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Title: Functional Upgrading in China's Export Processing Sector

Author(s): Ari Van Assche and Johannes Van Biesebroeck

Publication Date: April 2017

Keyword(s): global value chains, industrial development and Manufacturing

Programme Area(s): Industrial Organization and International Trade and Regional Economics

Abstract: Functional upgrading occurs when a firm acquires more sophisticated functions within an existing value chain that require a higher skill content. In this paper, we analyze if there is evidence of this type of upgrading in China's export processing regime by investigating dynamics in the relative prevalence of Import & Assembly (IA) versus Pure Assembly (PA) processing trade over the period 2000-2013. Firms in both regimes provide similar manufacturing services to foreign companies, but IA firms also conduct the sophisticated tasks of quality control, searching, financing and storing imported materials. Consistent with a trend of functional upgrading, we show that the share of IA trade in total processing trade has increased rapidly during the period 2000-2006, both overall and within product categories. Furthermore, we find that this trend has gone hand-in-hand with improvements in a sector's labor productivity and unit values. Against expectations, we find that this process has slowed down notably during the period 2006-2013.

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Bibliographic Reference

Van Assche, A and Van Biesebroeck, J. 2017. 'Functional Upgrading in China's Export Processing Sector'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11967