The Shifting Structure of China's Trade and Production

This paper uses disaggregated trade data to assess how the expansion of China''s production capacity and its changing production structure may be affecting its trade linkages with other countries. It finds that China is moving away from traditional assembly operations in its processing activities and its exports have started to rely more on domestically sourced components. In turn, China''s imports and exports have begun to delink, with increased domestic sourcing contributing to the recent increase in its trade balance. In addition, as China moves up the value chain, both its imports and exports have become more sophisticated than in the past. As a result of these shifts, China may be becoming more exposed to fluctuations in the strength of the global economy, and changes in its exchange rate could have a bigger impact on the trade balance and the domestic economy than commonly believed.Production;Exchange rates;Exchange rate instability;Industrial structure;exchange rate, domestic demand, domestic production, trade structure, trade flows, real effective exchange rate, intermediate products, effective exchange rate, aggregate trade, imported inputs, import side, intermediate goods, exchange rate changes, trade data, real exchange rate, import substitution, trade volumes, regional trade, equilibrium exchange rate, aggregate demand, domestic economy, imported intermediate, world market, trade patterns, import price, export growth, intermediate inputs, global production, international trade, exchange rate policies, world prices, global markets, imported goods, intermediate imports, transport equipment, external trade, global production chains, export supply, value of exports, exchange rate dynamics, foreign trade, trading partners, domestic market, net exports, real exchange rate changes, price fluctuations, foreign exchange, export structure, factor endowments, exchange rate movement, real exchange rates, export market, producer price index, trade deficit, aggregate imports, value of imports, aggregate shocks, exchange rate appreciation, aggregate trade flows, trade volume, tariff reductions, trade regime, real exchange rate dynamics, world price, external shocks, investment goods, trade theories