The Impact Of Vertical Specialization On China's Benefit

Vertical specialization means that in the process of making some final product, each country engages in specialized production according to the working procedure. In this sort of division, a country imports raw materials or semi-products produced by other counties, and exports goods after processing. This has been one of the mainstreams of international trade and international division of work since the latter half of 20th century. China's industries have actively participated in this form of division of work, and the degree of vertical specialization goes deeper gradually. However, there is no definite conclusion whether China benefits from vertical specialization. Based on China's eight industries, which are classified into labor-intensive industries, capital and technology of labor-intensive industries and resource-intensive industries, this paper first calculates the degree of vertical specialization in the method of input-output. The result shows that capital and technology-intensive industries' degree is larger than labor-intensive industries and resource-intensive industries. This paper also calculates international competitiveness of industries, which is measured by net revealed comparative advantage indicator (NRCA). It shows that labor-intensive industries of China have stronger international competitiveness, but it is decreasing. The resource-intensive industries' international competitiveness became weak from strong though 20 years. The capital and technology-intensive industries, although still does not have the international competitiveness, but the trend is rising. Then the paper analyzes what China gains or loses in the vertical specialization. In terms of benefit, China's industries extend the area of competitive advantage, get technology spillover and so on. Meanwhile in the terms of loss, China's low position in the division of work, the control of technology spillover or transfer in multinational firms and the twist of industrial development's track also make China pay a lot. Through empirical test, this paper finds out that the degree of vertical specialization has significantly positive effects on China's capital technology-intensive industries' international competitiveness while negative effects on resource-intensive industries. Labor-intensive industries dose not have much to do with vertical specialization. In the end, this paper raises policy suggestions for China's strategic choice from both the macro and the micro aspects.