Foreign Value‐Added in China's Manufactured Exports: Implications for China's Trade Imbalance

22 Pages Posted: 29 Feb 2012  

Jun Zhang

Fudan University - China Center for Economic Studies (CCES)

Dongbo Tang

affiliation not provided to SSRN

Yubo Zhan

affiliation not provided to SSRN

Date Written: January‐February 2012

Abstract

Economists have recently become interested in weighting how much domestic value‐added is actually included in China's exports. Formally, the proportion of foreign and domestic contents could be identified by calculating the vertical specialization share using non‐competitive input‐output tables. Applying such a method to the Chinese case, however, would result in a big measurement bias because China has a large share of processing exports, which utilize a disproportionately high percentage of imported intermediates. This paper, by directly employing 2008 trade data for which imported intermediates in both processing and non‐processing trade could be identified by means of various trade patterns, provides a simplified way to estimate the share of foreign/domestic value‐added included in industry‐level manufactured exports. This paper finds that the vertical specialization share of China's processing exports was about 56 percent in 2008, compared to about 10 percent for ordinary exports. It also finds that the sectors that experienced fast expansion of processing exports have a much higher share of foreign contents. Since processing exports account for about half of Chinese exports, the prevailing trade statistics, which focus on gross values rather than the value‐added of exports and imports, has obviously overstated the bilateral trade imbalances, especially between China and the USA.

Keywords: processing trade, trade imbalance, value‐added, vertical specialization

JEL Classification: F10, F14, O10

Suggested Citation

Zhang, Jun and Tang, Dongbo and Zhan, Yubo, Foreign Value‐Added in China's Manufactured Exports: Implications for China's Trade Imbalance (January‐February 2012). China & World Economy, Vol. 20, Issue 1, pp. 27-48, 2012. Available at SSRN: https://ssrn.com/abstract=2013003 or http://dx.doi.org/10.1111/j.1749-124X.2012.01271.x

Jun Zhang

Fudan University - China Center for Economic Studies (CCES) ( email )

China

Dongbo Tang

affiliation not provided to SSRN

No Address Available

Yubo Zhan

affiliation not provided to SSRN

No Address Available

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