China’s Processing Trade and Value Chains

Abstract

We investigate how trade liberalisation affects the performance of Chinese manufacturing firms. To better understand China’s role in global value chains, we examine Chinese firms with a significant import share from Indonesia, one of its largest processing source countries. We find that Chinese firms with a greater import share from Indonesia perform better in productivity, export, and sales, and they are more likely to engage in processing exports. Moreover, the impact of foreign trade liberalisation on China’s export scope is more pronounced for firms with a larger import share from Indonesia because of their greater extent of engagement in global value chains.