The Chinese Export Bundles – Patterns, Puzzles and Possible Explanations

Chinas exports have become increasingly sophisticated. This has generated anxiety in developed countries as the competitive pressure may be increasingly felt outside
labor-intensive industries. Using product-level data on exports from different cities within China, this paper investigates the contributing factors to the rising export
sophistication. Somewhat surprisingly, neither processing trade nor foreign invested firms are found to play an important role in generating the increased overlap in the
export structure between China and high-income countries. Instead, improvement in human capital and government policies in the form of tax-favored high-tech zones
appear to be the key in the countrys evolving export structure. On the other hand, processing trade, foreign invested firms, and government-sponsored high-tech zones
all have contributed significantly to raising the unit values of Chinas exports within a given product category.