| Since 1990’s, international vertical specialization has become an outstanding characteristic of globalized economy. To exploit different countries’comparative advantages, production processes are stretched across multi-countries. In a vertical specialized production system, developed countries can make use of developing countries’advantages in labor costs and natural resources to enhance their products’ competitiveness. At the same time, the developing countries can join the global value chain through vertical specialization and obtain foreign investment, advanced technology and management knowledge, which will help with their own economic development. The degree of China’s participation into international vertical specialization is increasing, and China’s imports of intermediate goods grow continuously. Meanwhile, China’s exports have grown so fast for many years that China has become the largest exporter in 2009, also the largest commodity trader in the world in 2013. China has large amounts of trade surplus against some countries and thus is under high pressure for it. In fact, China’ export seems very large in numbers, though it contains more and more trade value added from other countries. Undue criticism on China’s large trade surplus is actually unfair.In the international vertical specialization system, it is common that one country’s export products contain other countries’value added. To properly evaluate the benefits a country can really get from the global trade, the traditional statistical method is not enough to meet the requirement. Currently widely followed statistics of Trade in Value Added can provide assistance in analyzing structures of multi-country value added in exports, which is also helpful to properly evaluate product competitiveness. This paper has conducted theoretical and empirical research, applied input-output analysis and econometric analysis methods, through cross-country, cross-industry comparative studies and dynamic analysis, obtained research results as follows:1. Based on Input-Output Method and OECD World Input-Output Database (WIOD), this paper studied the development and changes of China’s participation into international vertical specialization between 1995 and 2011, including 33 industries, covering both manufacturing and non-manufacturing industries. Currently most research in vertical specialization attaches more attention to manufacturing industries than to non-manufacturing industries. Most comparative studies are conducted between China and developed countries, and little comparative studies have been done between China and other developing countries. So this paper expanded the research scope to cover non-manufacturing industries and developing countries. The research shows that, in most years, the degree of China participation into vertical specialization is going up. In general, vertical specialization shares of exports (VSS) in manufacturing industries are larger than non-manufacturing industries, and VSS in industries at higher technology levels are larger than those at lower technology levels. Actually certain non-manufacturing industries’ VSS are comparatively larger than some manufacturing industries. For example, VSS of Air Transport is larger than Leather and Footwear, Textile and Textile Products.This paper further decomposes China VSS as per source countries and destination countries, and selected several major trading partners as research targets. USA, Japan, Germany, Korea, Russia are selected to represent countries at comparatively higher economic development levels, while Brazil, India, Indonesia are selected to represent developing countries. Among China VSS source countries, Japan had been the largest source countries for a long time, but later the number one position gradually was taken place by USA and Korea. USA has become the largest source countries in most industries. Among developing countries, Indonesia had been the largest source country in nearly all industries. But, until 2011, Brazil has surpassed Indonesia and become the largest source country in most industries. However, Indonesia is still the largest source country in most non-manufacturing industries.Among China VSS export destination countries, USA is the largest destination country, and the next are Japan and Germany. Most industries at higher technological levels export most products to countries at higher economic development level. But, from the viewpoint of growth rate, the shares to developing countries grow comparatively fast. China VSS export destination markets tend to be diversified. Among developing countries, India absorbs the biggest export shares, while Brazil and Indonesia are the next. In non-manufacturing industries, the shares of China VSS export to developed countries are higher than those to developing countries.2. While China’s participation into vertical specialization increases, China export products contain more and more value added from other countries and the industrial structure of value sources is getting more complicated. Similarly, other countries’ exports also can contain value added from China. Currently there is not so much research on relationship of value added contained in each other country’s exports. This paper has conducted research on China’s domestic value added in exports, other countries’value added contained in China’s exports, China’s value added contained in other countries’ exports, and the drawing effect of China exports on domestic value added.Most domestic value added in China is exported to USA, Japan, Germany, Great Britain, Canada and etc. But some developed countries, for example, Japan absorbs less and less domestic value added in China exports, while some emerging economies, for example, India absorbs more and more domestic value added in China exports. On the other hand, the proportion of foreign value added in China exports is increasing, most of which comes from Japan, USA, Korea, Germany, Australia, Malaysia, Russia, Brazil and etc. The value added from Japan and Korea is dispersed mostly in manufacturing industries. The largest proportion of value added from USA and Germany is from commercial service industry. The largest proportion of value added from Russia, India and Brazil is from mining and quarrying industry.On the other side, other countries’exports also contain value added from China. Most of value added from China is from manufacturing industries, and the largest portion is from Electrical and Optical Equipment, Chemicals and Non-metallic Mineral Products, Basic Metals and Fabricated Metal Products. In non-manufacturing industries, the largest portion of value added from China is from Wholesale and Retail Trade, Hotels and Restaurants. We find out that, in most industries, China exports contain more value added from Japan, USA, Germany, Russia than value added from China these countries’exports contain.In contrast, in most industries, China exports contain less value added from Korea, Brazil, and India than value added from China these countries’exports contain. It is worth notice that, in commercial service industry, China exports contain more value added from all countries in our research than value added from China these countries’exports contain. And the gap in commercial service industry between China and USA is quite large, which shows that China is lagging quite behind and need put more efforts in developing commercial service industry.This paper also studies drawing effect of China exports on domestic value added. The proportion of domestic value in every unit value of manufacturing export is lower than that in every unit value of non-manufacturing export, which means that every unit value of manufacturing export has smaller drawing effect on domestic value added than every unit value of non-manufacturing export. So China should pay more attention to non-manufacturing export to expand its drawing effect on domestic value added. However, total manufacturing exports are larger than non-manufacturing exports, so currently the total domestic value added drawn by manufacturing exports is still larger than domestic value added drawn by non-manufacturing exports. Thus manufacturing industries are still the major pillars of domestic value added export.3. This paper has studied China manufacturing exports’competitiveness based on traditional total value trade data and value added trade data respectively. Based on the two types of data, the measured competitiveness indexes show that, China manufacturing exports’total competitiveness is increasing, and traditional advantageous export industries, for example, textile products and garments still have great advantages, but the advantages are shrinking. Compared with measured results based on value added trade data, the measured results based on total value trade data sometimes overestimated, while other times underestimated China manufacturing exports’competitiveness. This paper compared China and India exports’ competitiveness, and found they respectively have their own advantageous industries at all times. China always has larger advantages over India in Wood, Paper products, and Printing; Machinery and Equipment, nee. (i.e. not elsewhere classified); Electrical and Optical Equipment. India has more advantages in Food Products, Beverages and Tobacco, Chemicals and Non-Metallic Mineral Products, Manufacturing nee. and recycling. There are also several industries in which advantages switched between China and India.4. Product competitiveness includes price competitiveness and quality competitiveness. But product quality lacks uniformed standard, and cannot be directly measured. Quality competitiveness can only be reflected through other factors. This paper applied quality adjusted price model, considering quality and firm capability, starting from relationship between product price and trade threshold, studied both price and quality competitiveness of China manufacturing import and export products. It is found out that some industries are at the stage of price competition, the products of the most capable firms have lowest prices; while some other industries are at the stage of quality competition, the products of the most capable firms have highest prices. China enterprises need not only actively deal with price competition from foreign products, but also raise product quality level. The competition should upgrade from low price competition to quality competition and raise the portion of value added in products. This paper has also analyzed the factors affecting trade threshold and has found out that the trade threshold is comparatively lower if China’s trading partners have higher institutional quality, or have larger GDP, or share common border with China, or have membership in the same trade organizations as China is. The trade threshold is comparatively higher if trading partners have higher GDP per capita, or they are inland countries. This paper has listed China’s trading partners in order according to the height of export and import threshold respectively.
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