Vertical specialization in Chinese trade

Abstract

In this decade, China's foreign trade has increased rapidly and the share of high-technology goods in China's exports has become outstanding. These developments are partly related to processing trade that reflects the global production fragmentation. This paper discusses the role of processing trade in China by using a concept of vertical specialization (VS). The paper explains approaches to estimate vertical specialization and evaluates the findings of recent research in this field. It seems evident that processing trade has played a major role behind the fast growth of Chinese exports and the increase of high-tech goods in its exports. Moreover, recent research seems to imply that China's and much of Asia's exports are still heavily dependent on American and European consumers and, consequently, exports are not de-coupled from the final demands in the United States or Europe. Key words: China, vertical specialization, foreign trade, processing imports