Chinese Firms Pass-on Trade Mode:Facts And Interpretation

Join WTO has promoted Chinese trade rapidly. After 13years, Chinese total trade even topped$ 4 trillion, which made China become the world’s largest goods trading nation. With "Made in China" label becoming all over the world, to further expand and stabilize the international market share is increasing difficult. Besides, Faced with the continuous appreciation of the RMB and growing trade frictions in international markets, Chinese low-cost comparative advantage disappear gradually, which leads terms of trade worse. Therefore, to solve those difficulties such as low recovery in external demand, difficulty in enhancing the international market share and deteriorating terms of trade, achieving export strategic "steady growth, structural adjustment" objectives, we need to explore new trade.The paper introduces the specific example firstly, and then introduces Pass-on Trade (POT) definition and explanations. We use data on import and export at firm and product level for Chinese manufacture firms in period 2000-2006, to show that, Chinese firms engage in POT. Specifically, we explore stylized facts on POT of Chinese firms through descriptive statistics, and then investigate the correlation between the degree of engagement in POT and firms’productivity and profitability; we find that both premiums of POT firms are higher than common firms. Based on the above conclusions, we investigate exporters’foreign market decision and their survival and export dynamics of firms with POT products after entering markets by bivariate probit model and Heckman model respectively. We document that export POT products requires relatively lower productivity, better access to finance and advanced multinational status compared to exporting own products, and firms’diversified exports in terms of markets and products increases the probability of POT products and its dynamics.The paper, based on enterprise heterogeneity theory, investigates explanations for multi-product export firms to engage in POT from the perspective of core competencies, reveals the core idea that firms solve the dilemma between export product diversification strategy and core competencies through POT effectively. Thus, combined with the current reality of Chinese exports, we propose the policy recommendations from the perspective of enterprises, industry and government.