China's Export Boom
| Author | Mary Amiti and Caroline Freund |
| Position | Senior Economist with the U.S. Federal Reserve/Senior Economist in the IMF's Research Department. The views expressed in this article are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System |
| Pages | 38-41 |
Page 38
Its export dynamism is revealed in a sharp move into electronics and machinery
OVER the past 15 years, China's exports have jumped more than tenfold, far exceeding the tripling of world trade that has taken place over the same period. As a result, in 2004, China overtook Japan as the world's third largest exporter, just behind Germany and the United States. not surprisingly, this growth has attracted a lot of attention among media, academia, and policymakers. Insights into the driving forces behind this growth could help identify how best China and other countries could benefit. Moreover, countries wishing to emulate China's success may find lessons worth replicating.
How has China achieved this phenomenal export growth? Recent studies highlight the sophistication of its exports, the diversification of its product mix, and the growth in new varieties. Sophistication could be important if these products have higher productivity growth. Diversification might aid growth by lessening the impact of shocks to specific sectors and by facilitating new export discoveries. exporting new products might allow exports to grow rapidly with less downward pressure on export prices.
To better understand these mechanisms, we recently undertook a study that decomposes the export growth in several novel ways. Our findings indicate that, despite a dramatic move out of agriculture, apparel, and textiles into electronics and machinery, China's overall export structure has become more specialized, not more diversified. And China's growing sophistication of its exports is largely thanks to processing trade-the practice of assembling duty-free intermediate inputs.
As a first step, we compare a snapshot of China's export sector in 1992 with one from 2005 by examining how the composition of its exports has changed. We find that it has undergone a dramatic transformation since 1992. there has been a significant decline in the share of agriculture and soft manufactures, such as textiles and apparel, with growing shares in hard manufactures, such as consumer electronics, appliances, and computers.
Page 39
Breaking it down further, we take a look at changes within the manufacturing sector. In particular, we examine how trade shares have adjusted in all major sectors, which together comprise about 70 percent of China's manufacturing exports. We find that there is a notable move out of textiles, apparel, footwear, and toys and into office machines, electrical machinery, and telecommunications (see Chart 1).
Does this move into electronics and telecommunications mean that China's manufacturing exports have become more skill intensive? Over the past few years, several studies (Rodrik, 2006; Schott, 2006) have highlighted the surprising sophistication of China's exports, suggesting that they tend to look a lot more like industrial country exports than would be expected given China's income level. the sophistication of China's exports in combination with the country's robust income growth leads Rodrik to the conclusion that what a country exports matters for its future growth. the idea is that producing high-productivity goods has greater growth benefits than producing other goods-computer chips are better than potato chips.
To see whether the skill content of China's export growth has increased over the past 15 years, we look at the share of export products that are mid to high skill-defined as products that are ranked above the bottom 20 percent in terms of skill intensity...
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