what’s behind « made in china » ?

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What’s Behind « Made in China » ?. Ari Van Assche HEC Montréal and LICOS-KU Leuven. Processing trade regime. Under the processing trade regime , firms are allowed to import inputs duty-free provided they are used to produce further processed goods or final goods destined solely for exports. - PowerPoint PPT Presentation

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  • Whats Behind Made in China?Ari Van AsscheHEC Montral and LICOS-KU Leuven *

  • Processing trade regimeUnder the processing trade regime, firms are allowed to import inputs duty-free provided they are used to produce further processed goods or final goods destined solely for exports.Processing trade data thus provide information on trade between three sequential nodes of a global supply chain: the location of upstream production, the location of processing (in China) and the location of downstream consumption. *

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  • Fear 1: Factory of The World

  • The Chinese export value for a unit of a 30GB video iPod in 2006 was about $150. However, only $4 of this value is attributable to producers in China (Linden et al. 2007).*

  • Exported by China Made in ChinaChina has grown into the worlds largest exporter in 2009, but not all exports are Made in China.Only 30%-50% of Chinas total export value is Made in China, while the other portion is the value of imported components (Koopman et al., 2008; Upward, Wang and Zheng, 2010). China is not the worlds factory, but rather the worlds assembler.

  • U.S. and E.U. customs require that all imported products be marked with the name of a foreign country of origin.The country of origin of a good is generally determined by the last country in which a substantial transformation of the good took place.Since China is specialized in final assembly, many products are labeled Made in China even though only a fraction of the value is truly made in China.

  • Fear 2: Emerging Technological Superpower

  • Processing export share, by technology level

    Chart1

    76.529160739758.402860548342.303433001150.9049773756

    79.5969773361.326530612244.725274725350.4132231405

    76.896845694861.79687544.45306439146.2757527734

    75.129533678860.864618885145.574771108948.8439306358

    85.34975802965.849923430350.980392156955.4131054131

    84.946236559167.608695652251.047619047651.8738845925

    85.512150107769.209594966650.393700787452.3985239852

    84.392750879166.913248150647.6562551.497005988

    86.758893280664.303178484143.636363636447.3737373737

    87.104457298460.927152317943.113772455146.6143277723

    87.31527093658.782608695742.587601078243.288590604

    88.187702265457.124842370740.657084188939.0742001361

    88.636363636456.591928251133.989501312337.3951928452

    88.273474686355.282890252232.790224032635.0708733425

    86.685159500753.180396246128.951149425332.5382035035

    High-tech

    Medium-high tech

    Medium-low tech

    Low-tech

    Feuil1

    High-techMedium-high techMedium-low techLow-techyeartechPshare

    199276.529160739758.402860548342.303433001150.90497737561992Other18.26625387

    199379.5969773361.326530612244.725274725350.41322314051993Other20.6541490006

    199476.896845694861.79687544.45306439146.27575277341994Other25.1467710372

    199575.129533678860.864618885145.574771108948.84393063581995Other32.1907600596

    199685.34975802965.849923430350.980392156955.41310541311996Other15.4774972558

    199784.946236559167.608695652251.047619047651.87388459251997Other15.838150289

    199885.512150107769.209594966650.393700787452.39852398521998Other18.8481675393

    199984.392750879166.913248150647.6562551.4970059881999Other23.9130434783

    200086.758893280664.303178484143.636363636447.37373737372000Other23.8243295764

    200187.104457298460.927152317943.113772455146.61432777232001Other24.7111442415

    200287.31527093658.782608695742.587601078243.2885906042002Other25.5874673629

    200388.187702265457.124842370740.657084188939.07420013612003Other25.6926952141

    200488.636363636456.591928251133.989501312337.39519284522004Other31.2749003984

    200588.273474686355.282890252232.790224032635.07087334252005Other33.6283185841

    200686.685159500753.180396246128.951149425332.53820350352006Other38.5644768856

    1992Low-tech50.9049773756

    1993Low-tech50.4132231405

    1994Low-tech46.2757527734

    1995Low-tech48.8439306358

    1996Low-tech55.4131054131

    1997Low-tech51.8738845925

    1998Low-tech52.3985239852

    1999Low-tech51.497005988

    2000Low-tech47.3737373737

    2001Low-tech46.6143277723

    2002Low-tech43.288590604

    2003Low-tech39.0742001361

    2004Low-tech37.3951928452

    2005Low-tech35.0708733425

    2006Low-tech32.5382035035

    1992Medium-low tech42.3034330011

    1993Medium-low tech44.7252747253

    1994Medium-low tech44.453064391

    1995Medium-low tech45.5747711089

    1996Medium-low tech50.9803921569

    1997Medium-low tech51.0476190476

    1998Medium-low tech50.3937007874

    1999Medium-low tech47.65625

    2000Medium-low tech43.6363636364

    2001Medium-low tech43.1137724551

    2002Medium-low tech42.5876010782

    2003Medium-low tech40.6570841889

    2004Medium-low tech33.9895013123

    2005Medium-low tech32.7902240326

    2006Medium-low tech28.9511494253

    1992Medium-high tech58.4028605483

    1993Medium-high tech61.3265306122

    1994Medium-high tech61.796875

    1995Medium-high tech60.8646188851

    1996Medium-high tech65.8499234303

    1997Medium-high tech67.6086956522

    1998Medium-high tech69.2095949666

    1999Medium-high tech66.9132481506

    2000Medium-high tech64.3031784841

    2001Medium-high tech60.9271523179

    2002Medium-high tech58.7826086957

    2003Medium-high tech57.1248423707

    2004Medium-high tech56.5919282511

    2005Medium-high tech55.2828902522

    2006Medium-high tech53.1803962461

    1992High-tech76.5291607397

    1993High-tech79.59697733

    1994High-tech76.8968456948

    1995High-tech75.1295336788

    1996High-tech85.349758029

    1997High-tech84.9462365591

    1998High-tech85.5121501077

    1999High-tech84.3927508791

    2000High-tech86.7588932806

    2001High-tech87.1044572984

    2002High-tech87.315270936

    2003High-tech88.1877022654

    2004High-tech88.6363636364

    2005High-tech88.2734746863

    2006High-tech86.6851595007

  • Statistical MirageOnce processing trade is taken into account, the evidence is less strong that China is rapidly moving up the technology ladder and becoming competitive in technology-intensive areas where advanced economies should have a comparative advantage. Rather, Chinas production activities have remained consistent with its comparative advantage in labor-intensive production activities.

  • Fear 3: The Great Hollowing Out

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  • *Japan 977Belgium 5,606USA 5,921

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  • Geography mattersChinas attractiveness as an offshoring location is determined by its proximity to foreign input suppliers (supplier access) and vicinity to foreign markets (market access). Eastern firms choose China as a processing location for its exports to WestWestern firms choose China as a processing location for its exports to EastOnly a small portion of offshoring to China is conducted by Western firms that merely want to reduce their production costs.*

  • Whats Behind Made in China?Once Chinas role in global production networks is taken into account, a different picture of China emerges than is portrayed by the popular press.Chinas exports do not reflect a rising dragon that single-handedly challenges Western manufacturing firms in both low-tech and high-tech industries.They rather represent the faade of increasingly competitive East Asian production networks that sell to Western markets.

  • Strategic ImplicationsWhat is your role in global production networks? Are Chinese firms your partners or competitors? Who are you truly competing against?Are you offshoring to China for the right reasons?

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