The Impact Of Financial Constraints Along The Global Value Chain

Economic globalization makes it possible for firms around the world to participate in global value chains by various trade patterns.Some firms may act pure assembly,known as processing of materials supplied by the foreign firms.Some firms may process with imports,which needs to pay for the imported materials before sale finished processed products abroad,while some firms may conduct ordinary trade.From PA to OT,production autonomy and profits continue to increase,firms' status in the value chain is also rising.This paper deals with the impact of financing constraints on the status of Chinese firms in the global value chain,specifically,the impact of financing constraints on the choice of Chinese firms' trade patterns and how they affect the profitability.Through the matching of China's industrial enterprises database and the China Customs import and export database,we have obtained the financial data and export transaction records of the firms,which proves that profits increases with the share of ordinary trade in total exports.However,ordinary trade requires a high upfront costs,those firms cannot afford can only choose a relatively low-cost trade patterns,that is PA or PI.What's more,we also analyze the impact of financing constraints from sectors on the choice of export trade patterns.It is found that the share of processing trade will increase with financially more constrained sectors.We draw a conclusion that financial constraints will force firms to choose more processing trade,especially pure assembly,preclude them from pursuing more profitable trade patterns,thus Chinese firms may be crowed in the low value-added parts of global value chain.In view of this,deepening the reform of trade finance and creating a good corporate financing environment will help Chinese firms to enhance their position in the global value chain,lay a solid foundation for the promotion of China's manufacturing industry.