How global value chain participation affects China's energy intensity

Abstract

China is currently the world's largest energy consumer and, at the same time, a huge trading power. With the increasing complexity of production processes along global value chains (GVCs), it is of great significance to study the impact of GVC participation on energy intensity. By using production length to measure GVC participation, this study first calculates China's manufacturing industry's total average production length of GVC activities and its three segments: length of pure domestic production, length of traditional trade production, and production length of GVC activities. Next, this study explains the influence mechanisms of GVC participation on energy intensity, proposes three research hypotheses, and conducts econometric analyses to examine the influence of production length and its three segments on energy intensity for a sample of China's manufacturing sector from 2000 to 2014. The results indicate that the total average production length of GVC activities significantly affects energy intensity and presents an inverted U-shaped, non-linear relationship wherein China has passed the critical point. The interactions between the three segments of production length and energy intensity also present an inverted U-shaped, non-linear relationship, where the impacts of the pure domestic segment and the “traditional” trade related segment on energy intensity have passed the critical point, while that of the segment related to GVC production has not yet crossed the critical point. It is suggested that further promoting China's manufacturing industry towards the mid-to-high end of the GVCs and breaking through its captive and “squeezed” position in the GVCs could significantly contribute toward curtailing energy intensity.