Struc­tural Up­grade of China’s Com­mod­ity Trade dur­ing 1987-2014

China Economist - - Articles - Li­uZuan­shi(刘钻石)andZhangJuan(张娟)

Liu Zuan­shi (刘钻石) and Zhang Juan (张娟) School of Busi­ness, East China Univer­sity of Sci­ence & Tech­nol­ogy (ECUST), Shang­hai, China In­sti­tute of In­ter­na­tional Busi­ness, Shang­hai Univer­sity of In­ter­na­tional Busi­ness and Eco­nom­ics (SUIBE), Shang­hai, China

Ab­stract: This pa­per in­ves­ti­gates the struc­tural up­grade of China’s com­mod­ity trade over the past two decades from the per­spec­tives of com­mod­ity cat­e­gories, tech­ni­cal value-added and qual­ity level. Based on the anal­y­sis of com­mod­ity cat­e­gories, tech­ni­cal value-added and qual­ity, this pa­per ar­rives at the fol­low­ing find­ings: High tech­nol­ogy man­u­fac­tures ac­counted for a grow­ing share of China’s com­mod­ity ex­port, the over­all tech­ni­cal level of Chi­nese ex­ports sig­nif­i­cantly up­graded, and most of Chi­nese com­modi­ties up­graded from low qual­ity to medium- and high-qual­ity lev­els. As can be seen from the struc­ture of China’s bi­lat­eral trade with its five ma­jor trad­ing part­ners, China’s ex­port­ing goods re­mained in­fe­rior to im­port­ing goods in terms of tech­nol­ogy and qual­ity de­spite their qual­ity up­grades.

Key­words: trade struc­ture, com­mod­ity cat­e­gories, tech­ni­cal level, qual­ity level JEL Clas­si­fi­ca­tion Codes: F14; C33 DOI: 1 0.19602/j .chi­nae­conomist.2018.09.07

1. In­tro­duc­tion

Over the past four decades, China’s grow­ing trade has be­come an im­por­tant part of its econ­omy with great in­ter­na­tional sig­nif­i­cance. By con­stant 2005 prices in US dol­lars, China’s ex­port to­taled USD 2.11 tril­lion in 2014, ac­count­ing for 22% of China’s GDP. In the same year, world to­tal ex­port amounted to USD 19 tril­lion, of which China ac­counted for 13%, con­trast­ing to its share of 1% in 19821. With China’s rapid ex­port growth, its trade struc­ture up­grade has also be­come an im­por­tant topic of re­search.

Some re­searchers be­lieve that China’s ex­port re­mains at the medium- and low- end level in terms of tech­nol­ogy and struc­ture de­spite its sub­stan­tial trade growth in quan­tity. Us­ing man­u­fac­tur­ing en­ter­prises’ ques­tion­naire data, Liu and Zhang ( 2009) ar­gues that tech­ni­cal in­no­va­tion, hu­man cap­i­tal and cap­i­tal in­ten­sity as em­pha­sized in clas­si­cal trade the­o­ries did not be­come de­ter­mi­nants of lo­cal Chi­nese firms’ ex­ports. They be­lieve that lo­cal Chi­nese firms may be locked up by ma­jor in­ter­na­tional sell­ers at the low-end pro­cesses in the global value chain, which pre­vents them to im­prove ex­port com­pet­i­tive­ness. Ac­cord­ing to Shao and Xu (2009), China’s trade struc­ture re­mained rel­a­tively sta­ble since the 1990s, and no sig­nif­i­cant change oc­curred in the trade equi­lib­rium state for most com­modi­ties at the be­gin­ning and end­ing of the sam­ple pe­riod. Shi et al. (2009, 2010) con­sid­ers that with medium- and low-end prod­ucts ac­count­ing for 70% of

China’s ex­ports, China’s trade struc­ture did not im­prove sig­nif­i­cantly, and fell be­hind eco­nomic de­vel­op­ment. How­ever, other stud­ies re­veal a sig­nif­i­cant im­prove­ment in China’s trade struc­ture. Us­ing panel data, Lu and Li (2007) tests the sta­bil­ity of China’s trade struc­ture and com­par­a­tive ad­van­tage dur­ing 1987-2005. Their find­ings sug­gest a change in China’s com­par­a­tive ad­van­tages with­out any sign of lock- up ef­fect from com­par­a­tive ad­van­tage trap. Us­ing a qual­ity up­grade mul­ti­di­men­sional model, Sun et al. (2014) and Liu et al. (2015) es­ti­mate em­pir­i­cally the qual­ity up­grade of Chi­nese ex­port­ing goods to the in­ter­na­tional mar­ket from ab­so­lute and rel­a­tive qual­ity per­spec­tives. Their stud­ies find a sig­nif­i­cant qual­ity up­grade of Chi­nese ex­port­ing goods, whose qual­ity ex­ceeds world av­er­age level.

These stud­ies drew dif­fer­ent con­clu­sions be­cause they adopted dif­fer­ent time di­men­sions and es­ti­ma­tion meth­ods. In or­der to ad­dress such in­con­sis­tency, this pa­per em­ploys trade data from var­i­ous coun­tries over the past two decades to in­ves­ti­gate China’s trade struc­ture up­grade from com­mod­ity cat­e­gory, tech­ni­cal value-added and qual­ity per­spec­tives. This pa­per’s main con­tri­bu­tions are es­ti­ma­tion of China’s trade struc­ture across a long time­frame from 1987 when China’s trade data is avail­able for the first time in the UNCom­trade data­base, to 2014, and com­par­a­tive anal­y­sis us­ing three es­ti­ma­tion meth­ods lead­ing to com­pre­hen­sive and ro­bust con­clu­sions. The pa­per fo­cuses on China’s com­mod­ity trade, which is the sub­ject of re­search for the three meth­ods and stands a dom­i­nant sta­tus in in­ter­na­tional trade. It is di­vided into five parts as fol­lows.

2. Struc­ture of China’s Com­mod­ity Trade 2.1 Com­mod­ity Clas­si­fi­ca­tion

Ac­cord­ing to the UNCom­trade data­base, there are three types of com­mod­ity clas­si­fi­ca­tion: Har­mo­nized Sys­tem (HS), Stan­dard In­ter­na­tional Trade Clas­si­fi­ca­tion (SITC) and Broad Eco­nomic Cat­e­gories (BEC) 2. SITC method is of­ten em­ployed in the re­search on in­ter­na­tional com­mod­ity trade struc­ture, and has four ver­sions of statis­tics (Rev.1-Rev.4) de­vel­oped in dif­fer­ent pe­ri­ods of time; 1-5 digit clas­si­fied com­mod­ity trade data can be ob­tained from the UNCom­trade data­base. SITC one-digit or two-digit code prod­ucts are clas­si­fied into pri­mary prod­ucts and man­u­fac­tured prod­uct ac­cord­ing to the level of pro­cess­ing, and high-tech, medium-tech and low-tech prod­ucts ac­cord­ing to the level of tech­nol­ogy den­sity (Worz, 2005). SITC one to two-digit code clas­si­fi­ca­tion is too rough to ac­cu­rately re­flect com­modi­ties’ hi­er­ar­chy. A more com­mon ap­proach is three- digit code for the anal­y­sis of com­modi­ties. For three-digit SITC code prod­ucts, Lall (2000) clas­si­fies com­modi­ties into pri­mary prod­ucts, re­source based man­u­fac­tures, low tech­nol­ogy man­u­fac­tures, medium tech­nol­ogy man­u­fac­tures and high tech­nol­ogy man­u­fac­tures, as de­tailed in Ta­ble 1. Num­bers in the ta­ble are SITC-Rev.2 three­digit codes.

2.2 Ex­port Share and Com­par­a­tive Ad­van­tages of Chi­nese Goods

Us­ing com­mod­ity clas­si­fi­ca­tion de­signed by Lall (2000) in Ta­ble 1, we may con­duct an anal­y­sis of China’s trade struc­ture. Ref­er­enc­ing to Balassa’s (1965) trade share and com­par­a­tive ad­van­tage

In in­ter­na­tional trade, sov­er­eign states have de­vel­oped trade clas­si­fi­ca­tions and codes of var­i­ous ver­sions, re­sult­ing in the poor com­pa­ra­bil­ity of statis­tics. From the be­gin­ning of the 19th cen­tury, the in­ter­na­tional com­mu­nity started to de­velop an in­ter­na­tional unified com­mod­ity clas­si­fi­ca­tion cat­a­logue. In 1948, the United Na­tions Statis­tics Di­vi­sion for­mu­lated the Stan­dard In­ter­na­tional Trade Clas­si­fi­ca­tion (SITC); in 1950, the Eco­nomic Com­mis­sion for Europe for­mu­lated the Cus­toms Co-op­er­a­tion Coun­cil Nomen­cla­ture (CCCN). The World Cus­toms Or­ga­ni­za­tion (WCO) adopted the In­ter­na­tional Con­ven­tion for Har­mo­nized Com­mod­ity De­scrip­tion and Cod­ing Sys­tem at the 61st Meet­ing of 1983 for "har­mo­nized" cov­er­age of CCCN and SITC clas­si­fi­ca­tion code sys­tems, which was im­ple­mented as of Jan­uary 1, 1988. Prior to 1996, Chi­nese cus­toms adopted SITC codes. As of Jan­uary 1, 1992, Chi­nese cus­toms of­fi­cially adopted HS. On Jan­uary 1996,HS codes be­came of­fi­cially im­ple­mented for China's trade clas­si­fi­ca­tion.

spec­i­fi­ca­tions, we may pro­vide the fol­low­ing two in­di­ca­tors to mea­sure trade struc­ture vari­able:

Herein, de­notes the ex­port value of goods cat­e­gory of coun­try based on SITC-Rev2 three-digit trade data from the UNCom­trade data­base. The ear­li­est avail­able trade data of China in this data­base dates back to 1987. In or­der to de­velop a long-term per­spec­tive, the time­frame of data se­lected for this pa­per’s is 1987-2014. Based on equa­tions (1) and (2), we may cal­cu­late Ta­ble 2:

Ta­ble 2 pro­vides ra­tio value and rca value of sec­tors in China in terms of tech­nol­ogy dur­ing 19872014. First, ra­tio value anal­y­sis is done. In or­der to re­duce the im­pact of data volatil­ity, we may use the five-year mean value of ra­tio to an­a­lyze trade struc­ture change. As can be seen from Ta­ble 2, the mean value of ra­tio for pri­mary prod­ucts had a sig­nif­i­cant down­ward trend, which is 23.9% dur­ing 19871991 and only 3.15% dur­ing 2010-2014. The mean value of ra­tio for re­source based man­u­fac­tures was more sta­ble, which is 11.24% dur­ing 1987-1991 and 8.34% dur­ing 2010-2014. The ra­tio value of low tech­nol­ogy man­u­fac­tures was higher than 30% over the past two decades, with an de­clin­ing trend in

gen­eral. The ra­tio value of medium tech­nol­ogy man­u­fac­tures in­creased, slowly with an av­er­age 19.17% dur­ing 1987-1991 and 23.98% dur­ing 2010-2014. The share of high tech­nol­ogy man­u­fac­tures in China’s trade struc­ture in­creased rapidly, which be­gins at 3.65% and reaches 32.13% in 2014 and is higher than 30% over the past decade.

Then, rca value anal­y­sis is done. Ac­cord­ing to the rca in­di­ca­tor de­signed by equa­tion ( 2), when rca> 1, China’s ex­port­ing prod­uct has a com­par­a­tive ad­van­tage in the in­ter­na­tional mar­ket; when rca< 1, China’s ex­port­ing prod­uct does not have a com­par­a­tive ad­van­tage in the in­ter­na­tional mar­ket. Dur­ing 1987-1993, China had a com­par­a­tive ad­van­tage for pri­mary prod­ucts. In 1994, such a com­par­a­tive ad­van­tage di­min­ished. China failed to de­velop com­par­a­tive ad­van­tage for re­source based man­u­fac­tures, which is con­sis­tent with China’s scarce re­sources per capita. China had sig­nif­i­cantly a com­par­a­tive ad­van­tage for low tech­nol­ogy man­u­fac­tures, and its value is greater than 2. For medium tech­nol­ogy man­u­fac­tures, its rca value had been less than 1 de­spite of its in­crease. For high tech­nol­ogy man­u­fac­tures, its rca value in­creased sig­nif­i­cantly from less than 1 be­fore 2000 to greater than 1 af­ter­wards which stands com­par­a­tive ad­van­tage.

As Ta­ble 2 shows, China’s trade struc­ture sig­nif­i­cantly up­graded as cal­cu­lated based on Lall’s (2000) com­mod­ity clas­si­fi­ca­tion. With the grow­ing share of high tech­nol­ogy man­u­fac­tures, China’s com­par­a­tive ad­van­tage tended to up­grade from pri­mary prod­ucts to high tech­nol­ogy man­u­fac­tures. How­ever, Chi­nese ex­ports and com­par­a­tive ad­van­tage are still dom­i­nated by low tech­nol­ogy man­u­fac­tures.

2.3 Share of High Tech­nol­ogy man­u­fac­tures in Trade for China and Its Ma­jor Trad­ing Part­ners

To fur­ther an­a­lyze China’s trade struc­ture up­grade us­ing Lall’s (2000) clas­si­fi­ca­tion of ex­port com­modi­ties, this pa­per ex­am­ines the bi­lat­eral trade data of China’s top five trad­ing part­ners in 2014 com­prised with the U.S., Ja­pan, South Korea, Ger­many and Aus­tralia. China’s bi­lat­eral trade value with these five coun­tries ac­counted for 33% of China’s to­tal trade value. Ta­ble 3 pro­vides the share of high tech­nol­ogy man­u­fac­tures in to­tal bi­lat­eral trade with the five trad­ing part­ners dur­ing 1987-2014.

As can be seen from Ta­ble 3, high tech­nol­ogy man­u­fac­tures rep­re­sented a grow­ing share in China’s ex­ports to the U.S. over the past two decades, up from 2.54% in 1987 to 36.48% in 2014, which re­flects an up­grade in Chi­nese ex­ports to the U.S. There was an in­signif­i­cant in­crease in the share of high tech­nol­ogy man­u­fac­tures in U.S. ex­ports to China. In 1987, high tech­nol­ogy man­u­fac­tures ac­counted for 27.86% of U.S. ex­ports to China, and this ra­tio only in­creased to 30.29% in 2014. Over the past two decades, the share of China’s high-tech ex­ports in­creased and over­took that of China’s high-tech im­ports, which fur­ther im­plies an up­grade in China-U.S. trade struc­ture.

High tech­nol­ogy man­u­fac­tures rep­re­sented a grow­ing share of China’s ex­ports to and im­ports from Ja­pan, up from 0.95% and 19.21% in 1987 to 29.66% and 30.93% in 2014 re­spec­tively, re­flect­ing more sig­nif­i­cant up­grade in ex­port than in im­port. Ex­port up­grade was also more sig­nif­i­cant in China’s bi­lat­eral trade with South Korea. There were less high tech­nol­ogy man­u­fac­tures in China’s ex­ports to South Korea than in China’s im­ports from South Korea, which re­flect that South Korea’s ex­ports to China were more tech-in­ten­sive than China’s ex­ports to South Korea. China and Ger­many’s bi­lat­eral trade data is avail­able since 1991, with the share of high tech­nol­ogy man­u­fac­tures in to­tal im­ports and ex­ports peak­ing around 2005 and de­creas­ing there­after. High tech­nol­ogy man­u­fac­tures rep­re­sented a grow­ing share of China’s ex­ports to Aus­tralia, but a tiny share in China’s im­ports from Aus­tralia which barely in­creased over the past two decade.

The fol­low­ing con­clu­sion can be drawn from the share of high tech­nol­ogy man­u­fac­tures in China’s bi­lat­eral trade with the five coun­tries: China’s ex­ports to these coun­tries be­came in­creas­ingly tech-

Data source in­cludes Com­trade data­base. China's top 10 trad­ing part­ners also in­clude Chin’s Hong Kong and other re­gions of Asia. Since Hong Kong is pri­mar­ily en­gaged in tran­sit trade and the trad­ing en­ti­ties of other re­gions of Asia are not clear, they are omit­ted in this pa­per.

in­ten­sive, while the level of tech­nol­ogy barely changed in its im­ports. How­ever, China’s ex­ports is still less tech-in­ten­sive com­pared with its im­ports.

3. Tech­ni­cal Value-Added of China’s Com­mod­ity Trade

Lall’s (2000) prod­uct clas­si­fi­ca­tion is a rough clas­si­fi­ca­tion based on the man­u­fac­tur­ing method or fi­nal use of goods. Given the sub­jec­tiv­ity of prod­uct clas­si­fi­ca­tion, there can be some de­vi­a­tions in the es­ti­ma­tion of China’s trade struc­ture. In this sec­tion, China’s trade struc­ture is fur­ther es­ti­mated us­ing tech­ni­cal value-added in­di­ca­tor.

3.1 Tech­ni­cal Value-Added of Goods

Tech­ni­cal value-added of a prod­uct is de­ter­mined by tech­nol­ogy‘s con­tri­bu­tion to the prod­uct’s value-added. Guan (2002) as­sumes that “prod­ucts with higher value-added are more likely to come from high-in­come coun­tries.” Prod­uct tech­ni­cal value-added is de­noted as the GDP per capita-weighted value of ex­port­ing coun­tries, and the weight is the world mar­ket share of the prod­uct’s ex­ports by each coun­try. Fan (2006) de­vel­ops the re­vealed tech­ni­cal value-added as­sign­ment prin­ci­ple to cal­cu­late the re­vealed tech­ni­cal value-added of a prod­uct us­ing two vari­ables . The first vari­able is the re­vealed com­par­a­tive ad­van­tage of each coun­try in ex­port­ing the prod­uct, and the sec­ond vari­able is the tech­nol­ogy fac­tor abun­dance of each coun­try . Equa­tion for cal­cu­lat­ing re­vealed tech­ni­cal value-added is as fol­lows:

Herein, de­notes the re­vealed tech­ni­cal value-added of prod­uct type j; de­notes the ex­port value of prod­uct type j of coun­try i; gdp­per de­notes the per capita GDP of coun­try i, and all vari­ables are mea­sured as 2005 con­stant price US dol­lar; n and m re­spec­tively de­note the num­bers of coun­tries and sec­tors.

On the ba­sis of tech­ni­cal value-added method, Liu and Zhang (2010) es­ti­mates the tech­ni­cal val­ueadded in­dexes of var­i­ous com­modi­ties dur­ing 1995-2006 ex­clud­ing tem­po­ral vari­a­tion trend, which en­ables the in­tertem­po­ral and cross-re­gional com­par­i­son of com­modi­ties and trade struc­ture. This marks an im­prove­ment of tech­ni­cal value-added method. This pa­per uti­lizes the tech­ni­cal value-added in­dex de­vel­oped by Liu and Zhang (2010) to es­ti­mate the tech­ni­cal level of com­modi­ties. The tech­ni­cal val­ueadded in­dex of prod­uct type j can be ex­pressed as:

Ac­cord­ing to the re­vealed tech­ni­cal value-added as­sign­ment prin­ci­ple, "for a coun­try with rel­a­tive ad­van­tage in a cer­tain prod­uct, the prod­uct’s tech­ni­cal value-added will in­crease with the abun­dance and the ex­ten­sive ap­pli­ca­tion of such tech­nol­ogy; in this case, the prod­uct can be as­signed with a higher tech­ni­cal value-added in­dex.”

Coun­tries with more abun­dant tech­nol­ogy fac­tor also boast higher to­tal fac­tor pro­duc­tiv­ity (TFP). Based on data avail­abil­ity, la­bor pro­duc­tiv­ity and per capita GDP per capita can be used to re­place tech­nol­ogy abun­dance. Cal­cu­la­tion method is as fol­lows: For a spe­cific prod­uct, all coun­tries with RCA greater than 0 are se­lected, and the per capita GDP per capita of these coun­tries is used to de­note the prod­uct’s re­vealed tech­ni­cal value-added; weight is the ra­tio be­tween a coun­try's such prod­uct and the sum of RCA­sof all coun­tries..

The tech­ni­cal value-added in­dex of SITC three-digit com­modi­ties can be es­ti­mated us­ing equa­tion (4). Since the re­sults are stan­dard­ized, the value of prod­uct type j in dif­fer­ent years is com­pa­ra­ble.

3.2 Es­ti­ma­tion of Tech­ni­cal Value-Added

This sec­tion es­ti­mates the tech­nol­ogy level of com­modi­ties us­ing tech­ni­cal value-added method. Ac­cord­ing to equa­tion (4), the SITC-Rev2 three-digit trade data in the UNCom­trade data­base and GDP per capita in the World Bank WDI data­base (2005 con­stant prices in US dol­lar) are em­ployed to cal­cu­late the TCI value of com­modi­ties. The Greater the TCI value, the higher the tech­ni­cal value-added of com­modi­ties. Based on tech­ni­cal value-added cal­cu­lated ac­cord­ing to equa­tion (4), the equa­tion for a coun­try’s over­all trade tech­nol­ogy level can be cre­ated as fol­lows:

Equa­tion (5) can be used to cal­cu­late the ex­port tech­nol­ogy lev­els of var­i­ous coun­tries. Ta­ble 4 iden­ti­fies the top 10 coun­tries ranked by exlevel1 value in 1994, 2004 and 2014, and their exlevel1 value, share of ex­port value in world to­tal ex­port as well as GDP per capita (2005 con­stant price in 10,000 US dol­lars). In or­der to fa­cil­i­tate com­par­a­tive anal­y­sis, Ta­ble 4 pro­vides China’s rel­e­vant in­di­ca­tor values, and the values in paren­the­ses are the world rank­ings of China’s exlevel1 values: In 1994, China’s ex­port tech­nol­ogy ranked the 39th in the world. By 2004, this rank­ing in­creased to the 30th in the world. By 2014, it jumped to 25th in the world. Over the past two decades, some changes oc­curred in the list of top 10 coun­tries by the tech­nol­ogy level of ex­port. For in­stance, exlevel1 values of the U.S., Ja­pan and Ger­many ranked re­spec­tively the 8th, the 1st and the 4th in 1994. By 2014, the U.S. fell out­side the top 10, while Ja­pan and Ger­many ranked the 4th and the 5th re­spec­tively.

Among the top 10 coun­tries in Ta­ble 4, many are small trad­ing na­tions. For in­stance, Switzer­land, whose value ranked the 2nd in the world in 1994, only ac­counted for 1.87% of world to­tal ex­ports. Ire­land, whose value ranked the 1st in the world in 2004 and 2014, rep­re­sented 1.18% and 0.67% of world to­tal ex­ports in the two years re­spec­tively. Most coun­tries in Ta­ble 4 are rich coun­tries with GDP per capita above 20,000 US dol­lars. As can be seen from equa­tion (3) and Ta­ble 4, trade tech­nol­ogy level cal­cu­lated us­ing tech­ni­cal value-added method is not closely re­lated to the size of an econ­omy. In­stead, it is highly cor­re­lated with the level of its eco­nomic de­vel­op­ment.

To give a clearer pic­ture of China’s trade struc­ture up­grade over the past two decades, this pa­per uses exlevel1 values of China, the U.S., Ja­pan and In­dia to re­spec­tively sim­u­late the curve of change in

their ex­port tech­nol­ogy level, which is de­tailed in Fig­ure 1. As can be seen from Fig­ure 1, the rel­a­tive po­si­tions of these four coun­tries in the ex­port tech­nol­ogy level over the past two decades re­mained un­changed. Ja­pan’s level of tech­nol­ogy is the high­est, fol­lowed by the U.S., China and In­dia. Fig­ure 1 shows that the ex­port tech­nol­ogy lev­els of the four coun­tries de­creased firstly and in­creased later, which is prob­a­bly due to a change in the com­mod­ity statis­tics in a long pe­riod. Take the data af­ter 2000 for in­stance, China’s exlevel1 value has been in­creas­ing, and al­most ap­proached the U.S., which re­flects a grow­ing tech­ni­cal value-added of China’s trade struc­ture.

3.3 Tech­ni­cal Value-Added of Bi­lat­eral Trade be­tween China and Its Ma­jor Trad­ing Part­ners

This sec­tion es­ti­mates China’s bi­lat­eral trade struc­ture us­ing tech­ni­cal value- added method. Ref­er­enc­ing to the spec­i­fi­ca­tion of exlevel1 value in equa­tion (5), we may cal­cu­late the tech­nol­ogy level of bi­lat­eral trade be­tween China and its five ma­jor trad­ing part­ners shown in Ta­ble 5 (note: for clar­ity, num­bers in the ta­ble are sci­en­tific no­ta­tions E-05).

Ta­ble 5 iden­ti­fies the ex­port and im­port tech­nol­ogy lev­els of China, the U.S., Ja­pan, South Korea, Ger­many and Aus­tralia dur­ing 1987-2014 us­ing tech­ni­cal value-added method. Ta­ble 5 shows that based on tech­ni­cal value-added method, there was some volatil­ity but no sig­nif­i­cant im­prove­ment in the tech­nol­ogy level of Chi­nese ex­ports to the U.S. over the past two decades. But China’s im­ports from the U.S. be­came less tech-in­ten­sive. China’s bi­lat­eral trade with Ja­pan, South Korea, Ger­many and Aus­tralia shared a sim­i­lar tech-in­ten­sive na­ture with China-US bi­lat­eral trade. China’s ex­ports to Ja­pan, South Korea and Ger­many were all less tech-in­ten­sive than its im­ports from them. How­ever, China and Aus­tralia’s ex­port tech­nol­ogy lev­els were higher than their im­port tech­nol­ogy lev­els. As can be seen from Ta­ble 5, China’s bi­lat­eral trade up­grade es­ti­mated us­ing tech­ni­cal value-added method was not sig­nif­i­cant. China’s ex­ports were less tech-in­ten­sive than its im­ports in gen­eral.

4. Qual­ity of China’s Com­mod­ity Trade Struc­ture

Part 2 and Part 3 pro­vide an anal­y­sis of China’s ex­port com­mod­ity cat­e­gories and tech­ni­cal val­ueadded un­der a ba­sic as­sump­tion con­sis­tent with SITC three-digit com­mod­ity trade. The real­ity is that for com­modi­ties un­der the same names, their qual­ity varies sig­nif­i­cantly across coun­tries. In es­ti­mat­ing a coun­try’s trade struc­ture, we should take into ac­count such qual­ity dif­fer­ences. This sec­tion es­ti­mates the qual­ity level of China’s com­mod­ity trade struc­ture.

4.1 Method for Es­ti­mat­ing Com­mod­ity Qual­ity

The pop­u­lar method to es­ti­mate com­mod­ity qual­ity level is to study com­mod­ity qual­ity dif­fer­ences. Com­mod­ity qual­ity is mea­sured by the unit ex­port price of prod­uct (Schott, 2004; Hum­mels and Klenow, 2005). Com­mod­ity qual­ity dif­fer­ences method is used to mea­sure the com­mod­ity qual­ity dif­fer­ences be­tween a coun­try and world av­er­age level. This method can be clas­si­fied into rel­a­tive qual­ity method and fron­tier qual­ity method.

If a coun­try’s com­mod­ity price dif­fer­ence with world av­er­age price in­di­cates the qual­ity level of the coun­try’s such com­mod­ity, the method for es­ti­mat­ing com­mod­ity qual­ity is called rel­a­tive qual­ity dif­fer­ence method. In or­der to en­sure the price com­pa­ra­bil­ity of dif­fer­ent types of prod­ucts, Shi (2010) makes an im­prove­ment to the rel­a­tive qual­ity dif­fer­ence method of Mul­der et al. (2009). Us­ing Shi’s method, this pa­per cre­ates the rel­a­tive com­mod­ity qual­ity dif­fer­ence vari­able with the fol­low­ing method:

Herein, de­notes the qual­ity dif­fer­ence of coun­try i’s com­mod­ity j with world av­er­age level;

is the price of prod­uct j ex­ported by coun­try i, which de­notes the qual­ity of this coun­try’s ex­port prod­uct j; is the av­er­age price of ex­port prod­uct j for all coun­tries, and rep­re­sents the av­er­age qual­ity level of prod­uct j. The more the value than zero, the higher the qual­ity of the coun­try’s ex­port prod­uct j than the av­er­age qual­ity of com­pa­ra­ble prod­ucts in the in­ter­na­tional mar­ket.

is char­ac­ter­ized by its bound­ed­ness, which is in the range of (-1, 1). In this man­ner, all prod­ucts can be an­a­lyzed and com­pared with the same stan­dard. Ref­er­enc­ing to Azhar and El­liott (2006), is di­vided into the fol­low­ing three ranges: If ≥ 0.15, prod­uct ex­port price is con­sid­ered to be sig­nif­i­cantly higher than world av­er­age price, and the coun­try’s prod­ucts are in the high qual­ity cat­e­gory. If < -0.15, prod­uct ex­port price is sig­nif­i­cantly lower than world av­er­age price, and the coun­try’s prod­ucts are in the low qual­ity cat­e­gory. If -0.15≤ <0.15, the prod­uct’s ex­port price is sim­i­lar to world av­er­age ex­port price, and the coun­try’s prod­ucts are in the medium qual­ity cat­e­gory. Us­ing value, a coun­try’s com­modi­ties can be clas­si­fied into high, medium and low cat­e­gories for the anal­y­sis of the coun­try’s ex­port struc­ture.

If the dif­fer­ence be­tween a coun­try’s com­mod­ity price with world max­i­mum price in­di­cates the qual­ity level of the coun­try’s such com­mod­ity, the method is called fron­tier qual­ity dif­fer­ence method. Com­mod­ity fron­tier qual­ity dif­fer­ence vari­able is cre­ated ref­er­enc­ing to Khan­del­wal and Fa­jgel­baum’s (2013) method, and the cal­cu­la­tion method is as fol­lows:

Herein, de­notes the qual­ity dif­fer­ence of coun­try i’s com­mod­ity j with the world’s max­i­mum; is the price of prod­uct j ex­ported by coun­try i, which de­notes the qual­ity of this coun­try’s ex­port prod­uct j; is the max­i­mum price of ex­port prod­uct j for all coun­tries, and rep­re­sents the fron­tier qual­ity level of prod­uct j. With the above equa­tions, this pa­per is able to ex­am­ine the dif­fer­ence of coun­try i’s prod­uct j with in­ter­na­tion­ally high­est qual­ity. Closer value of to 1 sug­gests a smaller dif­fer­ence in the qual­ity of the coun­try’s prod­uct j with in­ter­na­tional fron­tier qual­ity of the same type of ex­port­ing prod­uct. Closer value of to 0 sug­gests a broader dif­fer­ence in the qual­ity of the coun­try’s prod­uct j with in­ter­na­tional fron­tier qual­ity of the same type of ex­port­ing prod­uct.

4.2 Qual­ity Struc­ture of China’s Ex­port Com­modi­ties

UNCom­trade data­base pro­vides not only each coun­try’s ex­port value of SITC-Rev2 three-digit com­modi­ties, but also their ex­port quan­ti­ties ex­pressed in net kilo­grams. This pa­per uses the ra­tio be­tween each cat­e­gory of com­modi­ties’ ex­port value and ex­port quan­tity to cal­cu­late price of unit ex­port­ing goods in equa­tion (6). Con­sid­er­ing the ex­is­tence of sta­tis­ti­cal er­rors for some coun­tries, this pa­per does not in­clude sam­ples with the high­est 1% prices and the low­est 1% prices in the cal­cu­la­tion to avoid ’s ex­treme value.

Af­ter cal­cu­lat­ing the ex­port prices P of prod­ucts from var­i­ous coun­tries, this pa­per firstly con­ducts a com­par­a­tive anal­y­sis of changes in the qual­ity level of var­i­ous com­modi­ties. Ac­cord­ing to the Lall’s (2000) com­modi­ties clas­si­fi­ca­tion in Ta­ble 1, the prod­uct qual­ity ra­tio of each com­mod­ity cat­e­gory can be cal­cu­lated us­ing equa­tion (6). In or­der to avoid the im­pact of volatil­ity, this pa­per cal­cu­lates the share of ex­port value for each com­mod­ity cat­e­gory in ev­ery four years, as de­tailed in Ta­ble 6. As can be seen from the ta­ble, lowqual­ity, medium-qual­ity and high-qual­ity prod­ucts ac­counted for cer­tain ra­tio of China’s ex­port­ing pri­mary prod­ucts over the past two decades. How­ever, the ra­tio of low-qual­ity prod­ucts has been fall­ing, and the ra­tio of medium-qual­ity prod­ucts has been ris­ing. The qual­ity of re­source based man­u­fac­tures has been sta­ble, but the over­all level of qual­ity re­mains low.

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