Vertical Specialization and Trade Competitiveness of China’s Manufacturing Industry

This paper represents an attempt to estimate the level of vertical specialization in China's manufacturing industry using China's input-output tables (1995-2005) compiled by OECD; describe the trends of evolution in the trade competitiveness of China's manufacturing industry using the 1995-2006 trade data of 24 Chinese industries; and examine the key factors affecting the trade competitiveness of China's manufacturing industry in accordance with the analytical framework of Hummels et al (2001). The estimation results indicate that i) the rapid increase in the vertical specialization levels of China's merchandise sectors (especially the high-tech manufacturing sector) has to some extent explained the explosive growth of China's exports (especially high-tech exports) in recent years; ii) there have been no substantive changes in China's comparative advantages. Such advantages are still attributed to the low-tech manufacturing sector. However, the comparative advantage and trade competitiveness of the high-tech manufacturing sector have been on the rise; iii) vertical specialization has significantly enhanced the trade competitiveness of China's manufacturing industry. Foreign market dependence, domestic intermediate input intensity and R&D intensity have an obvious promoting effect on the trade competitiveness of China's manufacturing industry