China-EU global value chains : who creates value, how and where? growing linkages and opportunities : final report

The international fragmentation of production is re-shaping the world economy. Global value chains (GVCs) are at the forefront of this phenomenon with China and the EU emerging as key production hubs. The evidence suggests that value chains are increasingly regional rather than global with three main cross-border production systems emerging: "Factory Europe", "Factory Asia" and "Factory North America" (Baldwin and Lopez-Gonzalez, 2013). In this context, the growing China-EU bilateral linkages embody the global aspect of value chains. The aim of this report is to provide an analytical assessment of the evolution of GVC activity with a particular focus on the EU and China, and their bilateral interactions. A key objective is to identify some of the practical implications for the design of future policy initiatives to promote the future emergence and development of production networks. The report is divided into three sections. In the first we exploit the World Input-Output Database (WIOD) to derive measures of GVC activity and paint a portrait of the nature and evolution of the linkages at the aggregate level and across sectors. In the second section we draw upon the results of a survey of EU firms with a presence in China and present some descriptive statistics as well as more formal econometric / statistical evidence on the nature of the value chain relationship and the impact of policy variables and barriers on EU firms' activity in China. The final section of the report is based on detailed case studies of two specific sectors - tyres and electric vehicles. These were undertaken using both secondary and primary information sources including face-to-face interviews. They aim to provide more detail to the broader story which emerges from sections one and two of the report.