer and intra-product specialization under globalization. Based on the theory of Modern Dynamic Comparative Advantage and Vertical Specialization, it uses models and empirical tests, and proves that China’s large trade surplus is mainly the result of China’s international division status and the structural factors of processing and manufacturing links in the international industrial chain. And along with other factors, they led to high foreign exchange reserves and high liquidity. Regression analysis shows that China’s exports are mainly pulled by external demands (75%); the exchange rate has a contribution rate of 20% to trade surplus, and the RMB exchange rate adjustment cannot change the trade surplus pattern. When faced with the accelerating international industrial transfer, the deepening international intra-products’ division and sustained global trade and economic imbalance, etc., in order to play for China’s dynamic comparative advantages and avoid falling into the trap of comparative advantage, in the short term, the expansion of domestic demands is required as an effective way to control the trade surplus, lower the foreign exchange reserve pressure and reduce the liquidity. China should increase imports and overseas investment. In the long term, from the national strategic view, China needs to speed up the implementation of the new type of internationalization strategy. It should implement a package of foreign economic and structural policy reforms, improve the status of the international industrial division, and gradually open its capital account with the support of exchange rate policy adjustments, so as to form a new international competitive advantage.