The Paper's reporter Wang Yi
Mainland economic data in the first half of 2022 show that the total import and export value of China's trade in goods in the first half of the year was 19.8 trillion yuan, an increase of 9.4% year-on-year, of which exports increased by 13.2% and imports increased by 4.8%. As one of the troika of China's economy, exports are growing against the trend and are precious, and China's foreign trade is becoming more and more important in the world.
Why did China become the world's largest exporter in only about 30 years? Why are China's exports still growing strongly despite global geopolitical conflicts and the impact of the COVID-19 pandemic? In the view of Xing Yuqing, a well-known scholar and professor of economics at the National Institute of Policy Studies, global value chains can be said to be the key to answering the above questions.
Recently, "The Mystery of China's Exports: Decoding the "Global Value Chain"" published by Life, Reading and Xinzhi Sanlian Bookstore was newly written. The author of this book, Xing Yuqing, graduated from the Department of Mathematics of Peking University with a bachelor's degree and received a doctorate in economics from the University of Illinois at Urbana-Champaign. With more than 30 years of study, work and research experience in internationally renowned institutions, he has in-depth observation and tracking of the global economy and international trade, and has a refined analysis and insight into where China's economy comes from and where it goes.
The Mystery of China's Exports: Decoding the "Global Value Chain"
According to classical theory of comparative advantage, China should export labor-intensive or low-tech products, so why does China export a large number of high-tech products to developed countries? China does not have an internationally renowned sports shoe brand, why is it the world's largest exporter of sneakers? Why are chinese companies with relatively low productivity and smaller scales able to export their products to the most competitive markets in the world, such as the United States and Japan?
Different from the traditional theory of "comparative advantage", this book takes the global value chain as the framework for the first time, starting from the role played by Chinese enterprises in the global value chain, revealing the decisive role of the technology, brand and marketing network of multinational companies in the formation of China's export miracle, and explaining the mechanism of how the global value chain can promote the rapid growth of China's exports. This is a new approach, unlike Ricardo's theory of comparative advantage, the Heckscher-Olin model, or Professor Paul Krugman's new trade theory based on economies of scale. The GVN approach provides a plausible explanation for the many mysteries surrounding this miracle: For the ongoing SINO-US trade friction, the GVC analysis approach provides a new perspective on the impact of Trump tariffs on Chinese exports.
Another feature of this book is the analysis of the specific value chains of the production and processing of high-tech products, revealing the intrinsic links between China's exports and the global value chain, the main tasks of Chinese companies in the global value chain, and the mechanism by which the global value chain promotes the rapid growth of China's exports. Analysis based on a large number of cases and empirical results shows that the deep participation of Chinese enterprises in the global value chain dominated by multinational companies in developed countries is an important factor in the great success of Chinese manufactured/assembled products in the global market.
In addition, the authors argue that the policies implemented by the Chinese government to promote export and FDI inflows have made a significant contribution to the successful participation of Chinese companies in global value chains. These policies create a supportive environment that not only encourages multinationals to include Chinese companies in their value chains, but also opens a window of opportunity for Chinese companies to participate in global value chains as designated suppliers or assemblers. Processing trade, foreign direct investment, and WTO accession are the three most important policy initiatives that have led to China's transformation into the center of global manufacturing value chains. The depth of Chinese companies' participation in global value chains also benefits from the Chinese government's policies to improve logistics efficiency, strengthen intellectual property protection, and actively develop transport and telecommunications infrastructure. Foreign direct investment policies, processing trade regimes, and WTO accession are decisive policy factors underpinning China's transformation into the center of the global manufacturing value chain.
In Xing's view, China has become a major center in the global manufacturing value chain over the past few decades. From the perspective of global value chains, the root causes of China's trade pattern and its export miracle will be more obvious and clear. Compared to the East Asian miracle represented by Japan and the "Four Asian Tigers", the scope and scale of Chinese companies' participation in global value chains are unprecedented, which constitutes a significant feature of China's development model over the past 40 years.
However, the us-China trade friction, the current geopolitical game, and the global spread of the COVID-19 pandemic are threatening the stable operation of china-centric global value chains. At the end of the book, the author dissects the countermeasures for China to face the future restructuring of the global value chain, and draws the future growth path of Chinese enterprises.
Zhang Xiangchen, Deputy Director-General of the World Trade Organization and former Vice Minister of Commerce, said of the book: "Dr. Xing Yuqing believes that China's deep participation in the global value chain is a decisive factor for China to become the world's largest exporter. This conclusion is very consistent with reality and provides new ideas for other developing countries pursuing industrialization. His analysis also contributes to an understanding of the role of cross-border services in global value chains. ”
Zheng Yongnian, President of the University of Chinese of Hong Kong (Shenzhen), also believes that today, China is facing "major changes unprecedented in a century", and both the government and enterprises need to answer the question of "where to go" of the economy. "This book tells us that China's economy has grown up in openness and external circulation, and that sustainable development must also be achieved through continued openness and external circulation."
2022 marks the 90th anniversary of the establishment of Life, Reading and New Knowledge Triptych Bookstore. In the bookstore's publishing history in the past hundred years, from Wang Yanan and Guo Dali's translation of "Capital", Xue Huiqiao's "Political Economy", Xu Dixin's "Modern Chinese Economic Course", and then to the monographs of li Yining, Wu Jinglian, Liang Xiaomin, Fan Gang, Zhang Weiying, Guo Shuqing and other famous contemporary economists, the books in the Sanlian Financial Sector have lasted for a long time from the 1930s to the present. The book "The Mystery of China's Exports: Decoding the "Global Value Chain"" can be said to be a new key publication in the new era, and it is also a popular version of the grounded public academic book. A few days ago, Xing Yuqing, who was in Japan, was interviewed by an email from a surging news reporter.
Xing Yuqing speaks at China's first export expo, Shanghai, 2021
"China is still the country that exports the most shirts"
The Paper: When it comes to China's exports, it seems that not long ago there was a saying, "800 million shirts for a Boeing plane." What do you think of the historical context of this sentence?
Xing Yuqing: I have also heard this statement. Taken literally, this sentence is a visual description of the international division of labor between China and the United States, that is, China exports low-value-added labor-intensive products to the United States, and then exchanges high-value-added capital and technology-intensive products. "Shirt-for-plane" reflects China's dominant form of trade in the 1990s, when China's exports were dominated by resource- and labor-intensive products, such as clothing, which accounted for 16 percent of China's exports.
The Paper: In recent years, the production base of the "800 million" shirts in the previous sentence may have shifted to Vietnam or Indonesia, where labor costs are cheaper, and China has gradually become able to produce its own large aircraft. What do you think of the reality of this sentence?
Xing Yuqing: The phenomenon of the production and assembly of low-value-added products shifting from China to countries such as Vietnam, Laos, Cambodia, Bangladesh, India, etc. has always existed, because the wages in these countries are lower than in China and are more suitable for the production of labor-intensive products such as shirts, shoes, and toys.
With the support of the policy of reform and opening up, Chinese enterprises have been deeply integrated into the global value chain. Despite development over the past 30 years, China has become the center of the global value chain for all types of manufactured products. Although the proportion of garment exports in China's overall exports has dropped significantly, for example, clothing accounted for 6.3% of all exports in 2018, but the total amount has been in a growth trend, and China's clothing exports accounted for 32% of the world's total garment exports in 2018. The process of "de-Sinicization" of supply chains for labor-intensive products has not changed the fact that China is still the country that exports the most shirts.
China can already build big aircraft, which is a welcome step forward. It is expected to break the double monopoly of Boeing and Airbus in the global large aircraft market. However, China's rapidly expanding aviation industry still needs to import aircraft from these two companies. In fact, American airlines also use Airbus in large quantities; European airlines also have many Boeing aircraft. I think Chinese airlines will continue to buy foreign aircraft in the future.
Judging from the structure of export products, the proportion of products such as "shirts" has dropped sharply and is no longer the main product that China currently exports. At present, China's export products include many high-value-added products, such as automobiles, computers, mobile phones, drones and so on. High-tech products already account for about 30 percent of China's exports.
Visit auto parts manufacturers in Taiwan
The Paper: The Mystery of China's Exports observes and analyzes the theoretical framework of China's exports, "stepping out" of the classical theory of comparative advantage, the exchange rate system, and the framework of trade liberalization. The book also points out that international trade in the 21st century has developed from commodity trade to task trade, so you propose to examine it from the perspective of global value chains, and the root causes of China's trade pattern and its export miracle will be more clearly displayed. In this statement, the system of recognizing and indicating China's exports is both "new" and "old", and I wonder how you view the relationship between the two?
Xing Yuqing: Unlike the East Asian economic miracle represented by Japan and the Asian Tigers, the Chinese economic miracle with exports as the main engine is formed through the active participation of Chinese enterprises in the global value chain. Global value chains have driven China's rapid industrialization and spawned a Chinese export miracle, which is where the "new" lies. Many economists are discussing whether there is a "China model", and I think that full and deep integration into global value chains is the characteristic of the "China model", which is not based on Chinese characteristics and can be learned from by other developing countries.
Japanese and Korean companies enter the international market with their own technology and brand as competitive. The entry of Chinese enterprises into the world market is achieved by relying on the global value chain dominated by foreign multinational companies. Looking at the essence through the phenomenon of "Made/Assembled in China" sweeping the world, we will find that the brand, technology and sales network of the leading enterprises in the global value chain are the core competitiveness of China's manufactured/assembled products, which is the "new" place of China's trade, which is fundamentally different from the trade of "cloth for wine" described by the traditional theory of comparative advantage. This is one of the main points I emphasize in my book.
The theory of comparative advantage, or the argument that the renminbi is undervalued, is essentially the determinism of the "old" factors of low cost or cheapness. The "old" factor has a catalytic role in facilitating the participation of Chinese enterprises in global value chains. For example, foreign companies' direct investment in China is a way for leading companies to extend their value chains overseas, and the wealth effect of the depreciation of the renminbi on foreign investors naturally stimulates their desire to invest in China. The abundance of cheap labor has increased the competitiveness and scale effect of Chinese enterprises engaged in low-tech, low-value-added tasks in the global value chain.
The Paper: The Second Chapter of the Book talks about China's exports from 1980 to 2018 (or now), can we draw a line in ten years and talk about the evolution and changes in each decade? In particular, how do you view the impact on China's exports before and after China's accession to the WTO?
Xing Yuqing: Before 1990, agricultural and resource products accounted for about 26.8% of China's exports, and the proportion of clothing and textiles was about 27.2%. Labor-intensive products and resource-intensive products account for more than half of China's exports. In 2000, the proportion of agricultural and resource products fell to 12 per cent, and the proportion of manufactured products rose sharply. After China's accession to the WTO, the proportion of manufactured products represented by electronic communication products has risen sharply, and the proportion of low-value-added products represented by clothing and textiles has continued to decline. In 2007, China's exports of high-tech products reached $342.6 billion, surpassing not only Japan and the United States, but also the 27 countries of the European Union combined. In 2017, China's exports of high-tech products reached US$654.2 billion, or about 30% of all exports.
In my book, I argue that Chinese companies have been able to integrate into global value chains on a large scale, thanks to the supportive policy environment created by the Chinese government. WTO accession is an important dimension of this supportive policy environment. Membership as a WTO member ensures that Products made/assembled in China can enjoy most-favored-nation treatment when entering the international market and are not excluded by additional tariff and non-tariff barriers. Without joining the WTO, China cannot become the "world's factory", and the global manufacturing value chain centered on China will not appear. There is also no phenomenon that the supply chain of many manufactured products, such as APIs, medical protective products, computers, mobile phones, textiles, clothing, etc. is concentrated in China.
The Mystery of China's Exports features a picture of China's formal accession to the World Trade Organization
"Globalization will continue"
The Paper: 2018 was a turning point for China's exports, when the Sino-US trade friction began and continues to this day. In your introduction, you proposed to examine the Sino-US trade balance with current trade statistics, which not only exaggerated China's export volume, but also underestimated the actual exports of the United States, resulting in a great distortion of the reality of bilateral trade between China and the United States. I think that the proposal of this view is of positive significance for solving the current sino-US trade friction chess game.
Xing Yuqing: One of the root causes of Sino-US trade frictions is the huge trade imbalance between China and the United States. According to U.S. statistics, the U.S. trade deficit with China in 2018 was about $420 billion, half of the total U.S. merchandise trade deficit that year. However, this data is based on outdated trade statistics. The U.S. government's dissatisfaction with the huge trade deficit with China stems from the traditional perception of the trade deficit, which represents the flow of U.S. revenue into China. But now that global value chains have dominated the way international trade is conducted, there is a huge gap between trade flows and income flows that are mismatched. The U.S. trade deficit shown by trade statistics does not mean that there is a corresponding income flowing from the United States to China.
For example, according to my research, for every iPhone X exported from China to the United States, it gave the United States a deficit of $332.75, but only $104 actually flowed into China. Because Apple pays its suppliers directly for parts. U.S. consumers pay for parts made by non-Chinese companies included in the iPhone X and don't make it into China at all. On the other hand, Apple, Nike, AMD Qualcomm and other companies have obtained huge revenues from the Chinese market, because their products have not entered the Chinese market from the United States, and the tens of billions of dollars of revenue that these companies receive from the Chinese market are not counted as U.S. exports to China.
If I had the opportunity to discuss the Sino-US trade dispute with the United States, I would make the following suggestions to them: (1) After the Sino-US trade friction began, China has lowered tariffs four times, and the United States should recognize the efforts made by the Chinese government to open its markets; (2) The phase one trade agreement between China and the United States provides preferential conditions for U.S. products to enter the Chinese market in excess of all countries, and emphasizes the protection of intellectual property rights. The Biden administration should not lose sight of its benefits to the United States and its role in stabilizing bilateral economic relations because of domestic political divisions; (3) Current trade statistics not only exaggerate China's exports to the United States, but also underestimate U.S. exports to China. Made in USA is no longer the only way for the United States to export to China, Made in China, Made in World, are all ways for the United States to export to China, and it is necessary for Chinese and American scholars to study how to calculate the bilateral trade balance based on the value chain; (3) If protecting the employment of American workers is important, the Biden administration should talk to U.S. multinationals and persuade them to invest in factories in the United States centered on social responsibility rather than profit maximization.
The Paper: In the book, I saw that you took the line on the back of the iPhone as an example, "Designed by Apple in California, Assembled in China", and I think this line of description is a footnote to the current transformation of commodity trade into task trade. The starting point of your book is also why China has become the world's first exporter of high-tech products, so combined with the current situation, what work do you think China still has to do if it wants to maintain its position as the world's first exporter of high-tech products?
Xing Yuqing: An important result of my research is to prove that the title of "the world's largest high-tech exporter" is an illusion brought about by outdated trade statistics and does not reflect China's real scientific and technological strength and level. The United States exported only $157 billion in 2017, less than a quarter of China's; In 2018, the United States had a deficit of $130 billion with China in the trade of high-tech products. However, the United States can technically jam China's neck.
In the book, I propose two paths for linear and non-linear technological progress along the value chain. Chinese companies, including Huawei, have achieved non-linear technological progress using foreign technology platforms and modules and have become the leading enterprises in the value chain. For example, Lenovo has become the world's largest pc manufacturer, and Xiaomi has become one of the world's top five mobile phone brands. This is all the result of non-linear advances with the help of foreign prior art. Chinese companies need to analyze their role in the global value chain of their industry and the tasks they undertake. Investing in more advanced technologies in the industry and achieving breakthroughs, and achieving linear technological upgrading along the value chain is what should be done in the future.
The Paper: More than a decade ago, Hermann Simon proposed the concept of "hidden champions", pointing out that 60%-70% of Germany's exports are contributed by small and medium-sized enterprises. For the same reason, you have worked and lived in Japan for many years, and there are many small and medium-sized enterprises in Japan that are leading in the industry, the so-called "century-old stores". I would like to know, in the current international situation, how to tap new growth points in China's exports, whether Chinese small and medium-sized enterprises can also build their own "hidden champions" matrix, what are your suggestions?
Xing Yuqing: Since 2009, China has become the world's largest exporter, exporting $1.56 trillion of products to the world that year; last year, China's exports reached $3.5 trillion, $1 trillion more than the United States. In this situation, it is too difficult to find an export growth point, which is determined by the law of large numbers. Our economists and government officials often tell foreign investors that the Chinese market is not only huge in scale, but also has considerable growth potential, which is not comparable to the mature US, Japanese and European markets. I think that in the future, China's development ideas need to change from "world factories" to "world markets", and Chinese companies need to think more about how to find opportunities from the huge domestic market and development potential, rather than looking for more opportunities in overseas markets. Compared with foreign enterprises, local enterprises should have more advantages in developing in the domestic market, right?
The emergence of hidden champions is related to specialization. Observing domestic enterprises, what I often hear and see is the strategy of diversified operation, the thinking of industrial financialization, and the desire to find the outlet, the only thing missing is "specialization" and perseverance. If Chinese entrepreneurs have the idea of becoming the "god of sushi", willing to do the same work for themselves and future generations, and persevere in making a product to the extreme, they can have a century-old store and become a hidden champion.
I have been studying global value chains for 13 years since I started in 2009. In order to understand the structure of the global value chain, the role played by Chinese companies, the contribution to value added, and the technological progress along the value chain, I disassembled 4 mobile phones iPhone 3G, iPhone X, Xiaomi MX2 and OPPO Rs11. This is the spirit of "dedication" and perseverance. That's why there is the book "The Mystery of China's Exports: Decoding global value chains".
In order to figure out the structure of the global value chain and the role played by Chinese companies, Xing Yuqing dismantled the OPPO mobile phone
The Paper: The global value chain is naturally based on economic globalization, but in recent years, globalization has been "driving backwards", what is your prediction of its prospects?
Xing Yuqing: The super-globalization of the past few decades has promoted the growth of the world economy and brought great wealth to mankind. However, it has also produced some negative effects, such as the widening gap between rich and poor, the hollowing out of manufacturing in developed countries, and the stagnation of middle-class incomes in developed countries. The forces of anti-globalization are getting stronger. Trump's election as US president, the Brexit of the United Kingdom, the withdrawal of the United States from the TPP, Sino-US trade frictions, India's violation of the WTO Information Technology Products Agreement on information technology products by 20% tariffs, etc., are all anti-globalization phenomena.
In the past, economic interests were the only driving force behind globalization. Globalization will continue in the future, but non-economic factors will play an increasingly important role in influencing the course and direction of globalization. Strengthening supply chain resilience, ensuring the security of supply chains in core industries, and strategies such as supply chain decentralization and supply chain regionalization will all affect future globalization.
Editor-in-Charge: Chen Shihuai
Proofreader: Yijia Xu