Beyond the “factory of the world”: China’s servitization and the geography of offshoring

This paper re-examines China’s well-documented structural transformation over 1995–2020 through a multi-country subsystem, or vertically integrated sector, approach embedded in a multi-regional input–output framework. Using the OECD ICIO 2023 database, we measure the employment and value added activated by Chinese manufacturing final demand across sectors and countries. We use three historically established phases (pre-WTO deindustrialization, rapid post-WTO reindustrialization, and post-crisis restructuring) as an organizing framework for examining the internal composition of manufacturing-related activity. We decompose this activity into domestic manufacturing production (insourcing), domestic non-manufacturing activities integrated into manufacturing production (intersectoral outsourcing), and activities generated abroad (offshoring). The joint analysis of employment and value added within these components provides a subsystem-based interpretation of patterns that aggregate sectoral and conventional GVC indicators do not separately identify. Domestically, service integration increases substantially but remains concentrated in distributive services, while KIBS remain limited compared with advanced economies. Internationally, outward offshoring increases in employment terms but declines in value-added terms after 2008, a pattern consistent with the externalization of relatively labor-intensive stages and the retention of higher-value activities at home. The contribution therefore lies in the measurement and interpretation of China’s established transformation through the internal composition of its manufacturing subsystem.