International trade and industrial dynamics: Geographical and structural dimensions of Chinese and Sino-EU merchandise trade

This paper draws on trade data to examine the degree of upgrading of China’s trade structure with the world as a whole and in particular with the European Union (EU). More specifically it examines the evolution of the industrial structure of China’s trade with the world and with the EU between 1996 and 2008 and of the underlying dynamic indicators of revealed comparative advantage. This method of analysing China’s industrial structure provides clear evidence of upgrading into more advanced industries without at present losing significant competitive advantage in industries employing unskilled workers. The examination of revealed comparative advantage indices for world and Sino-EU trade also indicates an increasingly high degree of interdependence between the EU and China between 1996 and 2008. The EU (especially Germany, the UK, and France) is China’s most important export market, though it is also much more important as a market for China’s exports than the EU is as a supplier for China. China’s consequent trade surplus with the EU has gradually shifted from textiles and clothing to machinery and furniture. Further investigation reveals that the complementary Sino-EU bilateral trade is moving towards intra-industry trade at the 4-digit level of HS (Harmonization System) commodity classification. Although China is still a ‘global sweatshop’ with a strong specialization in labour-intensive commodities produced for economically developed countries (by importing machinery, raw materials and exporting processed goods), there are signs of technological upgrading in number of selected sectors in China, noticeably electronics, computers and telecommunications equipment. China’s reliance of imports of minerals indicates however that energy and resource security could be an important constraint on China’s long-term economic development.