The Shifting Structure of China’s Trade and Production
IMF Working Papers, September 1, 2007
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Bibliographic details
- Authors: Li Cui, Murtaza H Syed
- Published: September 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451867787.001
Summary findings
- China is moving away from traditional assembly operations in its processing activities.
- Exports have started to rely more on domestically sourced components.
- China's imports and exports have begun to delink; increased domestic sourcing has contributed to the recent increase in its trade balance.
- As China moves up the value chain, both its imports and exports have become more sophisticated than in the past.
- These shifts imply China may be becoming more exposed to fluctuations in the strength of the global economy.
- Changes in China's exchange rate could have a bigger impact on the trade balance and the domestic economy than commonly believed.
Analytical observations and mechanisms
- Disaggregated trade data are used to assess how expanding production capacity and changing production structure affect trade linkages.
- Movement away from processing/assembly toward greater domestic sourcing reduces the tight coupling between imports and exports.
- Upgrading in the value chain raises the sophistication of both imports and exports, altering the composition of trade and associated vulnerability to global demand.
Implications for trade balance, exposure, and exchange rate effects
- Increased domestic sourcing has contributed to an increase in China's trade balance.
- Greater sophistication of trade flows and reduced import-export coupling may increase exposure to global economic fluctuations.
- Exchange rate changes could have a larger-than-commonly-believed impact on the trade balance and domestic economy given the evolving trade-production structure.
Methodological note
- The paper bases its assessment on disaggregated trade data to trace changes in processing activities, sourcing of components, and product composition.