China's Processing Trade Transformation And Upgrading

After more than thirty years, processing trade has been the principal section of trade of Chinaand the major source of trade surplus. Series of problems, such as low added value, low-end industrial chain, low-level technology, aggration of trade unbalance, and etc, connected with processing trade, however, have been also the obstacles of development and advancement of China. In addition, the voice concerning transformation and upgrading of processing trade is prevalent too.This dissertation finds that the main players of processing trade are foreign-invested enterprises, especially the wholly-owned foreign enterprises, by analyzing the achieved processing trade data. Additionally, processing trade mainly locates in coastal provinces and cities; compared with general trade, it has intensively geographic centralization. This thesis, then, probes inner mechanism and outer condition of the processing trade.Several problems, such as the undermining of comparative advantage of labor force, the upgrading of trade friction, trade smuggling, and etc, have been challenging the development of processing trade. Based on Hay and Morris’s analysis archetype, this thesis analyzes the benefit-allocation between the host-country and foreign-invested enterprise (FIEs) when they participate in processing trade, and economic effect of processing trade by the mean of cointegration, to conclude the necessity of transformation and upgrading of processing trade.Additionally, this thesis analyzes country-level, district-level, and firm-level cases to find the general path of processing trade’s transformation and upgrading. Finally, based on the theoretical analyses and cases analyses, the thesis would offer some grounded policy advices towards the transformation and upgrading of processing trade.