The export of Chinese manufactured goods increased at an average annual rate of 5,2% between 2010 and 2018, a sustained pace well above that of its main competitors (South Korea 2,8%, Germany and Italy 2,4%, USA 2%, and France 1,2%). This positive trend has been driven by the evolution of China’s role in global value chains, which in turn partly contributed to the reshuffling of the geographical composition of Chinese international trade flows.
Indeed, the geographical composition of China’s exports of manufactured goods has shown the decline of European and South American markets in favor of Asia and NAFTA, while an opposite trend can be observed in Chinese imports with European share expanding and Asian share shrinking during the period ’10-’18.
Following these clues, we focus our attention on some of the main indicators in global value chain analysis as provided by the OECD, based on international Input-Output tables.
To begin, we analyze the domestic value added share of gross exports, a measure of how much value added generated in the domestic economy is embodied per unit of total gross export by destination country/area. The Chinese value for this indicator hiked up from 72% in 2005 to 81% in 2015 (last year available) with an homogeneous geographical distribution, meaning that independently from the destination markets, Chinese manufacturing exports include more “made in China” nowadays than in 2005.
Looking from the perspective of the Asian giant as an importing country, we clearly notice how geography matters. Though Europe and North America maintained their domestic value added share of gross exports to China, respectively around 71% and 81%, Asia and Oceania increased their share from 68% in 2005 to 81% in 2015. The growth in the domestic value added contribution in Asian manufacturing export to the Chinese market is thus a sign of an increasing trade regionalization.
Reaffirming our results, the indicator of forward participation in GVCs (measuring the importance of a country as a supplier in GVCs) shows how, in the decade 2005-2010, the value added contents of exports originating from China and embodied in the exports of its Asian partners surged significantly. From table 1, we notice that 7 out of the first 10 countries ranked by this indicator belong to the Asian Oceanic region, while the Chinese value added contribution is substantially lower in USA and European exports.
In turn, the backward integration indicator represents the contribution of value added from a source country in the gross export of an exporting country, assessing the importance of the source country as a supplier in GVCs and explaining the dependence of the exporting country from the production of its VA suppliers. The upstream repositioning of China in GVCs also emerges from the dynamics of the backward integration indicator; in ten years, the foreign contribution of VA to Chinese gross exports shrank by 9 pp (from 26,3% to 17,3%). By geographic comparison, Asian countries still figure at the top of Chinese suppliers, though their share has been eroding faster than for Europe and America.
Summing up, China is moving upstream in GVCs thanks to both the recent evolution of its industrial knowledge (which allows for the manufacturing of more sophisticated goods) and to the expansions of domestic production (which allows for the exploitation of economies of scale), largely aimed at satisfying foreign demand.