Vertical Specialization and Trade Surplus in China

Chandos Asian Studies Series

Vertical Specialization and Trade Surplus in China

Wang Wei

Table of Contents

Cover image

Title page

Copyright

List of figures and tables

List of abbreviations

Acknowledgements

About the author

Chapter 1: Introduction: Trade surplus in China – vertical specialization and related issues

Abstract:

The starting point: China’s vertical specialization trade

Trade surpluses are as much a source of conflict as strength

Analyzing the impact of vertical specialization on China’s trade surplus

Chapter 2: Vertical specialization trade patterns and China’s trade surplus

Abstract:

China’s trade: more and more centered on trade surplus

Vertical divisions of labor driving China trade

China’s trade is still dependent on western markets for final goods exports

Three optimized trade development zones: regional foreign trade disparity in China

Chapter 3: An analysis of the role of vertical specialization in the development of China’s trade surplus: evidence from 2000–2007

Abstract:

Introduction

Import and export of commodities: structure and trade pattern transition in China

What role for vertical specialization trade in China’s trade surplus?

Conclusion

Chapter 4: Vertical specialization, FDI and China’s import–export imbalance

Abstract:

Introduction

China’s acceleration into vertical specialization due to FDI

Empirical evidence of the relationship between FDI and international trade in China based on VS

Conclusion

Chapter 5: FDI and the processing trade in China: based on vertical specialization

Abstract:

Introduction

Processing trade: the form of China’s strong involvement in vertical specialization

Empirical evidence: the relationship between FDI and the processing trade

Conclusion

Notes

Chapter 6: An empirical analysis of the relation between imports and exports of China’s foreign-invested enterprises based on vertical specialization

Abstract:

Introduction

Empirical evidence: the relationship between imports and exports of foreign invested enterprises (FIEs) in China

Conclusion

Chapter 7: An empirical study of the relationship between the US FDI inflows and China–US bilateral trade imbalances: based on vertical specialization

Abstract:

Introduction

Unique features of China-US trade due to vertical specialization considerations

Empirical test

Conclusion

Chapter 8: A cointegration analysis of the linkage between US exports to China and US imports from China based on vertical specialization

Abstract:

Introduction

Empirical evidence: the relationship between US Exports to China and US Imports from China

The Error-Correction model for the long-run relationship between {LNEX_SA} and {LNIM_SA}

Conclusion

Chapter 9: FDI, processing trade and China–Japan bilateral trade imbalance

Abstract:

Introduction

Evolution of the China–Japan trade pattern

Japanese direct investments in China, Chinese processing trade and China–Japan bilateral trade: empirical evidence

Conclusion

Chapter 10: An empirical analysis on transformation of China’s foreign trade development mode: based on vertical specialization

Abstract:

Introduction

Conceptual framework of vertical specialization and mode transformation of foreign trade development in China

The impact of vertical specialization on mode transformation of foreign Trade development in China: empirical evidence

Conclusion

Chapter 11: Closing remarks: rebalancing the Chinese trade

Abstract:

Appendix

References

Index

Copyright

Chandos Publishing

Hexagon house

Avenue 4

Station Lane

Witney

Oxford OX28 4BN

UK

Tel: + 44(0) 1993 848726

Email: info@chandospublishing.com

www.chandospublishing.com

www.chandospublishingonline.com

Chandos Publishing is an imprint of Woodhead Publishing Limited

Woodhead Publishing Limited

80 High Street

Sawston

Cambridge CB22 3HJ

UK

Tel: + 44(0) 1223 499140

Fax: + 44(0) 1223 832819

www.woodheadpublishing.com

First published in 2013

ISBN: 978-0-85709-446-9 (print)

ISBN: 978-0-85709-447-6 (online)

Chandos Asian Studies Series ISSN: 1759-5347 (print) and ISSN: 2052-2126 (online)

© W. Wei, 2013

British Library Cataloguing-in-Publication Data.

A catalogue record for this book is available from the British Library.

All rights reserved. No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording or otherwise) without the prior written permission of the publisher. This publication may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published without the prior consent of the publisher. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages.

The publisher makes no representation, express or implies, with regard to the accuracy of the information contained in this publication and cannot accept any legal responsibility or liability for any errors or omissions.

The material contained in this publication constitutes general guidelines only and does not represent to be advice on any particular matter. No reader or purchaser should act on the basis of material contained in this publication without first taking professional advice appropriate to their particular circumstances. All screenshots in this publication are the copyright of the website owner(s), unless indicated otherwise.

Typeset by Domex e-Data Pvt. Ltd., India

Printed in the UK and USA.

List of figures and tables

Figures

2.1. Processing trade and total value of trade USD: 100 million 11

2.2. China’s trade surplus USD: 100 million 12

2.3. Value of exports by country (region) of destination from 2001 to 2010 USD: 100 million 15

2.4. Value of imports by country (region) of origin from 2001 to 2010 USD: 100 million 16

2.5. Total value of exports by location of exporters from 2002 to 2010 USD: 10 thousand 18

2.6. Total value of imports by location of importers from 2002 to 2010 USD: 10 thousand 19

5.1. Series FDI stock (CFDI) expressed in logarithm (LNCFDI) and Series PTB (the absolute value of balance of China’s processing trade surplus) expressed in natural logarithm (LNPTB) 57

5.2. Impulse responses 63

6.1. Value of exports of foreign-invested enterprises (FEX) and value of imports of foreign-invested enterprises (FIM) 70

6.2. Value of exports of foreign-invested enterprises (FEX) expressed in natural logrithm (LNFEX) and value of imports of foreign-invested enterprises (FIM) expressed in natural logrithm (LNFIM) 71

6.3. Impulse responses imports and exports of FIEs 76

7.1. China-US bilateral trade surplus (TS) expressed in logarithm (LNTS) and US direct investment in China (FDI) expressed in logarithm (LNFDI) 87

7.2. Impulse responses 91

8.1. January 2005–April 2012 time series of monthly data on US exports to China (EX) and US imports from China (IM) 97

8.2. US exports to China (EX) by seasonal adjustment (EX_SA) and US imports from China (IM) by seasonal adjustment (IM_SA) 98

8.3. US exports to China (EX) by seasonal adjustment (EX_SA) expressed in logarithm (LNEX_SA), and US imports from China (IM) by seasonal adjustment (IM_SA) expressed in logarithm (LNIM_SA) 98

8.4. Impulse responses function 103

9.1. China’s processing trade (PT) expressed in logarithm (LNPT) and Japanese direct investments in China (JFDI) expressed in logarithm (LNJFDI) 109

9.2. Japanese direct investments in China (JFDI) expressed in logarithm (LNJFDI) and China’s imports from Japan (IM) expressed in logarithm (LNIM) 114

9.3. China’s processing trade (PT) expressed in logarithm (LNPT) and China’s exports to Japan (EX) expressed in logarithm (LNEX) 117

9.4. China’s processing trade (PT) expressed in logarithm (LNPT) and China’s imports from Japan (IM) expressed in logarithm (LNIM) 120

10.1. Impulse responses 132

10.2. Impulse responses 137

10.3. Impulse responses 141

Tables

3.1. VS Share of China’s total exports and trade in goods with the US 29

3.2. Vertical specialization (VS) trade per industry in China/Jiangsu/Guangdong (2002/2007) 31

4.1. Inter-linkages between FDI and total export or import of China 42

4.2. The correlation coefficient between FDI and balance of payment in China 50

5.1. Unit root test results (ADF test) for LNPTB 58

5.2. Unit root test results (ADF test) for LNCFDI 58

5.3. Testing for the unit roots in regression residuals 59

5.4. Granger causality tests for CFDI and PTB 62

6.1. ADF-test results for LN FEX and LN FIM 71

6.2. Testing for the unit roots in regression residuals 72

6.3. Granger causality tests for imports and exports of FIEs in China 74

7.1. Granger causality tests for TS and FDI 90

8.1. Unit root test results (ADF tests) for LNIM_SA and LNEX_SA 99

8.2. Testing for the unit roots in regression residuals 100

8.3. Granger causality tests for {LNIM_SA} and {LNEX_SA} 102

9.1. Unit root test results (ADF tests) for LNPT 110

9.2. Unit root test results (ADF tests) for LNJFDI 110

9.3. Testing for the unit roots in regression residuals 111

9.4. Granger causality tests for LNJFDI and LNPT 112

9.5. Unit root test results (ADF tests) for LNIM 114

9.6. Unit root test results (ADF tests) for LNJFDI 114

9.7. Testing for the unit roots in regression residuals 115

9.8. Granger causality tests for LNJFDI and LNIM 116

9.9. Unit root test results (ADF tests) for LNPT 118

9.10. Unit root test results (ADF tests) for LNEX 118

9.11. Testing for the unit roots in regression residuals 119

9.12. Granger causality tests for LNPT and LNEX 119

9.13. Unit root test results (ADF tests) for LNIM 121

9.14. Unit root test results (ADF tests) for LNPT 121

9.15. Testing for the unit roots in regression residuals 122

9.16. Granger causality tests for LNIM and LNPT 122

10.1. Unit root test results (ADF test) for China’s imports of manufactured goods (MIM) expressed in logarithm (LNMIM) 129

10.2. Unit root test results (ADF test) for China’s exports of manufactured goods (MEX) expressed in logarithm (LNMEX) 129

10.3. Testing for the unit roots in regression residuals 130

10.4. Granger causality tests for China’s imports of manufactured goods (MIM) expressed in logarithm (LNMIM) and China’s exports of manufactured goods (MEX) expressed in logarithm (LNMEX) 131

10.5. Unit root test results (ADF) for LNEXS 133

10.6. Unit root test results (ADF) for LNFDI 134

10.7. Testing for the unit roots in regression residuals 134

10.8. Granger causality tests for LNEXS and LNFDI 136

10.9. Unit root test results (ADF test) for China’s processing trade expressed in logarithm (LNPT) 138

10.10. Unit root test results (ADF test) for the promotion of China’s industry structure (SP) expressed in logarithm (LNSP) 138

10.11. Testing for the unit roots in regression residuals 139

10.12. Granger causality tests for LNSP and LNPT 140

List of abbreviations

ADF Augmented Dickey-Fuller

ASEAN Association of Southeast Asian Nations

BR The Bohai Rim economy

BP Balance of payments

CCER China Center for Economic Research

ECM Error correcting modeling

EG test The Engle-Granger test

EU European Union

FDI Foreign direct investment

FIEs Foreign-invested enterprises

GDP Gross domestic product

HO theory The Heckscher-Ohlin Theory

IRF Impulse response function

MNCs Multinational corporations

OECD Organization for Economic Co-operation and Development

PT Processing trade

PRD The Pearl River Delta

R&D Research and development

NBS The National Bureau of Statistics of China

I/O table Input-output table

OEM Original equipment manufacturer

ODM Original design manufacturer

OBM Original brand manufacturer

OLS Ordinary least square

RMB Ren Min Bi

SMEs Small and medium-sized enterprises

TS Trade surplus

TFP Total factor productivity

TNCs Transnational national corporations

VA Value added

VS Vertical specialization

WTO World Trade Organization

YRD The Yangtze River Delta

Acknowledgements

This work was supported by the MOE (the Ministry of Education in China) Project of Humanities and Social Sciences (Project No. 10YJC790259). The author acknowledges the China Statistics Yearbook, China Customs Statistics Yearbook, China Trade and External Economic Statistical Yearbook, China Commerce Yearbook, Trade in Goods with China (US Census Bureau) and Japanese Trade and Investment Statistics (JETRO) as invaluable sources of data.

About the author

Wang Wei Ph.D is Professor of