加工贸易

1. Introduction Global imbalances have been argued to be one of the major factors responsible for the global financial crisis and the subsequent economic recession in the United States (US) and European countries. In searching for the roots of global imbalances, most debates and studies focus on macro factors such as insufficient domestic consumption in China, low saving rates in the US, and the inflexibility of the China’s exchange rate regime. With a record high surplus in goods and services of US$349 billion in 2008, China has been urged to boost its domestic consumption and revalue the yuan to mitigate its trade surplus and help rebalance the global economy. Journal of Asian Economics 23 (2012) 540–547 F1 Keywords: China Processing trade Exchange rates yuan would negatively affect both processing imports and exports—specifically, a 10% real appreciation of the yuan would reduce not only China’s processing exports by 9.1% but also its processing imports by 5.0%. Based on these empirical findings we conclude that the combined effect of the yuan’s appreciation on the balance of processing trade and thus China’s overall trade balance will be limited. � 2012 Elsevier Inc. All rights reserved. Contents lists available at SciVerse ScienceDirect Journal of Asian Economics However the debate on global imbalances has paid little attention to micro factors, such as structure of trade, proliferations of cross-country production fragmentation, and production networks developed in East Asia. This is especially important because these micro-factors have changed the very nature of international trade. For example integration of production processes, which involves a sequential, vertical trading chain stretching across many countries, has transformed trading manufactured goods to essentially trading tasks (Grossman & Rossi-Hansberg, 2008; Hummels, Ishii, & Yi, 2001). Therefore, it is important to analyze China’s trade balances in a broad context and assess the importance of structural variables in determining its trade patterns and bilateral trade balances. China’s trade differs from conventional international trade modeled in standard textbooks. First, foreign-invested firms produce more than half of China’s exports. In some commodities such as electronics and information communication Processing trade, exchange rates and China’s bilateral trade balances Yuqing Xing a,b,* aAsian Development Bank Institute, Kasumigaseki Building 8F, 3-2-5 Kasumigaseki, Chiyoda-Ku, Tokyo 100-6008, Japan bNational Graduate Institute for Policy Studies, 7-22-1 Roppongi, Minato-ku, Tokyo 106-8677, Japan A R T I C L E I N F O Article history: Received 6 March 2011 Received in revised form 17 January 2012 Accepted 9 June 2012 Available online 21 June 2012 JEL classification: A B S T R A C T This paper analyzes the role of processing trade in China’s bilateral trade balances and the impact of the yuan’s appreciation on China’s processing trade. The analysis is based on panel data covering bilateral processing trade between China and its partners from 1993 to 2008. The empirical results show that: (1) processing trade accounted for 100% of China’s annual trade surplus during the period; (2) China’s processing trade showed a significant regional bias—77% of processing imports originated from East Asia while only 29% of processing exports was destined to the region in 2008; and (3) a real appreciation of the technology (ICT), foreign-invested firms dominate China’s exports and account for more than 80% of the exports (Xing, * Correspondence address: Asian Development Bank Institute, Kasumigaseki Building 8F, 3-2-5 Kasumigaseki, Chiyoda-Ku, Tokyo 100-6008, Japan. Tel.: +81 3 3593 5500. E-mail addresses: yxing@adbi.org, yuqing_xing@grips.ac.jp. 1049-0078/$ – see front matter � 2012 Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.asieco.2012.06.001 2010a). Second, processing trade1 accounted for about 40% of China’s total trade in 2010 (China Customs, 2011). In terms of the scales and the range of commodities involved, the significance of processing trade in China’s external trade is unmatched. Processing trade has reversed conventional trade patterns such that developing countries, such as China, export high-tech Y. Xing / Journal of Asian Economics 23 (2012) 540–547 541 products while industrialized countries like the US import high-tech goods. For instance, although China has comparative advantage in labor-intensive products, according to an OECD report, China has surpassed the US and Japan and emerged as the leading ICT exporting country (OECD, 2006). Finally, with processing trade, bilateral trade balances between countries used as an export platform and destination market of final products are inflated, as the former needs to import a large amount of intermediate inputs from third countries for processed exports. A typical example is the iPhone trade between China and the US. In 2009 the iPhone added US$1.9 billion to the US trade deficit, of which merely 3.6% was created in China (Xing & Detert, 2010). This study attempts to investigate China’s processing trade in a broad framework with emphasis on regional factors and the yuan’s exchange rate. Using simple descriptive statistics, we first establish some stylized facts about China’s processing trade; (i) processing trade accounted for 100% of China’s annual trade surplus every year between 1994 and 2008; (ii) China’s processing trade pattern shows that China serves as an assembling center for regional multinational exports targeting at the US and European markets. Second, we assess the impact of the yuan’s exchange rate on processing imports and exports using an augmented gravity model with country fixed-effects. Results suggest that a real appreciation of the yuan would reduce not only China’s processing exports but also its processing imports. Specifically, a 10% real appreciation will lead to a 9.1% decrease in processing exports but also a 5.0% drop in processing imports. This result turns the conventional trade wisdom on its head and highlights the distinctive nature of processing trade. It also suggests that a moderate appreciation of the yuan may only have a limited impact on China’s processing trade balance, and thus its overall trade balance. The rest of the paper is organized as follows: Section 2 will review the literature on China’s processing trade. In Section 3, we will establish some stylized facts regarding China’s processing trade. Section 4 will test the impact of the yuan’s appreciation on processing exports and imports. Finally Section 5 will sum up the main findings of the paper and policy implications. 2. Literature review Trade liberalization and rapid decline in transportation costs have greatly facilitated development of cross-country production fragmentation and production process specialization. In addition, China’s economic reform in the last three decades has provided opportunities for MNEs to integrate China into their production networks and utilize China as a low- cost assembling base. Processing trade involves importing parts and components as intermediate inputs, processing and assembling these intermediate inputs into finished products, and eventually re-exporting the processed products to the global market via international distribution and retail networks of MNEs. Local firms engaging in processing trade are generally exposed to the production know-how and product design of foreign companies. Processing trade also functions as an effective channel for knowledge spillovers, which contributes substantially to productivity growth of domestic firms (Yu, 2010). Processed exports use both imported and domestically produced parts and components. The share of domestically made contents determines the domestic value added toward the exports. Koopman, Wang, and Wei (2008) apply the input–output method to estimate domestic contents in China’s exports by sectors and they find that the aggregated domestic value added in China’s exports is about 50% and varied across sectors and firm’s ownerships. For example a computer has less than 4% of domestic value added, while exports by wholly foreign owned enterprises exhibit about 30% value added. Most studies on China’s processing trade focus on the nexus of real exchange rates and trade balances. Garcia-Herrero and Koivu (2009) use cointegration techniques to estimate the long-run elasticities of China’s processing exports and imports to real exchange rates. Based on monthly time series data from 1994 to 2005, they show that China’s processing exports would decrease by 1.3% for a 1% appreciation of the yuan, and processing imports would also decrease. Cheung, Chinn, and Fujii (2009) investigate a similar issue over a relatively longer period, 1980–2006. They convert monthly data into quarterly data by simple averaging and estimate both processing export and import equations with dynamic ordinary least squares regression. Their empirical findings contradict the expectations of conventional theory— China’s processing exports would increase between 1.86% and 2.68% for a 1% real appreciation of the yuan. Aziz and Li (2007) analyze the dynamic changes of the export elasticity to real exchange rates from 1995 to 2006. After decomposing exports into non-processing and processing exports, they show that price elasticity of processing exports increased significantly while that of non-processing exports remained unchanged. The rising domestic content of processing trade is argued to be a critical factor in determining the evolution of export elasticity. Considering domestic content represents only a small portion of the total value of China’s processing trade and a unilateral appreciation by China may have limited impact on China’s processing exports, Thorbecke and Smith (2010) analyze not only the impact of a unilateral appreciation of the yuan on China’s processing exports, but also a joint appreciation of all East Asian currencies. They construct an integrated exchange rate—a weighted exchange rate between the yuan and the currencies of other East Asian economies—according to the importance of their trade with China. They argue 1 Processing trade consists of processing imports and processing exports. Importing parts and components for making exports are called processing imports; and exporting products made of imported parts and components are referred as processing exports. that a joint appreciation of East Asian currencies is more effective than unilateral appreciation of the yuan, because a unilateral appreciation of the yuan by 10% would reduce China’s processing exports by 4% while a joint appreciation of East Asian currencies of the same magnitude would reduce China’s exports by 10%. Thorbecke (2010) uses extended data from 1992 to 2008 to re-estimate the effect of the integrated exchange rate on China’s processing exports and finds that the elasticity of processing exports to the integrated exchange rate is around 1, consistent with the previous result. In addition, he estimates the elasticity of processing imports and shows that a 10% joint appreciation of the East Asian currencies would give rise to a 3.9–4.1% increase in China’s processing imports. Ahmed (2009) also shows that the joint appreciation of the yuan and the currencies of China’s major processing trade partners would be more effective in curbing the growth of China’s processing trade. However, the study does not analyze the sensitivity of processing imports to variations of exchange rates. 3. China’s processing trade: some stylized facts Y. Xing / Journal of Asian Economics 23 (2012) 540–547542 China’s Customs Statistics (CCS) distinguishes between imports and exports linked to ordinary trade and processing trade. Processing imports are defined as goods that are brought into China to be used as intermediate goods in the manufacture of final products for exports. Processing imports are duty free, and neither the imported inputs nor the finished goods produced using processing imports enter China’s domestic market. The processed final goods are subsequently re- exported from China and are classified as processing exports. In this section we will establish some stylized facts about China’s processing trade using simple descriptive statistics. 3.1. East Asian economies are the most important source of China’s processing imports China’s processing trade shows a distinctive geographic feature. The sources of China’s processing imports primarily cluster around East Asian economies. Among the top ten sources, which accounted for 85% of total processing imports in 2008, eight were from East Asia: Taiwan, China, Japan, South Korea, Malaysia, Thailand, Philippines and Singapore (Fig. 1). These eight East Asian economies together accounted for US$294 billion, about 77% of the total processing imports. Taiwan is the largest single source for China’s processing imports; about US$68.4 billion processing imports came from Taiwan. Japan and South Korea were the third and fourth largest with US$61.3 billion and US$59.1 billion, respectively. The US and Germany were the only two non-East Asian economies among the top ten. Even though Germany is the fourth largest economy in the world, it accounted for only US$7.2 billion processing imports, much smaller than those from Malaysia, Thailand, the Philippines, and Singapore. There are three reasons why the East Asian economies have become the main sources of China’s processing imports. First, Japan, Taiwan, South Korea and Singapore are the major sources of FDI in China. From 1985 to 2008, cumulative FDI from these four economies amounted to US$192 billion. Excluding Hong Kong, Japan is the largest FDI source for China (Xing, 2010b). Secondly, MNEs from these economies have built up their production networks in East Asia. Abundant labor endowment makes China an ideal place for processing and assembling parts and components into finished products for the world market. With direct investment, MNEs from East Asian economies have extended their production networks and integrated China into their production chains (Kimura and Obashi, 2010). Finally, Taiwan’s manufacturers have been the leading original equipment makers (OEM) for information communication technology, such as personal computers, laptop computers, and servers. They have relocated their production facilities to the mainland China, boosting China’s processing trade in ICT substantially (Xing, 2010a). 3.2. China is the third largest source of its own processing imports It is noteworthy that in 2008, US$61.3 billion process imports were originally produced in China, making China the second largest source of its own processing imports. These processing imports were first manufactured by domestic firms, then exported to Hong Kong, and eventually re-imported back as intermediate inputs by firms producing exports. To promote Source: the author’s calculations based on data provided by China Customs 68.4 61.3 61.3 59.1 19.7 13.3 12.3 9.8 8.6 7.2 0 20 40 60 80 Taiwan China Japa n South Korea US Malaysi a Thailan d PhilippinesSingapor e Germany (b ill io n U S $ ) Fig. 1. The top ten sources of China’s processing imports in 2008. exports, the Chinese government has been offering value added tax rebates to exporting firms. With the round-tripping o domestically made products between mainland China and Hong Kong, exporting firms receive 17.5% value added tax rebate while importing firms benefit from reduced prices. In 1993, processing imports originating from China amounted to US$1.1 billion, about 2.9% of the total processing imports. By 2008, the share surged to 16.2%, suggesting that the tax incentive ha been very effective in promoting both exports and imports. In the literature on processing trade, the role of China as an important source of processing imports has been ignored. Given that a substantial amount of imported parts and components were actually made in China, it is highly possible that the domestic contents of processing exports were underestimated in the existing literature. In addition, the large volume of round-tripping of made-in-China products implie that the preferential tax policy is a critical factor in facilitating the high growth of processing trade. In this regard, abolishing the tax incentive may be more effective in curbing the trade surplus and rebalancing the growth path of the Chinese economy. 3.3. The US and European markets are more important for processing export The top ten destination markets of China’s processing exports are listed in Fig. 2. It is well acknowledged that Hong Kong Y. Xing / Journal of Asian Economics 23 (2012) 540–547 543 has functioned as a distribution market for China’s products to the rest of the world. For this reason, we exclude Hong Kong from the analysis and the processing exports to Hong Kong are allocated to the rest of China’s trading partners in proportion to their shares of the total processing trade. The top ten markets accounted for US$490 billion, about 71% of the total processing exports in 2008. Compared with the sources of processing imports, the destination markets of processing exports are relatively more diversified. The US was the single largest market for China’s processing exports. In 2008, around US$192 billion worth of goods was purchased by the American consumers making up about 28% of China’s total processing exports. The US is also one of the top ten sources of China’s processing imports (Fig. 1), but the volume of processing imports from the US, is just one-tenth of processing exports to it. Japan ranked second with US$80 billion and was followed by South Korea with US$41 billion. The rest of the top ten destination markets are all in the European Union. China’s processing exports to Germany, the Netherlands, the United Kingdom (UK), and France amounted US$115 billion, 17% of China’s total processing exports. 3.4. Majority of processing imports from East-Asia are intermediate inputs for finished products for third markets Of the top ten destination markets, five are located in East Asia: Japan, South Korea, Singapore, Taiwan, and Malaysia. Together these five East Asian economies accounted for US$173 billion, about 27% of the total processing exports. Including Indonesia, Philippines and Thailand, which are not in the top destination markets, all the seven East Asian economies comprise only 29% of China’s processing exports. Compared with their 77% share in processing imports, East Asian countries’ share in China’s processing exports is much smaller. This suggests that most of processing imports from East Asian economies are used as intermediate inputs for finished products targeting third markets and that China has primarily functioned as a big assembling factory for MNEs from East Asian economies. The different geographic concentrations between processing imports and exports indicate that geographic proximity and production networks in East Asia affect the volume and the pattern of processing trade. 3.5. China’s processing trade accounted for its entire trade surplus Between 1994 and 2008, China’s trade surplus in goods increased from a mere US$5.4 billion to US$298 billion. Decomposing trade into ordinary and processing trade reveals that the drastic growth of the trade surplus is mainly due to the rapid expansion of processing trade. Even though processing trade accounted for less than half of China’s total external trade, the trade surplus in processing trade in 2008 totaled US$297 billion, equivalent to the entire trade surplus. Fig. 3 shows Source: the author’s calculations based on data provided by China Customs 191.7 79.6 41 40.7 36.4 24.1 22.7 16.2 14.9 12.2 0 50 100 150 200 250 (B ill io n U S $ ) Fig. 2. The top ten destination of China’s processing exports in 2008. f s s s Sources: the author’s calculations b