Globalization of Value Chain, China’s trade surplus and Its Applications Dr. Wang Tiedong 王铁栋 University of International Trade and Economics 对外经济贸易大学

▲ Case Study on iPhone and Nokia N95 ▲ Indicators of China Trade Surplus ▲ Analysis on China Trade Surplus ▲ Solutions to Trade Imbalance Between China and Partners ▲ Challenges to Traditional Approach of Trade Statistics ▲ Future Research Main Contents

Breakdown of iPhone (Source: Rassweiler & Prof. Yuqing Xing) Manufacturing iPhones involves nine companies, which are located in China, South Korea, Japan, Germany and the US. All iPhone components produced by these companies are shipped to Foxconn, a Taiwanese company located in Mainland China, for assembly into final products and then exported to the US and the rest of the world.

The US, the country that invented the iPhone, becomes an importer. China exports high-tech goods to US The shipment of the ready-to-use iPhones from China to the US is recorded as China’s exports to the US. Using the total manufacturing cost $ as the price of the iPhone, China’s iPhone exports to the US amounted $2.0 billion in Assuming that the parts supplied by Broadcom, Numonyx and Cirrus Logic, valued at $121.5 million, were imported from the US the iPhone alone contributed $1.9 billion trade deficit to the US, about 0.8% of the US trade deficit with China.

Total import and export volume could not reflect the trade benefits Exports based on the value added If China’s iPhone exports were calculated based on the value added, i.e., the assembling cost, the export value as well as the trade deficit in the iPhone would be much smaller.

Breakdown of Nokia N (Source: ETLA) N95’s main processor by Texas Instruments: – Hardware design: Dallas (US) & Nice (France) – Software design & integration to hardware: India – Manufacturing: Dallas (US) & Japan

Breakdown of Nokia N (Source: ETLA) ☆ The geography of N95’s value added depends on both the locations of the final assembly (Beijing/Salo) & sale ☆ In the least favorable case for Europe : a N95 Made in China for consumption in the United States, China scores a €467 hi-tech export (on the basis of Nokia Beijing’s factory price)

☆ Europe had little role in the physical goods flows but, even in the least favorable case, EU-27 captured 51% of the value added ☆ Europe dominated intangible aspects of the value chain Breakdown of Nokia N (Source: ETLA)

Indicators of China Trade Surplus

China’s trade surplus comes from processing trade, while general trade usually is main source of trade deficit. China’s Total Import and Export Volume Processing trade counted more than 40% of total import and export volume. Foreign-invested enterprises weighted half in total import and export volume.

China’s Trade Balance in 2011 China trade surplus narrowed in 2011, shrank 14.5% to $155.1 billion. Processing trade increased 12.7%, but its proportion in total trade decreased 2.8%, accounted 36.1%.

Observations Trade diversion occurs quite often in GVC. Traditional approach of trade statistics could not imply main benefits of international trade. Exports and imports based on the value added should be one of main indicators to illustrate trade benefits.

Observations Developed countries capture most of value added through GVC. China (so called “World Factory”) undertakes large part of manufacture for the rest of world and also takes risks of pollution, but is not treated fairly in the era of globalization. The appreciation of the RMB would have little impact on the trade imbalance for China to main economies.

Serious urban air pollution

Pictures of most polluted cities

Protesters demand “ethical iPhone” outside Apple's HQ

Solutions to Trade Imbalance Between China and Partners More open market policy to Chinese investments. Collaboration between Chinese companies and foreign companies should be strengthen, especially in high- tech industries. The foreign exchange management system of China should be reformed accordingly.

Win-win Strategy in Smile Curve

ZTE Attains Global No.1 PCT Patent Filings Spot According to global findings released by the World Intellectual Property Organization on its official website, ZTE ranked No.1 among global companies in terms of PCT patent filings in 2011 with 2,826 total applications.

ZTE Attains Global No.1 PCT Patent Filings Spot The company moved up from the No. 2 spot, which it held in The statistics also show consistent growth in ZTE’s international patent filings over the past five years, which increased by more than 50 per cent year-on-year in ZTE invests 10 per cent of its annual revenue in R&D and its R&D spending over the last three years has hit RMB 20 billion. Currently, ZTE employs more than 30,000 experienced researchers, and runs 15 research centers in China, France, India, Sweden and the United States.

China’s Sany to acquire Putzmeister Sany Heavy, China’s largest construction equipment group, is to buy 90 per cent of German concrete pump-maker Putzmeister for €360m. Putzmeister is only with a 10th of the revenues of Sany. But the deal is significant because it is Sany’s first overseas acquisition and will quadruple its foreign sales overnight. Just 4 per cent of Sany’s revenues came from outside China in the first half of last year. By contrast, more than four-fifths of Putzmeister’s sales come from countries outside of China, Morgan Stanley estimates.

Challenges to Traditional Approach of Trade Statistics Since traditional approach of trade statistics could not imply main benefits of international trade. We need to pay more attention to export and import based on value added. But it would be much more complex to calculate added value in export and import.

Challenges to Traditional Approach of Trade Statistics Value added is a concept for companies, not for trade statistics. Traditional approach of trade statistics should be adapted and then could illustrate value added in the international trade. Collaboration between countries and international institutions should play a important role in improvement of trade statistics.

Future Research ☆ Case Study on Textile Industry – Two firms ☆ Case Study Electronics Industry – Two firms ☆ Research On Statistics of Processing Trade

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