The Sectoral Evolution of China’s Trade

François de Soyres, Ece Fisgin, Alexandre Gaillard, Ana Maria Santacreu and Henry L. Young

No 2025-02-28-2, FEDS Notes from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Since 2018, Chinese officials have been emphasizing the need for China to achieve greater self-reliance. As discussed in de Soyres and Moore (2024), China has reduced its reliance on imported inputs, while simultaneously becoming more dependent on foreign demand to absorb its manufactured goods. In this Note, we look at the evolution of the sectoral composition of China's exports and imports and investigate its similarity with the sectoral composition of the trade baskets of advanced economies (AEs). First, using a gravity model, we show that bilateral trade flows are significantly influenced by the complementarity between trading partners' export and import profiles---a metric we develop to complement existing measures that primarily focus on export similarity. This relationship persists after controlling for conventional variables. Our findings demonstrate how sectoral analysis can reveal shifting trade patterns and competitive dynamics during periods of rapid industrial transformation. We then document three key trends regarding the sectoral composition of Chinese international trade over the past decade. First, using existing measures of export similarity, we show that China has shifted towards producing and exporting in the same sophisticated product categories as advanced economies, particularly the euro area. Second, using our new index capturing the congruence between the sectoral specialization of an exporter and sectoral dependencies of an importer, we highlight that China is importing fewer of the types of goods that European countries typically export, potentially limiting European exporters' ability to benefit from Chinese economic growth. Third, we reveal how China's export basket is becoming more aligned with the import patterns of advanced economies, which could potentially strengthen China's position to serve AE markets.

Date: 2025-02-28
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfn:2025-02-28-2

DOI: 10.17016/2380-7172.3713

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