The Rising Sophistication of China’s Exports: Assessing the Roles of Processing Trade, Foreign Invested Firms, Human Capital, and Government Policies Zhi Wang (US International Trade Commission) and

As China becomes a major world exporter, there has been a rapid increase in its product sophistication- measured by increased similarity between the product structure of its exports and those of the developed countries- as well as a rapid increase in the volume of its exports. This has generated anxiety in developed countries as the competitive pressure may be increasingly felt outside labor-intensive industries. Using product-level data on exports from different cities within China, this paper investigates the roles of processing trade, foreign invested firms and government promotional policies in the form of tax-favored high-tech development zones and export processing zones in raising the country’s export sophistication