Chinese firms’ export dynamics: experimental but promising

Abstract

We study China’s trade dynamics at the firm, firm–product, firm–destination and firm–product–destination levels. Using a very rich panel data on firms’ export transaction from 2000 to 2006, we decompose China’s export growth at the intensive and extensive margins, emphasising the roles of firms, products and destinations. We group firms, firms’ products and firms’ destinations into three categories as new (successful or one-time), continuing (continued) and exiting (dropped). We capture China’s export annual growth from the perspectives of trade relationships being created, survived, or destructed. We find that exporters maintain very active strategies in their export product mix and destination portfolios. They routinely introduce new products and drop some old products in order to have a product mix for their destination markets, while also maintaining a core product strategy. A similar pattern is observed for firms’ destination strategy. Our results suggest that some of the newly introduced products and/or destinations become firms’ continued products and destinations, which are the driving forces for firms’ year-to-year success. China’s annual trade growth is primarily driven by the intensive margin, though new births always contributed a very large share to its annual export changes. In the 7-year period, it is the extensive margin that drives China’s export growth.

Keywords:

• Products mix
• market expansion
• intensive margin
• extensive margin
• China export

JEL Codes:

• F1

Notes

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Chad (2007) did a specific case study revealing the historic foreign use of antidumping against China’s exporters. Using a number of measures across virtually all of the major antidumping users in the WTO system, he finds that China’s exporters faced substantial discriminatory treatment relative to other exporting country targets during the 1995-2001 period. These measures reveal one contributing explanation for China’s desire to seek WTO entry.

2 Inspired by the theoretical analysis of Melitz (2003) and Helpman et al. (2004), numerous empirical studies have provided numerous cases that showed a clear linkage between a firm’s productivity and its export decision. The rich evidences are documented in surveys by Wagner (2007), Greenaway and Kneller (2007) and Bernard et al. (2012), among others.

3 These firms can often be easily identified as their names typically include the word “intermediary”.

4 While it is not clear why death rate in year 2005 is so high, but one policy stands out. Year 2005 ushered in the Hu-Wen administration’s reversal of some of Deng Xiaoping's reforms. Under that policy, the privileged state sector was the primary recipient of government investment, and private and collective-owned firms did not enjoy these favorable treatments. Manova and Zhang (2009) show that state-owned exporters are much larger, exporting more products and to more destinations than exporters of other ownership types.

5 For instance, Firm A exports 3 products in year 2001, and 4 products in year 2002 (adding one new product) and 6 products (adding three new products but drops one old product) in 2003. So, the number of unique products Firm A exports is 7.

6 The corresponding export share for each group is calculated as the following. First, we get the average of a firm’s export value (its total export value over the sample period divided by the number of years in exporting). Then, we add each firm’s average export value together according to the product/destination grouping of firms to subgroup export sum. Finally, the share for each subgroup is derived as the ratio of subgroup sum divided by the sum of average exports over all exporters.

7 For export volume, continued products account for the majority of export volume, though not reported here.

8 The share is calculated as the following. First, for each product, we calculate its annual export share within its firm. Then, we take the average of that product’s export share with a firm during the sample period, to take into consideration the different product mix across years. Finally, for that product, we average its export share across firms within that subgroup.

Additional information

Funding

This work was supported by the Carleton University Development Fund (to YW); National Natural Science Foundation of China [grant number 71303088 to WW]; and Fundamental Research Funds for the Central Universities of China [grant number CCNU19TS024].

Notes on contributors

Yanling Wang

Yanling Wang PhD in Economics, Full Professor, Norman Paterson School of International Affairs, Carleton University. Research interests are mainly on international trade, foreign direct investment.

Wei Wei

Wei Wei PhD in Economics, Associate Professor, School of Economics and Business Administration, Central China Normal University. Research interests are mainly on international trade, regional economics