China and the World Economy: A Global Value Chain Perspective on Exports, Incomes and Jobs

Based on a new dataset of world input-output tables we analyze the impact of foreign demand on Chinese factor incomes and employment since 1995. We extend the global input-output methodology introduced by Johnson and Noguera (2012) and find that exports of value added rapidly increased after 2001, peaking at 28% of GDP in 2006. During this period the increase in foreign demand added about 70 million jobs, predominantly for unskilled workers. Due to strong domestic inter-industry linkages more than half of these jobs were created outside the manufacturing sector. Foreign demand generated income for domestic capital rather than for labor, as wages remained low. The current global economic crisis strengthens the process of reorientation of the Chinese economy, which appears to have started in 2006 already. Domestic final demand for non-tradables has become the main source of growth and the sources of export income steadily shifted away from mature markets to emerging markets