China's Openness To Trade, Industrial Upgrading And Employment Structure Research

As foreign trade expansion and vertical specialization have become the most significant features of China’s economy under globalization, studies on the domestic value-added in export as well as how foreign trade influences industrial upgrading and employment structure become of wide interest.The proportion between foreign vs domestic contents could be identified by calculating VSS (Vertical Specialization Share) through non-competitive I/O (input-output) tables. Application of such method to Chinese case, however, would result in a serious measurement bias because I/O tables regarding processing trade are not officially released in China. Based on HIY method and by taking account of the significance processing trade has for the value composition of export, this paper is to provide a simplified way to estimating the domestic value-added in China’s exports by identifying the import shares of processing export and normal export through different trade patterns.First, estimation of1153-digit manufacturing industries in2008shows that domestic value-added share in processing trade for all industries weighted by export value is about44%, compared to over90%in ordinary trade. Technologically sophisticated industries, which have experienced the fastest export expansion, have domestic value-added share of less than50%. The paper concludes that the rise on technologically sophisticated exports could be better accounted for by the expansion of processing trade which makes China more deeply integrated into the global value chain.Second, after taking account of the inter-industry input and output of intermediates imported through normal trade, estimation of2-digit industries from2006to2008shows the average VSS of China’s export is about47.1%, almost twice as the estimate given by HIY method, which means that the comparatively high foreign value-added share is largely attributed to the processing trade. Further sub-sector study shows that the foreign value-added shares in capital-and technology-intensive industries are higher than those in labor-intensive industries, and the VSS of electronics products industry, which is technology-intensive, is as high as84%. These indicate that China’s huge increase in exports is only an "illusion". The upgrading of skills embodied in exports doesn’t turn into simultaneous increase in domestic value-added, which means that China’s industrial upgrading is rather slow. In addition, we also find that the income level of trade partners and the VSS of goods exported are positively linked.As for the influence of globalization on China’s employment structure, empirical results based on aggregate data show that:(1) China’s trade growth hasn’t increased the proportion of highly-skilled workers in employment, which is consistent with the H-O Model. FDI is positively correlated with the proportion of highly skilled workers in employment, verifying the Feenstra-Hanson outsourcing theory about the impact of capital inflow on employment structure.(2) The main negative effect of import on employment structure is that intermediate import substitute for highly-skilled workers, while the negative effects of export on employment structure mainly occur in labor-intensive industries.(3) Capital-and technology-intensive industries, foreign-funded enterprises and FDI in coastal areas amplify the negative effects of export on employment structure.To further explore the influence of vertical specialization on the employment structure, this paper also conducts an empirical study using the2004data from CASIF and CCTS databases. Results show that:(1) The increase of vertical specialization share of OECD countries (VSSH) is conductive to the increase in China’s high-skilled employment share, while the increase of vertical specialization share of low income countries (VSSL) causes the high-skilled employment share to fall.(2) The increase of enterprises’export share, especially the normal export, strengthens the positive correlation between VSSH and the high-skilled employment share, while the increase of processing export share is against this correlation.(3) Capital deepening and the high-skilled employment are complementary to each other, but Hong Kong, Macao and Taiwan capital, which is processing trade oriented, weakens the relative demand for highly skilled labor.In the past30years, China’s industrial upgrading has been rather slow. By comparing with successful cases of East Asian Tigers, we want to give reasonable explanation on it and discuss the possible paths for future industrial upgrading. A country’s industry and technology structure fundamentally depend on its domestic factor endowment. For China, employment upgrading is the base for industrial upgrading. With theoretical and empirical studies, we discuss the policy implications regarding how to upgrade employment structure under the context of globalization.