Comparative Economic Studies, 2010, 52, (207–224)
r 2010 ACES. All rights reserved. 0888-7233/10
www.palgrave-journals.com/ces/
Regular Article
The Nature of US–China Trade in
Advanced Technology Products
MICHAEL J FERRANTINO, ROBERT B KOOPMAN, ZHI WANG & FALAN YINUG
PY
US International Trade Commission, Office of Economics, 500 E Street SW, Washington
DC 20436, USA.
E-mails: [email protected]; [email protected]; Zhi.Wang@
usitc.gov; [email protected]
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This paper studies the nature of US–China trade in advanced technology products (ATP).
China’s recent surge in ATP exports has promoted active debate about the implications
for both China’s economic growth and US competitiveness. We evaluate the development
of both countries’ ATP trade classification systems. Although the definition of ATP for
statistical purposes is largely convergent, China adopts multiple definitions of ATP, some
of which are associated with export promotion and foreign direct investment (FDI)
policy. We develop a method to compare US and Chinese trade data that combines the
strengths of both countries’ trade statistics and accounts for re-exports through Hong
Kong. The emergence of China as a major exporter of ATP goods to the US, coinciding
approximately with China’s WTO accession is strongly associated with processing trade
and production fragmentation, foreign-invested enterprises, and the use of economic
policy zones, more so than for Chinese exports as a whole. This evidence demonstrates
that China’s pattern of exports has been strongly influenced by government policies.
Comparative Economic Studies (2010) 52, 207–224. doi:10.1057/ces.2010.6;
published online 6 May 2010
Keywords: US–China trade, advanced technology products, technology policy
JEL Classifications: F14, P0
INTRODUCTION
Trade in advanced technology products (ATP) has received a great deal of
attention from policy makers and researchers due to its implications for
innovation, productivity, long-term economic growth, international competitiveness, and the creation of well-paying jobs. This attention to production
in technologically dynamic sectors is motivated, in part, by the idea that
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The Nature of US–China Trade in Advanced Technology Products
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production and exports in these sectors may create positive spillovers for
productivity in the rest of the economy. Some economists have argued that
these links are sufficiently strong that countries should promote ATP exports
explicitly in order to accelerate economic growth.
However, measuring ATP trade is difficult, because different countries
and international organizations use different definitions and classifications.
As it turns out, measurement in this area is not value-neutral. The concept of
‘advanced technology’ is flexible, and in some cases may reflect underlying
ideas about policy that are not always clearly stated. Moreover, while factbased claims that a country runs a surplus or deficit in ATP can be used to
promote various policies, these claims themselves may prove fragile in the
face of alternative choices about measurement.
This paper seeks to provide a more objective description of the emerging
pattern of China–US ATP trade than has heretofore been available by taking
advantage of complementary strengths in the trade data provided by the two
partners.‘ATP exports and economic growth: What is at stake?’ section discusses
the various economic claims that have been made about the significance of
China’s ATP exports for economic growth and US competitiveness. ‘Defination
and classification of ATP trade in China and the US’ section evaluates the
various definitions of ATP or ‘high-technology and new products’ trade employed by the two countries. While there is some convergence in Chinese and US
practices for statistical reporting in ATP trade, China maintains alternate definitions of ATP for the promotion of various policies. ‘Comparison of ATP trade
statistics between China and the US’ section describes a method for employing
jointly the trade data of the two countries to provide a fuller assessment, making
use of the US statistical definition of ATP and Chinese data on the customs
regime, ownership type, and geographical location of exports. The appearance
of China’s ATP trade surplus coincides approximately with China’s WTO accession in 2001. The surplus is concentrated in consumer goods for final assembly
while the US continues to maintain a bilateral surplus in certain ATP categories.
‘Structures and institutions in China–US ATP trades’ section illustrates the
strong association of China’s ATP exports with three factors; processing trade
and production fragmentation, foreign-invested enterprises (FIEs), and economic policy zones. ‘Conclusions and policy implications’ section explores the
implications of these patterns for economic policy in China and the US.
ATP EXPORTS AND ECONOMIC GROWTH: WHAT IS AT STAKE?
The structure of China’s exports has evolved rapidly in recent years to
converge toward that of high-income countries (Schott, 2008). The rapid
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growth of Chinese exports in ATP has generated a tremendous amount of
anxiety among industrial countries, particularly in the US. China is a
relatively low-income country that has, until recently, been perceived as
technologically backward and lacking in extensive capacity for innovation,
conditions that seem inconsistent with rapidly growing ATP exports. Some
observers speculate that this rapid growth of ATP exports is a consequence of
the Chinese government’s industrial and other policies, and they argue that
these policies have helped Chinese firms to leapfrog ahead technologically
and that Chinese technological advancement poses a major challenge to US
commercial and security interests (Preeg, 2004; Choate and Miller, 2005).
Other observers believe that production fragmentation and China’s
extensive processing trade cause conventional measures of China’s ATP
exports to exaggerate Chinese technological capabilities (Branstetter and
Lardy, 2006). According to this argument, China’s exports of electronics and
other ATP goods are based on China’s advantages at the labor-intensive final
assembly stage, but these exports are highly dependent on imports of
sophisticated components from higher-income countries. Measures of the
vertical specialization or domestic content of Chinese exports show that the
share of imports in the value of Chinese exports is particularly high for
electronics and other high-technology products (Dean et al., 2007; Koopman
et al., 2008). Analyses of the value chain for high-technology products often
show a large share of rents for intellectual property accruing to US
multinationals who coordinate the global production process, even when
final assembly takes place in China (Linden et al., 2007).
One measure of the technological intensity of goods is whether or not
they are produced by rich countries. Rodrik (2006) argues that the pattern of
production and trade in advanced manufactures is inherently indeterminate
because it is not driven by comparative factor intensities and thus susceptible
to policy influence, which can shift the pattern of observed comparative
advantage in the direction of exporting goods with higher technology
spillovers. He explicitly credits China’s industrial policies for promoting
economic growth based on such a strategy. Hausman et al. (2007) construct
an ‘income index’ for the exports of individual products and for the export
bundles of particular countries. In a cross-country regression framework, they
find that exporters of rich-country products are likely to grow faster, and they
suggest that China, India, and Armenia have benefited from a leapfrogging
strategy of promoting such products in advance of their current income level.
However, microeconomic studies of productivity and trade (Keller, 2004;
Acharya and Keller, 2007), suggest that international technology spillovers are
more likely to occur through a country’s imports than through its exports.
Despite scattered evidence of learning-by-exporting, firm-level studies often
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find causation running from productivity to exports rather than from exports
to productivity.
DEFINITION AND CLASSIFICATION OF ATP TRADE IN CHINA AND THE US 1
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The development of the US census classification in ATP trade
The first US Government tabulations of high-technology trade were
conducted by the International Trade Administration (ITA) of the Department
of Commerce (Davis, 1983). Interest in measuring the balance of hightechnology trade in the 1980s was prompted in part by concerns that the trade
balance for these products may have been shifting to a deficit position, which
in turn could be seen as evidence of the need for a more activist US industrial
policy.2 These measures start by defining industries as ‘high-tech’ on the basis
of their R&D intensity as measured by the R&D/sales ratio, which was seen as
a proxy for technology embodied in the product. This measure takes into
account both the direct and indirect R&D intensity embodied in intermediate
inputs in an industry by using an input-output model. The 10 industries with
the highest R&D intensity were identified as high-tech industries, and all
products within these industries were defined as high-tech products. US
Census researchers began to suspect that the deterioration in the hightechnology trade balance as reported by ITA was a statistical artifact caused
by an overly broad definition of high-technology products. The use of
industry-level R&D data, which are significantly more aggregated than trade
data, to identify high-technology sectors could easily lead to an overly broad
definition of ‘high-tech’ trade.3
The US Census introduced a classification system (hereinafter the ‘ATP
list’) for high-technology trade in goods in July 1989, introducing the term
ATP. The Census method relied heavily on detailed expert knowledge and
judgment rather than on the more aggregate R&D data, and it produced a
narrower list than did the ITA method (Abbott, 1991; McGuckin et al., 1992).
The Census method starts from the development of 10 broad technology fields
that were commonly considered as advanced technology, and then examines
1
See Ferrantino et al. (2007) for further details on the development of the US and Chinese
systems.
2
This concern is mentioned in particular by Abbott et al. (1989) in their development of the
Census ATP classification. For contemporaneous discussions about the relationship between hightechnology trade and industrial policy, see Wachter and Wachter (1981) and Thurow (1985).
3
For example, the industry group described by ITA as ‘Office and Computing Machines’
included scales, balances, cash registers, calculators, dictation records and adding machines as well
as computers (Abbott et al., 1989, p. 4). Arguably, these products are very different from each other
in the extent to which they embody innovative or leading-edge technologies.
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individual products in merchandise trade at the HTS-10 level associated with
each of the 10 technology fields to determine whether they are significantly
associated with one or more of these leading edge technologies.4 The Census
approach inevitably involves a degree of subjective judgment. While the ITA
approach is more likely to include non-technology-intensive products, the
Census approach may omit some high-technology products.5 Revisions to the
Census list over the years are largely driven by concordance issues as new HS10 codes are added or old ones deleted, and appear not to reflect major
reassessments of which products belong under the rubric of ‘advanced
technology’.
The ITA’s broader definition of high-technology trade showed a sharp
decline in the reported US trade balance in high-technology products, from a
$24 billion surplus in 1982 to a $2.6 billion deficit in 1986 (Abbott et al.
1989). The narrower Census definition showed that, according to this
classification, the US trade surplus in ATP had in fact persisted into the 1980s,
with estimated surpluses of $24.5 billion in 1982, $15.6 billion in 1986 and
$19.4 billion in 1987. Clearly, the definition of high technology or ATP has an
important impact on the assessment of comparative advantage.
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The development of high and new technology products (HNTP)
lists in China
China has produced five lists of HNTP since 1999, some of which have been
revised. Of these lists, three are associated with public policies promoting
production, exports, or FDI in HNTP, and two are primarily for statistical
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‘HTS’ is used here as a contraction for ‘HTSUSA’ (Harmonized Tariff System of the United
States of America), the US national implementation of the Harmonized System (HS) of the World
Customs Organization. The HS defines internationally comparable products on a six-digit (HS-6)
basis. Individual countries can add sub-classifications to this scheme for tariff administration or
reporting purposes. The finest available set of categories in the HTSUSA is on a 10-digit (HTS-10)
basis. It is important to note that though ATP are classified by 10 digit HTS codes, even at such a
detailed level, each 10 digit HTS code does not necessarily represent a single homogenous product.
Where several products are classified under one 10 digit HTS code, Census analysts determine
whether there are sufficient high-tech products to warrant ATP classification for that HTS code.
5
The 10 Census ATP technology fields are as follows, with examples of ATP products in each
category: (1) Biotechnology (human and animal vaccines); (2) Life Sciences (MRI apparatus,
electrocardiographs, artificial joints); (3) Opto-Electronics (rangefiners, stereoscopic microscopes,
lasers other than laser diodes); (4) Information and Communications (personal computers, fax
machines, communications satellites, camcorders); (5) Electronics (particle accelerators, semiconductors, ‘smart’ cards); (6) Flexible Manufacturing (industrial robots, thermostats, semiconductor manufacturing equipment); (7) Advanced Materials (optical fiber cables); (8) Aerospace (turbo
jet aircraft engines, new multi-engine airplanes); (9) Weapons (guided missiles, self-propelled
artillery weapons); and (9) Nuclear Technology (nuclear reactors, uranium compounds enriched in
U235).
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purposes. China’s published guidance on the strategic adjustment of its
industrial categories dates back at least to 1989. A variety of Chinese policies
have consistently favored the promotion of ATP, the use of information
technology in traditional sectors such as steel and petrochemicals, and the
phasing out of old or obsolete technologies.6 Policies to favor high- and newtechnology products include the establishment of high and new technology
development zones in 1991 under the Torch R&D program; preferences for
high-technology products in the enterprise income tax; duty exemptions on
imported inputs and preferred treatment for value-added tax (VAT) rebates for
high-technology firms engaged in the processing trade; encouragement of
foreign direct investment (FDI) in high and new-technology products, and
identification of certain technology groups for the promotion of indigenous
innovation in the 2006–2020 Medium and Long-Term Science and Technology
Development Plan. Of the three policy-oriented catalogues, we will focus on
the HNTP Export Products Catalogue, used to administer VAT rebates for
exporters.7
The two statistical catalogues relating to ATP are ‘China’s High and New
Technology Product Import and Export Statistics Catalogue’ (1999), hereinafter the ‘HNTP Statistics Catalogue’, used in China Customs’ monthly
statistical reports since 2002, and ‘China’s High-Tech Industry Statistics
Classification Catalogue (2002), used by the National Bureau of Statistics to
produce the China High-Tech Industry Statistics Yearbook since 2003. The
HNTP Statistics Catalogue is based on internationally standard HS-6
categories, and it can thus easily be compared with the US Census ATP list.
The policy-oriented HNTP Export Products Catalogue, used for administration of VAT rebates, uses China Customs’ own HS-8 and HS-10 categories.
Official descriptions of the construction of China’s various high- and newtechnology products lists indicate that the US ATP list was consulted, as well
as an OECD high-technology list (Hatzichronoglou, 1997; Johnson, 2002) and
US data on the ratio of R&D scientists and engineers in total employment.
However, these data are used in different ways in the various catalogues,
which are also modified to various degrees to reflect domestic Chinese
considerations.
6
See US International Trade Commission (2007) for further background.
We use HNTP Export Products Catalogue to denote China’s High and New Technology Export
Products Catalogue (2000, revised 2003 and 2006), used for VAT rebates for exporters. The other two
policy-oriented catalogues are the Foreign Investment Promotion and New Technology Product
Catalogue (2003, revised 2007), providing industrial policy guidance for foreign investors; and
China’s High and New Technology Products Catalogue (2000, revised 2006), for enterprise income
tax benefits and for general recognition as a high-technology enterprise.
7
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Comparison of the US census ATP list with China’s two trade-related
HNTP lists
Since both the HNTP Export Statistics Catalogue and the HNTP Export
Products Catalogue are organized according to the HS, it is possible to
compare them with each other and with the US Census’ ATP list.8 Briefly, the
Census ATP list and the HNTP Statistics Catalogue are very close in their
coverage, whereas the HNTP Export Products Catalogue is much broader.
Comparisons between the US Census ATP list and China’s HNTP
Statistics Catalogue can be made at the HS-6 level. Because China’s catalogue
was published in 1999, we compare it to the US Census ATP list for the year
2000. At the HS-6 level, we find 229 categories in both lists, 19 categories
unique to the US list, and no categories unique to China’s list. The Chinese
catalogue aggregates its HNTP products into nine high-technology fields, which
correspond to the 10 Census ATP technology fields except that the US fields of
‘weapons’ and ‘nuclear technology’ are aggregated into a single field called
others. This suggests a good deal of commonality in thinking about the
definition of high or advanced technology in the two efforts. Since the US
Census ATP list predates China’s HNTP Statistics Catalogue by about 10 years,
this parallelism suggests that the makers of the HNTP Statistics Catalogue may
have consulted the US Census ATP list as an input, though we have been
unable to confirm this directly. The comparison is not precise because the
catalogues are defined at the US and Chinese HS-10 levels, and categories finer
than HS-6 are not internationally standardized. Nonetheless, this implies that
tabulations of trade based on either catalogue are likely to be fairly similar.
The policy-oriented HNTP Export Products Catalogue contains 1601 items
defined by Chinese HS 8- or 10-digit codes, which appear in 669 HS-6
subheadings. These lines amount to more than twice as many HS-6
subheadings as the 229 in the HNTP Statistics Catalogue. Thus, any
tabulation of trade based on the HNTP Export Products Catalogue is likely
to include more trade than one based on either of the other two catalogues.
The nine technology fields in the HNTP Export Products Catalogue have some
important differences vis-à-vis the first two catalogues. Some fields in the
HNTP Export Products Catalogue are aggregates of fields in the first two
catalogues, others have similar names, for example aircraft and spacecraft
and new materials, but cover more lines, and still others, for example
software, new energy and energy saving products, environmental protection,
and modern agriculture, are unique to the HNTP Export Products Catalogue.
Detailed examination of the HNTP Export Products Catalogue reveals 190
HS-6 codes that are not in either of the other catalogues. These include products
8
See Ferrantino et al. (2007), especially pp. 18–28.
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in groups such as starches and starch products; made-up textile articles, except
apparel; sawmilling and planing of wood; coke oven products; refined petroleum
products; paints and varnishes; basic iron and steel; cutlery and hand tools;
electric lamps and lighting equipment; motor vehicles and parts; furniture;
jewelry and related articles; and sporting goods.9 It can be said at the very least
that the Chinese authorities grant favorable VAT treatment to a wide variety of
products that are not reckoned by either China or the US to be high- or advancedtechnology products for statistical purposes. Thus, we base our further analysis
of US–China ATP trade on the narrower definition found in both the US Census
ATP list and the Chinese statistical list that corresponds most closely to it.
COMPARISON OF ATP TRADE STATISTICS BETWEEN CHINA AND THE US
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We have several motives for seeking to make a direct comparison between US
and Chinese trade data using a common definition for ATP (or HNTP). Most
important, using both sources together allows us to take advantage of
strengths in each source. China Customs data allow for the identification of
trade flows by firm type, for example FIE, state-owned enterprise (SOE),
domestic private or collective enterprise, customs regime, for example
processing trade, normal trade, and exports from policy-favored zones. Thus,
we can get a picture of the relationship between ATP trade and Chinese
policies. Second, it is convenient to take advantage of the finer categories in the
US data to adjust for the fact that the definition of ATP is in fact carried out at a
finer level than the internationally comparable HS-6 subheading level.
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Methodological considerations
To make US ATP data comparable with China’s HNTP data requires several
steps. First, we need to account for the fact that international comparisons
must be made at the HS-6 level, but only a fraction of many HS-6 categories
are ATP. Thus, we calculate the share of each HS-6 subheading defined at ATP
at the HTS-10 level of US reported exports to and imports from China, and
apply these shares to the China Customs’ reported imports from and exports
to the US.10 This comes as close as we can to applying a common definition of
ATP to both US and Chinese trade data.
9
These descriptions were generated by a concordance with ISIC.
One may be concerned that the composition of production and trade at a finer level than HS6 varies a lot across countries. But we actually have two measures of the same trade flow (US
exports to China ¼ China’s imports from the US), and vice versa. Thus, the actual maintained
assumption is simply that the degree of over- or under-reporting in Chinese data relative to US data
is constant for each HTS-10 code within an HS-6 code. Since the identification of certain HTS-10
codes, as ATP is only observable in the US data, this assumption is necessary.
10
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The Nature of US–China Trade in Advanced Technology Products
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We also need to account for the significant share of China’s exports that
are re-exported through Hong Kong. These goods are reckoned as US imports
from China in US data, and Chinese exports to Hong Kong in Chinese data.
Re-exportation through Hong Kong accounts for a large part of the
discrepancy in the reported trade deficit between the US and China. To deal
with the Hong Kong problem, we construct mirror data for the two sides that
adjust for Hong Kong in an appropriate way.11 The calculation of exports and
imports from both sides is conducted as follows: in eastbound trade, the
export side of the mirror equals China’s reported exports to the US, plus Hong
Kong domestic exports and Hong Kong reported re-exports for China to the
US, whereas the import side of the mirror equals the sum of US reported total
imports from China and Hong Kong. Similarly, in westbound trade, the export
side of the mirror equals US reported exports to China, plus US reported total
exports to Hong Kong minus Hong Kong re-exports of goods of US origin to
third countries other than China with US origin, whereas the import side of
the mirror equals the sum of China and Hong Kong reported imports
originated from the US after fob/cif adjustment, subtracting Hong Kong reexports from the US to China in order to avoid double counting. This method
of constructing the mirror data makes it unnecessary to consider the Hong
Kong re-export markup first, as in Feenstra and Hanson (2004), because both
sides of the mirror include the markup. The shares of HS-6 categories
considered to be ATP, as computed from US reported data, are also used to
adjust the Hong Kong-based flows.
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Results: balance of China–US ATP trade
Figure 1 shows the China–US trade balance in ATP reported by the US, by
China, and by the US and China and Hong Kong. US net ATP exports to the
world are also provided as a benchmark. In Figure 1, positive values indicate
US surpluses, and negative values indicate Chinese surpluses. Although
statistical discrepancies still exist even after adjustments for re-exports via
Hong Kong, the data from all sources consistently show a similar pattern. The
US, as a leading technological nation enjoyed a large surplus in ATP with the
world until the end of the 1990s. However, the surplus shrank quickly at the
turn of the century and became a clear deficit in 2002. Since then, the US
trade deficit for ATP has grown rapidly, with China as one of the largest
contributors. The adjustment of re-exports through Hong Kong has only a
modest impact on the discrepancies in China–US ATP trade statistics, a
finding similar to Ferrantino and Wang (2008) on general merchandise
11
See Ferrantino and Wang (2008) for a fuller treatment of issues involving trade data
reconciliation among China, Hong Kong, and the US.
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The Nature of US–China Trade in Advanced Technology Products
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30
20
10
0
-10
-20
-30
-40
-50
-60
1997 1998
1999
2000 2001
2002
2003 2004
U.S. reported ATP trade balance with the world
2005
2006
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1996
Billion U.S. Dollars
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U.S. reported ATP trade balance with China and Hong Kong
China/Hong Kong reported ATP trade balance with United States
U.S. reported ATP balance with China
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China reported ATP balance with United States.
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Figure 1: US net exports of ATP to China and the world, 1996–2006.
Source: US Census, China and Hong Kong Customs.
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trade data. The emergence of China’s ATP trade surplus with the US around
2000–2002, depending on which side’s data is used, coincides with China’s
accession to the WTO in late 2001.12 By comparison, the US deficit with China
in all merchandise trade dates back to at least the 1980s. US–China ATP trade,
which was approximately in balance in 1999, accounted for 21% of the
bilateral US deficit (using US data definitions) by 2006.
Table 1 shows the bilateral trade in ATP products using the US Census
classification and decomposes the aggregated US–China ATP trade balance in
Figure 1 into the 10 advanced technology fields. If the data were perfectly
consistent, we would expect to see the same trade balance with an opposite
sign. On balance, we obtain a China–Hong Kong trade surplus in ATP of $40.8
billion for 2006, compared with $49.3 billion using US data. This is
reasonably close. Most of the discrepancy is accounted for by the eastbound
trade consisting of China–Hong Kong exports to the US. This is consistent
with the discrepancies in China’s aggregate trade data (Ferrantino and Wang,
2008). The eastbound trade as reported in US data is about 14% larger than in
the China/Hong Kong data, whereas the westbound trade is about 3% larger.
The distribution of trade among the advanced technology fields is similar
regardless of which side’s data are used. China–Hong Kong exports to the US
12
The approximate coincidence of the shift in the ATP trade balance with the timing of China’s
WTO accession is presented here as a stylized fact, rather than as an analysis of causation.
Comparative Economic Studies
Table 1: Trade in ATP reported by the United States, China, and Hong Kong in major technology fields, selected years, in millions of US dollars
2002
2004
2006
East bound trade
Biotechnology
Life science
opto-Electronics
Information & communications
Electronics
Flexible manufacturing
Advanced materials
Aerospace
Weapons
Nuclear technology
Total
US reported ATP imports from China and Hong
10
13
10
15
25
176
250
364
461
602
537
924
2,377
3,894
8,263
3,273
4,599
9,094
15,230
35,613
1,345
1,678
2,114
1,314
1,735
22
36
58
120
224
25
12
61
23
66
74
65
66
98
162
30
31
50
37
58
0
1
0
95
74
5,491
7,609 14,194
21,286
46,821
West bound trade
Biotechnology
Life science
Opto-Electronics
Information & communications
Electronics
Flexible manufacturing
Advanced materials
Aerospace
Weapons
Nuclear technology
Total
US reported ATP exports to China and Hong Kong
10
16
17
20
21
52
349
446
556
730
1,025
1,249
345
412
648
578
620
816
2,116
2,999
3,908
3,206
3,476
5,093
2,117
2,189
3,756
4,007
6,970
9,043
303
259
377
664
1,294
1,163
85
136
129
84
98
161
2,389
3,998
2,037
3,714
2,199
6,568
37
20
16
39
54
1
7
15
12
13
13
19
7,760 10,490 11,456
13,053
15,772
24,167
Kong
47
632
13,611
55,798
2,529
369
119
242
99
48
73,494
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TH
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A
1996
1998
2000
2002
2004
2006
China and
14
120
323
3,020
843
20
28
36
24
0
4,428
Hong Kong reported ATP exports to the
17
33
48
71
203
314
340
437
612
1,475
2,521
7,401
3,895
6,547 11,225 27,957
1,080
1,680
995
1,484
34
50
97
150
15
66
62
65
86
57
80
155
30
49
24
45
0
0
92
72
5,972 10,271 15,484 37,838
China and
5
303
207
2,111
2,026
432
75
1,950
12
3
7,140
Hong Kong reported ATP imports from the US
7
14
17
30
47
376
549
758
1,096
1,275
299
834
634
555
642
2,681
4,369
3,378
3,523
4,474
2,230
2,631
3,261
6,285
8,832
234
548
739
1,822
1,644
242
289
382
348
249
2,163
1,715
2,412
2,661
6,226
36
33
42
64
0
6
65
14
7
11
8,307 11,099 11,646 16,389 23,404
O
2000
C
1998
PY
1996
US
67
408
12,443
47,578
2,886
240
98
393
70
40
64,223
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The Nature of US–China Trade in Advanced Technology Products
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Advanced technology fields
1996
1998
2000
2002
2004
O
Advanced technology fields
2006
1996
1998
2000
2002
2004
A
U
TH
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R
C
Balance of trade
US reported ATP trade balance
China and Hong Kong reported ATP trade balance
Biotechnology
0
3
7
5
4
5
9
10
19
31
41
Life science
173
196
192
269
423
617
183
173
235
418
659
Opto-Electronics
192
512 1,729 3,316 7,643 12,795
116
313
641
1,887
6,846
Information & communications 1,157 1,600 5,186 12,024 32,137 50,705
909
1,214
2,178
7,847 24,434
Electronics
772
511
1,642
2,693
5,235
6,514 1,183 1,150
951 2,266 4,801
Flexible manufacturing
281
223
319
544
1,070
794
412
200
498
642 1,672
Advanced materials
60
124
68
61
32
42
47
227
223
320
283
Aerospace
2,315
3,933
1,971
3,616
2,037
6,326 1,914 2,077 1,658 2,332 2,506
34
2
4
98
12
6
16
18
19
Weapons
7
11
Nuclear technology
7
14
12
82
61
29
3
6
65
78
65
Total
2,269
2,881 2,738 8,233 31,049 49,327 2,712 2,335
828
3,838 21,449
2006
20
867
11,801
43,104
5,946
1,404
151
5,833
70
29
40,819
MJ Ferrantino et al
The Nature of US–China Trade in Advanced Technology Products
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Table 1: (continued)
MJ Ferrantino et al
The Nature of US–China Trade in Advanced Technology Products
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are dominated by the Information and Communications category, which
also accounts for most of the discrepancy. US exports to China and Hong
Kong are more diversified with Electronics, Aerospace, and Information and
Communications taking the top three places and accounting for over 80% of
the total.
The pattern of net ATP flows is consistent regardless of whether US data
or China–Hong Kong data are used as the base. The identification of one side
or the other as being in surplus is consistent in nine of the 10 advanced
technology fields, bearing in mind that a surplus reported by one side
corresponds to a deficit reported by the other, so we should expect the sign to
be opposite. Biotechnology is the one exception. The Chinese surplus is
mostly concentrated in information and communications technology and
opto-electronics, whereas the US surplus is concentrated in electronics,
aerospace, flexible manufacturing and life sciences.
Further analysis using an HS (Harmonized System)-to-ISIC (International
Standard Industrial Classification) concordance reveals that over 90% of
China–Hong Kong ATP exports to the US may be classified as office,
accounting and computing machinery (ISIC 3000), television and radio
transmitters and apparatus for line telephony and telegraph (ISIC 3220), and
television and radio receivers, sound or video recording or reproducing
apparatus (ISIC 3230). US ATP exports to China and Hong Kong are more
diversified, with a majority being in ISIC 3210, which includes semiconductors and integrated circuits, and ISIC 3530, aircraft and spacecraft. These
results are robust to the choice of US trade data or China–Hong Kong trade
data. It can be argued that the main US export categories require a higher
degree of technological capacity than do the main China–Hong Kong export
categories. Final assembly of computers and radio/TV equipment, which
include a high share of consumer goods, is comparatively labor intensive and
migrates easily from country to country, whereas the technology for
producing semiconductors and aircraft diffuses more slowly and remains
relatively more concentrated near the location of R&D.
STRUCTURES AND INSTITUTIONS IN CHINA–US ATP TRADE
While tabulations of ATP trade using US and China–Hong Kong data do not
match perfectly, they are close enough for us to be reasonably confident that
analyses using one side’s data are likely to be reasonably robust to use of the
other side’s data. Hence, we can take advantage of the detail on customs
regimes, firm types, and geographical preferences in China Customs data to
assess the impact of these factors on China–US ATP trade.
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The Nature of US–China Trade in Advanced Technology Products
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Table 2: Chinese ATP exports to and imports from the United States by trade regime, 1996–2006
Year
Imports (%)
Normal
exports
Other
exports
Processing
imports
FIE equipment
imports
Normal
imports
Other
imports
92.9
93.2
92.7
92.1
93.4
94.6
95.8
96.5
96.4
96.6
95.8
3.5
3.5
3.4
4.4
5.0
3.8
2.5
1.9
1.7
1.7
2.1
3.6
3.4
3.9
3.5
1.6
1.7
1.8
1.6
1.9
1.7
2.1
11.5
17.3
23.4
19.1
18.2
17.0
24.1
24.1
29.7
33.0
35.5
8.4
10.0
4.9
3.1
7.0
5.7
7.1
8.0
13.5
7.0
8.8
33.9
36.7
44.0
34.7
52.0
56.6
50.0
47.9
37.8
37.8
28.4
46.3
35.9
27.8
43.1
22.9
20.7
18.9
20.1
19.0
22.2
27.3
C
Abbreviation: FIE=foreign-invested enterprises.
Source: China Customs data, and authors’ calculation
PY
Processing
exports
O
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Exports (%)
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China’s ATP exports to the US are overwhelmingly dominated by the
processing trade regime. The processing trade ATP surplus is large enough to
account for the entire Chinese ATP trade surplus with the US. China’s
bilateral surplus in processing ATP trade surged rapidly from 2002, which was
a turning point in the US ATP trade balance. In contrast, non-processing ATP
trade maintained consistent deficits from 1996 to 2006. Table 2 shows that
processing exports of ATP have accounted for more than 92% of Chinese ATP
exports to the US every year since 1996, and over 95.5% every year since
2002. By comparison, China’s processing exports accounted for about 55% of
its exports to the world and 65% of its exports to the US in 2005. This
dominant role of processing trade in China’s ATP exports to the US reflects
both the growing organizational and technological fragmentation of production in electronics as well as and the tariff and VAT preferences associated
with China’s processing trade regime.
One important consequence of the expansion in processing trade is that
goods which the US once imported from Japan or elsewhere in Asia are now
imported from China, with China importing many components from Asia for
goods which are finally exported to the US. These patterns, which have been well
documented elsewhere, should be borne in mind while interpreting our results.
Second, the reconciled data also indicate that China’s ATP trade surplus
with the US was mainly generated by FIEs in China. Figure 2 decomposes
China’s ATP trade surplus by firm type. About 85% of the ATP trade surplus is
accounted for by wholly owned FIEs, and the rest by joint ventures between a
Chinese and foreign party. In contrast, SOEs have an ATP trade deficit with
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The Nature of US–China Trade in Advanced Technology Products
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35
30
20
15
10
5
PY
Billion U.S. dollars
25
0
-10
1997
1998
State-owned
1999
2000
Joint Venture
2001
2002
C
1996
O
-5
Wholly Foreign
2003
2004
Collective
2005
2006
Private
R
Figure 2: The dominant role of foreign-invested enterprises in China’s ATP surplus.
Source: China Customs Statistics, US Census ATP definition.
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the US, and collective enterprises and private firms contributed very little to
the ATP trade balance. While exports of Chinese domestic firms have grown
dramatically since China’s WTO accession, they continue to be concentrated
in labour-intensive sectors such as apparel and footwear.
As noted above, China provides specific policy guidance regarding the
sectors in which FDI is encouraged, restricted, and prohibited. These policies
tend to promote high-technology products. Until very recently, the enterprise
income tax also tilted strongly toward FIEs. During the period covered by our
data, FIEs were usually entitled to a preferential 15% corporate income tax
rate versus the normal rate of 33%, and foreign banks and service companies
also benefit from different corporate income tax rates.13
Chinese authorities, including provincial, city, and county governments,
have been actively promoting diversification and quality upgrading of their
industrial and product structures through taxation and other policy
13
The new Chinese corporate income tax law, which became effective in 2008, equalized the
standard rate applied to FIEs and domestic enterprises. China has also recently removed some
products from eligibility for processing trade benefits. These steps may reflect recognition by the
Chinese authorities that the previous pattern of incentives had a net distorting effect, and it may
presage further moves to reduce, at least partially, the benefits associated with SEZs.
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incentives. A particular manifestation of these incentives is the proliferation
of economic and technological development zones, high-tech industrial
zones, and export processing zones (EPZs) around the country. These policy
incentives, combined with the incentives for processing trade and FIEs
already mentioned, have likely raised the level of Chinese ATP exports to
developed countries. The extent of these incentives is unlikely to be fully
justified on efficiency grounds. Our impression is that the incentives may
have a bigger impact on the pattern of trade than would be justified by
specific positive externalities associated with ATP products, such as learningby-doing or technical spillovers.
China has established a number of special economic zones (SEZs) where
additional incentives are applied as part of its development strategy since
1979. Five SEZs are distinguished from other special economic areas. They
include the entire Hainan Province, three cities, Shenzhen, Zhuhai, and
Shantou in Guangdong Province, and one city, Xiamen, in Fujian Province.
Other special economic areas are much smaller geographically and classified
as Economic and Technological Development Areas (ETDAs), Hi-Technology
Industry Development Areas (HTIDAs), EPZs, etc. Some of these special
economic zones and areas are within the five SEZs. Numerous incentive
policies have been introduced in these zones, and they also enjoy greater
flexibility in utilizing foreign capital, introducing foreign technology, and
conducting economic cooperation overseas. Among these policy zones,
ETDAs and HTIDAs are tax-favored enclaves established by central or local
governments (and often approved by the central government) to promote
development of sectors that could be ‘high and new tech’. Altogether, the four
major types of government policy zones accounted for about 65% of Chinese
ATP exports to the US by 2006. By comparison, only 25% of China’s general
merchandise exports to the world originate from these policy zones. The
share of China’s ATP exports originating in the various policy zones has
increased steadily from about 28% in 1999.
CONCLUSIONS AND POLICY IMPLICATIONS
Our analysis provides specific evidence for Rodrik’s (2006) claim that China’s
policies have been specifically crafted to promote ATP exports. In particular,
we have shown that the share of China’s ATP exports receiving the benefits of
the processing trade regime, of policies designed to promote FDI in particular
sectors, and of economic policy zones is both very high and substantially
exceeds that of China’s other exports. We can be confident, therefore, that
such policies have influenced the pattern of trade. It is less clear that such
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At the very least, the large role of FIEs in China’s ATP exports suggests
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promoting growth through indigenous innovation by Chinese firms. One
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ATP exports by domestic enterprises, either private or state-owned, but we do
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had a non-trivial opportunity cost. The recent equalization of the enterprise
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economic growth path driven by policy-induced high-tech exports. A move to
eliminate some of the privileges enjoyed currently by economic policy zones
would represent a further step in this direction.
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