The nature of US-China trade in advanced technology products.
Ferrantino, Michael J. ; Koopman, Robert B. ; Wang, Zhi 等
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 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 fact-based 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 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
MICHAEL J FERRANTINO, ROBERT B KOOPMAN, ZHI WANG & FALAN YINUG
US International Trade Commission, Office of Economics, 500 E
Street SW, Washington DC 20436, USA. E-mails:
Michael.Ferrantino@usitc.gov; Robert.Koopman@usitc.gov; Zhi.Wang@
usitc.gov; Falan.Yinug@usitc.gov
find causation running from productivity to exports rather than
from exports to productivity.
DEFINITION AND CLASSIFICATION OFATP TRADE IN CHINA AND THE US (1)
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
high-technology 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 high-technology 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 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 HS-10 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.
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 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 new-technology
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 new-technology 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.
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-a-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 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 advanced-technology 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
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.
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.
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 re-exports 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.
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
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.
[FIGURE 1 OMITTED]
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 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.
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 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.
[FIGURE 2 OMITTED]
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 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
learning-by-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 policies have accelerated China's economic growth. The
debate about the ways in which trade, technology, and growth are linked,
either in general or in China's specific case, is as yet
unresolved.
At the very least, the large role of FIEs in China's ATP
exports suggests that relatively little progress has been made so far
toward China's goal of promoting growth through indigenous
innovation by Chinese firms. One would expect to observe the results of
successful innovation in the form of ATP exports by domestic
enterprises, either private or state-owned, but we do not observe this.
Moreover, evidence on product quality derived from export unit values
suggests that the gap in product sophistication between exports of FIEs
and domestic firms is rising, rather than falling (Blonigen and Ma,
2007; Wang and Wei, 2008).
It is likely that such extensive policy-driven reallocation of
resources has had a non-trivial opportunity cost. The recent
equalization of the enterprise income tax between foreign and domestic
firms and the limitation of the benefits of processing trade, though not
as yet for high-tech products, suggests that the Chinese authorities
have begun to appreciate the limits of an 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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(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
high-technology 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.
(4) '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).
(6) See US International Trade Commission (2007) for further
background.
(7) 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.
(8) See Ferrantino et al. (2007), especially pp. 18-28.
(9) These descriptions were generated by a concordance with ISIC.
(10) One may be concerned that the composition of production and
trade at a finer level than HS- 6 varies a lot across countries. But we
actually have two measures of the same trade flow (US exports to China =
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.
(11) See Ferrantino and Wang (2008) for a fuller treatment of
issues involving trade data reconciliation among China, Hong Kong, and
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.
(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.
MICHAEL J FERRANTINO, ROBERT B KOOPMAN, ZHI WANG & FALAN YINUG
US International Trade Commission, Office of Economics, 500 E
Street SW, Washington DC 20436, USA.
E-mails: Michael.Ferrantino@usitc.gov; Robert.Koopman@usitc.gov;
Zhi.Wang@ usitc.gov; Falan.Yinug@usitc.gov
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
Advanced technology fields 1996 1998 2000
East bound trade US reported ATP imports
from China and Hong Kong
Biotechnology 10 13 10
Life science 176 250 364
opto-Electronics 537 924 2,377
Information & communications 3,273 4,599 9,094
Electronics 1,345 1,678 2,114
Flexible manufacturing 22 36 58
Advanced materials 25 12 61
Aerospace 74 65 66
Weapons 30 31 50
Nuclear technology 0 1 0
Total 5,491 7,609 14,194
West bound trade US reported ATP exports to
China and Hong Kong
Biotechnology 10 16 17
Life science 349 446 556
Opto-Electronics 345 412 648
Information & communications 2,116 2,999 3,908
Electronics 2,117 2,189 3,756
Flexible manufacturing 303 259 377
Advanced materials 85 136 129
Aerospace 2,389 3,998 2,037
Weapons 37 20 16
Nuclear technology 7 15 12
Total 7,760 10,490 11,456
Balance of trade US reported ATP trade balance
Biotechnology 0 3 7
Life science 173 196 192
Opto-Electronics -192 -512 -1,729
Information & communications -1,157 -1,600 -5,186
Electronics 772 511 1,642
Flexible manufacturing 281 223 319
Advanced materials 60 124 68
Aerospace 2,315 3,933 1,971
Weapons 7 -11 -34
Nuclear technology 7 14 12
Total 2,269 2,881 -2,738
Advanced technology fields 2002 2004 2006
East bound trade US reported ATP imports
from China and Hong Kong
Biotechnology 15 25 47
Life science 461 602 632
opto-Electronics 3,894 8,263 13,611
Information & communications 15,230 35,613 55,798
Electronics 1,314 1,735 2,529
Flexible manufacturing 120 224 369
Advanced materials 23 66 119
Aerospace 98 162 242
Weapons 37 58 99
Nuclear technology 95 74 48
Total 21,286 46,821 73,494
West bound trade US reported ATP exports
to China and Hong Kong
Biotechnology 20 21 52
Life science 730 1,025 1,249
Opto-Electronics 578 620 816
Information & communications 3,206 3,476 5,093
Electronics 4,007 6,970 9,043
Flexible manufacturing 664 1,294 1,163
Advanced materials 84 98 161
Aerospace 3,714 2,199 6,568
Weapons 39 54 1
Nuclear technology 13 13 19
Total 13,053 15,772 24,167
Balance of trade US reported ATP trade balance
Biotechnology 5 -4 5
Life science 269 423 617
Opto-Electronics -3,316 -7,643 -12,795
Information & communications -12,024 -32,137 -50,705
Electronics 2,693 5,235 6,514
Flexible manufacturing 544 1,070 794
Advanced materials 61 32 42
Aerospace 3,616 2,037 6,326
Weapons 2 -4 -98
Nuclear technology -82 -61 -29
Total -8,233 -31,049 -49,327
Advanced technology fields 1996 1998 2000
East bound trade China and Hong Kong reported
ATP exports to the US
Biotechnology 14 17 33
Life science 120 203 314
opto-Electronics 323 612 1,475
Information & communications 3,020 3,895 6,547
Electronics 843 1,080 1,680
Flexible manufacturing 20 34 50
Advanced materials 28 15 66
Aerospace 36 86 57
Weapons 24 30 49
Nuclear technology 0 0 0
Total 4,428 5,972 10,271
West bound trade China and Hong Kong reported
ATP imports from the US
Biotechnology 5 7 14
Life science 303 376 549
Opto-Electronics 207 299 834
Information & communications 2,111 2,681 4,369
Electronics 2,026 2,230 2,631
Flexible manufacturing 432 234 548
Advanced materials 75 242 289
Aerospace 1,950 2,163 1,715
Weapons 12 36 33
Nuclear technology 3 6 65
Total 7,140 8,307 11,099
Balance of trade China and Hong Kong reported
ATP trade balance
Biotechnology 9 10 19
Life science -183 -173 -235
Opto-Electronics 116 313 641
Information & communications 909 1,214 2,178
Electronics -1,183 -1,150 -951
Flexible manufacturing -412 -200 -498
Advanced materials -47 -227 -223
Aerospace -1,914 -2,077 -1,658
Weapons 12 -6 16
Nuclear technology -3 -6 -65
Total -2,712 -2,335 -828
Advanced technology fields 2002 2004 2006
East bound trade China and Hong Kong reported
ATP exports to the US
Biotechnology 48 71 67
Life science 340 437 408
opto-Electronics 2,521 7,401 12,443
Information & communications 11,225 27,957 47,578
Electronics 995 1,484 2,886
Flexible manufacturing 97 150 240
Advanced materials 62 65 98
Aerospace 80 155 393
Weapons 24 45 70
Nuclear technology 92 72 40
Total 15,484 37,838 64,223
West bound trade China and Hong Kong reported
ATP imports from the US
Biotechnology 17 30 47
Life science 758 1,096 1,275
Opto-Electronics 634 555 642
Information & communications 3,378 3,523 4,474
Electronics 3,261 6,285 8,832
Flexible manufacturing 739 1,822 1,644
Advanced materials 382 348 249
Aerospace 2,412 2,661 6,226
Weapons 42 64 0
Nuclear technology 14 7 11
Total 11,646 16,389 23,404
Balance of trade China and Hong Kong reported
ATP trade balance
Biotechnology 31 41 20
Life science -418 -659 -867
Opto-Electronics 1,887 6,846 11,801
Information & communications 7,847 24,434 43,104
Electronics -2,266 -4,801 -5,946
Flexible manufacturing -642 -1,672 -1,404
Advanced materials -320 -283 -151
Aerospace -2,332 -2,506 -5,833
Weapons -18 -19 70
Nuclear technology 78 65 29
Total 3,838 21,449 40,819
Table 2: Chinese ATP exports to and imports from
the United States by trade regime, 1996-2006
Year Exports (%)
Processing Normal Other
exports exports exports
1996 92.9 3.5 3.6
1997 93.2 3.5 3.4
1998 92.7 3.4 3.9
1999 92.1 4.4 3.5
2000 93.4 5.0 1.6
2001 94.6 3.8 1.7
2002 95.8 2.5 1.8
2003 96.5 1.9 1.6
2004 96.4 1.7 1.9
2005 96.6 1.7 1.7
2006 95.8 2.1 2.1
Year Imports (%)
Processing FIE equipment Normal Other
imports imports imports imports
1996 11.5 8.4 33.9 46.3
1997 17.3 10.0 36.7 35.9
1998 23.4 4.9 44.0 27.8
1999 19.1 3.1 34.7 43.1
2000 18.2 7.0 52.0 22.9
2001 17.0 5.7 56.6 20.7
2002 24.1 7.1 50.0 18.9
2003 24.1 8.0 47.9 20.1
2004 29.7 13.5 37.8 19.0
2005 33.0 7.0 37.8 22.2
2006 35.5 8.8 28.4 27.3
Abbreviation: FIE=foreign-invested enterprises.
Source: China Customs data, and authors' calculation
