Global Value Chains and China's Exports to High-income Countries

Abstract

ABSTRACTThis paper argues that global value chains (GVCs) have functioned as a vehicle for ‘Made in China’ products to enter international markets, especially markets of high-income countries. The analysis of the paper focuses on China's processing exports, a subset of GVC activities. It demonstrates that, by participating in GVCs Chinese firms bundle processing exports with advanced technologies and globally recognized brands of lead firms, and then sell them to consumers of international markets through distribution networks of GVCs. Using panel data of bilateral processing exports covering more than 100 of China's trade partners, the paper shows empirically there exists a significantly positive correlation between the share of processing exports and the income of trading partners, implying that processing trade is an effective means for ‘Made in China’ products to enter high-income countries. The cross-country heterogeneity of processing exports also indicates China captures relatively more value added in its exports to low-income countries than to high-income countries.