A World Factory in Global Production Chains: Estimating Imported Value Added in Chinese Exports

The rise of the People’s Republic of China (PRC) in world trade has brought both benefits and anxiety to other economies. For many policy questions, it is crucial to know the extent of foreign value added (FVA) in exports. We review a general formula in Koopman, Wang and Wei (2008) for computing domestic and foreign contents when processing exports are pervasive. In addition, we develop another formula for slicing up foreign content to allocate it among key individual economy’s supply chains, including sourcing from Japan and the United States. By our estimation, the share of foreign content in exports by the PRC is about 50%. There are also interesting variations across sectors. Those sectors that are likely labeled as relatively sophisticated such as electronic devices have particularly high foreign content (about 80%). By our estimation, Japan; the United States; Hong Kong, China; and the European Union are the major sources of foreign content in the PRC’s exports of computers and consumer electronics, two of its largest and fastest growing export categories.