K. C. Fung

Measuring Vertical Specialization: The Case of China

The explosive growth of Chinese trade may be due to international production fragmentation, but few have assessed these phenomena together, in part, because it is difficult to measure the vertical specialization (VS) of Chinas trade. Unique features of Chinas processing trade cause both identification of imported inputs and their allocation across sectors to vary by trade regime. This paper estimates the VS of Chinese merchandise exports, addressing these two challenges. A new method to identify Chinese imported inputs is developed, and used to calculate VS by sector and destination. VS estimates based on the official Chinese input–output table are contrasted with those based on a split table, capturing processing and normal exports separately. Last, the paper tests whether Chinese “export sophistication” can be explained by VS.

Hard or Soft? Institutional Reforms and Infrastructure Spending as Determinants of Foreign Direct Investment in China

In this paper, we examine whether hard infrastructure in the form of more highways and railroads or soft infrastructure in the form of more transparent institutions and deeper reforms lead to more foreign direct investment (FDI). We use data of FDI from the United States, Japan, Hong Kong, Taiwan and Korea to various regions of China from 1990 to 2002. We control for the standard determinants of FDI--regional market sizes, wage rates, human capital and tax policies. Then we add indices of hard and soft infrastructures. We found that empirically soft infrastructure consistently outperforms hard infrastructure as a determinant of FDI.

The China - United States Bilateral Trade Balance: How Big Is It Really?

There are huge discrepancies between the official Chinese and U.S. estimates of the bilateral trade balance. The discrepancies are caused by different treatments accorded to re-exports through Hong Kong, re-export markups, and trade in services. Deficit-shifting between China, on the one hand, and Hong Kong and Taiwan, on the other, due to direct investment in China from Taiwan and Hong Kong, is partly responsible for the growth in the China - United States bilateral trade deficit. The 1995 China - United States bilateral balance of trade in goods and services, adjusted by both re-exports and re-export markups, may be estimated as US

How vertically specialized is Chinese trade

23.3 billion, a large deficit but considerably smaller than the often-cited official U.S. figure of US

Adjusted estimates of United States–China bilateral trade balances: 1995–2002

33.8 billion.

Foreign direct investment in China: Policy, recent trend and impact

Two recent phenomena have transformed the nature of world trade: the explosive growth of Chinese trade, and the growth of vertically specialized trade due to international production fragmentation. While vertical specialization may explain much of the growth and unique features of Chinese trade, few papers have quantitatively assessed these two phenomena together. In part, this is because it is difficult to measure just how vertically specialized Chinese trade is. The unique features of Chinas extensive processing trade cause both the identification of imported intermediate goods, and their allocation across sectors, to depend upon the Chinese trade regime. In this paper, we estimate the vertical specialization of Chinese exports, addressing these two challenges. Using two Chinese benchmark input-output tables, and a detailed Chinese trade dataset which distinguishes processing trade from other forms of trade, we develop a new method of identifying intermediate goods imported into China. Vertical specialization is then estimated using two methods. The first method uses the Hummels, Ishii and Yi (2001) measure, the official benchmark IO tables, and incorporates our identification correction. The second method follows the first, but also incorporates the Koopman, Wang and Wei (2008) method of splitting the benchmark IO tables into separate tables for processing and normal exports, in order to address the allocation problem. Results show strong evidence of an Asian network of intermediate suppliers to China, and the two methods provide a range of estimates for the foreign content of Chinese exports. In 2002 aggregate exports ranges between 25% and 46%, with some individual sectors are as high as 52%-95%. Across destinations, under both methods, the vertical specialization of Chinese exports declines with the level of development of the trading partner.

Adjusted Estimates of United States-China Bilateral Trade Balances: An Update

Abstract In a series of papers ( Fung & Lau, 1996 , Fung & Lau, 1998 , Fung & Lau, 2001 ), we have argued that neither the U.S. nor the Chinese bilateral trade balance data are accurate. In this paper, we utilize the most up-to-date information and provide more accurate estimates. The adjustments include f.a.s.–f.o.b. and f.o.b.–c.i.f. conversions, re-exports via Hong Kong, re-export markups of Hong Kong middlemen and trade in services. With these adjustments, the best estimate of the U.S.–China bilateral trade balance in goods and services in 2002 is US

The Giant Sucking Sound: Is China Diverting Foreign Direct Investments from Other Asian Economies?

74.3 billion. This is a large figure, but it is more than 25% smaller than the official estimate of the U.S. government.

An Econometric Estimation of Locational Choices of Foreign Direct Investment: The Case of Hong Kong and U.S. Firms in China

One of the most important elements of Chinas economic reform has been the promotion of foreign direct investment (FDI) inflow. Government polices on FDI have gone through different stages in their main objectives since the late‐1970s, from gradually opening to foreign investors, to actively encouraging inward investment, directing FDI in accordance with domestic industrial restructuring, and complying with Chinas World Trade Organization (WTO) obligations. FDI in China has experienced rapid growth especially since the mid‐1990s, as well as structural change. Most of the earlier investments were small scale, labor‐intensive and export‐oriented. In recent years, more investment has been large scale and more capital and technology intensive, aiming at both domestic and export markets. Moreover, increasingly more investment has come from the industrial world, and has located along the eastern coastal regions, in additional to the two southeastern provinces. FDI has played a crucial role in Chinas rapid growth, economic transition, and, mostly importantly, integration with the world. Chinas recent accession to the WTO provides more incentives to foreign investors. At the same time, it will also result in more intense competition for domestic firms.

Trade liberalization and the environment: The case of intra-industry trade

Large differences exist between the official United States and Chinese data on trade balances between the two countries. In this paper, four adjustments are made to the export and import data of the two governments: (i) freight along side (f.a.s.)-free on board (f.o.b.) and cost, insurance and freight (c.i.f.)-f.o.b. conversions; (ii) re-exports through Hong Kong (and elsewhere); (iii) re-export markups; and (iv) trade in services. After adjustments, our best estimate for the 2005 bilateral trade balance is