The relative sophistication of Chinese exports

TLDR

China’s exports have grown dramatically over the last three decades largely due to rapid penetration of new product markets. This paper gauges the relative sophistication of Chinese exports along two dimensions to assess implications for developed economies. The authors measure export overlap with developed countries by comparing China’s product set to the OECD bundle, and compare US prices received for Chinese versus other countries’ exports. China’s export overlap with the OECD is higher than expected given its low wages, yet US prices for Chinese goods are substantially lower than for OECD goods, suggesting competition may be less direct than product overlap implies and that developed‑country firms may be moving up the quality ladder by dropping less sophisticated offerings. — Peter K.

Abstract

China's exports have grown dramatically over the last three decades in large part due to its rapid penetration of new product markets. To help address the implications of this growth for developed economies, this paper gauges the relative sophistication of Chinese exports along two dimensions. First, I measure China's export overlap with developed countries by comparing the set of products China exports to the United States with the bundle of products exported by the OECD. Second, I compare Chinese and other countries' exports within product markets in terms of the price they receive in the US market. While China's export overlap with the OECD is much greater than one would predict given its low wages, the prices that US consumers are willing to pay for China's exports are substantially lower than the prices they are willing to pay for OECD exports. This fact, as well as the increase in the 'OECD premium' over time, suggests that competition between China and the world's most developed economies may be less direct than their product-mix overlap implies. It may also reflect efforts by developed-country firms to compete with China by dropping their least sophisticated offerings and moving up the quality ladder. — Peter K. Schott