|Author Name||THORBECKE, Willem (Senior Fellow, RIETI)|
|Creation Date/NO.||January 2012 12-E-003|
|Research Project||East Asian Production Networks and Global Imbalances|
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China's trade surplus is entirely in processing trade. Processed exports are final goods produced using parts and components coming from East Asian supply chain countries. Many claim that because much of the value added of China's processed exports comes from East Asian countries, exchange rates in supply chain countries should affect China's processed exports and the renminbi should not. To investigate these issues, this paper disaggregates processed exports into their two main categories--processing with imported materials (PWIM) exports and processing and assembly (PAA) exports. For PWIM exports, much of the value added comes from China, while for PAA exports, most of the value-added comes from supply chain countries. Dynamic ordinary least squares (DOLS) results indicate that East Asian exchange rates affect both types of exports and that the renminbi significantly affects PWIM exports but not PAA exports. Since PWIM exports are now six times the value of PAA exports, these results indicate that the renminbi matters for aggregate processed exports.
Published: Willem Thorbecke, 2013. "Investigating China's Disaggregated Processed Exports: Evidence that Both the RMB and Exchange Rates in Supply Chain Countries Matter," The World Economy, Vol. 36(10), pp. 1245-1260.