Moving Up the Value Chain in Manufacturing for China

Abstract

The ongoing upgrading of value chain in China's manufacturing leads China toward a middle-income country. The paper first examines the performance and technological upgrading between and within China's manufacturing since 1978. By using the highly disaggregated trade data and Chinese firm-level production data, I find that, with the increasing level of export sophistication and a deeper global vertical integration, Chinese manufacturing firms experience a fast growth of productivity in the new century. In addition to trade, FDI and outsourcing, industrial policies for processing trade and innovation are also the fundamental driving forces to drive China's upgrading of its value chain. My analysis suggests that China should insist on its trade-oriented development strategy to avoid the possible upper-middle income-country trap in the near future.

Keywords: Value Chain, Export Sophistication, Outsourcing, Processing Trade, Productivity

JEL Classification: F1, F3, D9