unctad.org | Tracing the Value-added in Global Value Chains: Product-level Case Studies in China
Tracing the Value-added in Global Value Chains: Product-level Case Studies in China
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The rise of the global value chains (GVCs) is reshaping the whole structure of worldwide trade flows. It is no longer true that all, or even the bulk of the value of a country’s exports can be assumed to be domestically produced.

Case studies in China

Three product-level case studies were conducted to identify where China is placed within the GVCs and to find out what and to what extent value is added in China.

The three case studies relate to rubber tyres, light-emitting diodes (LEDs) and fasteners. They reveal that the selected industries are based mostly on mid-level technologies, and that China is generally in the midstream of the GVC with its comparative advantage in labour cost vis-à-vis its developed trading partners.

Conclusions

The activities a country can take up in the international production process are determined by the comparative advantage of that country. At present for most developing countries, with their abundant natural resources and labour supply, they are better equipped to participate in the midstream of GVCs, which concerns production of the goods. At this stage they tend to use more domestic content. For countries at an early stage of development, low value added activities can be utilized as a launch pad towards high value added activities.

Government policies matter in bringing the existing comparative advantage to its full play and forming the country’s future comparative advantage. To be engaged in the production stage within GVCs, the country needs to demonstrate that it has the capability to make the product under competitive conditions. Governments could adopt industrial policies with broader objectives through competition-neutral measures rather than to simply protect an ailing industry or allocating resources into the industry.

Such measures aimed at broader objectives will be positive to the long-term development of the industry and eventually to the economy as a whole. As GVCs are sensitive to transaction costs and therefore to trade policy measures, trade policymakers should pay attention to both tariff and non-tariff measures.

Production and trade within GVCs could benefit from high-quality infrastructure services such as transportation and communication. Since comparative advantages in the context of GVCs apply to tasks rather than to final products, the skill composition of labour in GVCs reflects the division pattern of participating countries. Therefore, human resources play an important role in developing countries’ participation in GVCs.

While providing general and basic education, countries need to build advanced knowledge and specialist skills that are necessary for engaging in GVCs. In addition to expanding vocational education and continuous training, Governments in developing countries should promote networking between research institutes, universities and the private sector to facilitate the conversion of indigenous science and technology into commercial utilization and facilitate the introduction of foreign professionals and experts into the country.

It is clear that an effective participation in GVCs requires a set of integrated policies and measures which create synergetic effect to make a country become attractive for GVC activities. No single policy plays a determinant role in promoting a country’s participation in GVCs.

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