Why Are China's Exports Special?: The Role of FDI, Regional Trade, and Government Policies

This paper investigates why China is able to achieve a high level of technological sophistication in its exports beyond its current level of development. It concludes that a great portion of the high-tech exports are of the processing and assembly type and produced by foreign-invested enterprises. China's comparative advantage of labor abundance and the Chinese government's foreign direct investment (FDI) policy have encouraged the expansion of FDI-led export in general and FDI-led processing trade in particular. Given the disadvantages of the FDI-led export expansion, reform of the government's FDI and trade policies is needed to improve technological development and to enhance China's production and trade structures.