This slides attempt to provide possible solutions to help China adapt the new trade environment and deepen integration into GVCs in the new era of 2020s.

1. The Sustainable Development of
Global Value Chain in China
Chunxue Gu
September 2020

2. Contents
Objectives
1
Targeted Audience
2
How Global Value Chains Shape the
Trade Environment in China?
3
Why China Needs to Strengthen
Integration in Global Value Chains?
4
Suggested Policy Options for China
Deeping Participation to GVCs
5

3. Global Value Chains (GVCs) boost international trade
since 1990s. As an important participating country in
GVCs, China, benefited from GVCs a lot: becoming “the
world factory”, huge amount of exporting goods, fast
growing economic growth, sharp declining poverty,
continuing prosperity… However, in the new era of
2020s, there are some new challenges for China to face
in the integration of GVCs, including “Trade War”
against US, the outbreak of COVID-19, and the launch
of Belt and Road Initiative. This slides attempt to
provide possible solutions to help China adapt the new
trade environment and deepen integration into GVCs.
01 Objectives

4. Government
Policymakers
GVC
Developers
Academia
Business
Sectors
Related
Stakeholders
Related to Trade,
Finance, Planning,
Investment…
Including private
sectors
Including small-
medium
enterprise
managers…
02 Target Audience

5. 03 How GVCs Shape the Trade Environment in China
Source: https://www.weforum.org/agenda/2015/07/brief-history-of-
china-economic-growth/
In general, the participation in GVCs is regarded as an essential “fuel” for the economical “speeding
up” in China from 1978. There are three important time points:
In 1978, the “Open Door Policy” presented the
attitude of Chinese government on globalization,
which was the first step of China joining the
GVC system.
01
In 1990, the Shanghai stock market reopened,
and encouraged foreign direct investments.
02
In 2001, China joined the World Trade
Organization (WTO), which improved its
exposure to globalization and the participation
into GVCs.
03

6. Choosing Guangdong province as an example, the GVC has been playing a significant role in its development.
• From 1978, Guangdong province has attracted a vast amount of foreign direst investment (FDI) and labor-
intensive enterprises moving production line there.
• Hong Kong and Taiwan were primary investors at the beginning of the period, and the FDI from Taiwan was
decreasing from 1993.
Source: https://ideas.repec.org/p/unm/unumer/2008035.html
03 How GVCs Shape the Trade Environment in China

7. The “Front Shop, Back Factory” was the model at the
early stage.
Then, it was transformed into the second stage.
Guangdong was regraded as the window of Chinese
economic, and Chinese domestic market became
another key market besides global market.
Right now, Guangdong is more like the previous role
that Hong Kong played to the internal China, and the
global value chains upgrade.
Source: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1857275
03 How GVCs Shape the Trade
Environment in China
Stage
1
Stage
2
Stage
3
At present, China has developed as one of the largest and the most
important trader in global value chains, importing materials and
exporting goods to the whole world.

8. 04 Why China Needs to Strengthen Integration in Global Value Chains?
0
100000
200000
300000
400000
500000
600000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Half
Trade in Goods from China to US by Years
Imports Exports Balance
Source: https://www.census.gov/foreign-trade/balance/c5700.html
TRADE WAR
The “trade war”, raised by the US, was originated from a sentence,
“China is a primary cause of the loss of US manufacturing jobs and
intellectual property”. It aimed to decrease the $346 billion trade
deficit of the US with China by several implementations such as
raising import tax.
The “trade war” significantly hurt the trade between the US and
China, which is also a new challenge for global value chain. There
is a significant decrease in 2019. Moreover, it may be one of the
reasons causing the decline of global merchandise trade in 2019.
This protectionism makes China at disadvantage and not
beneficial for the development of GVCs.

9. 04 Why China Needs to Strengthen Integration in Global Value Chains?
COVID-19
Due to the global pandemic, trade protectionism is being concerned,
which may be critical slowing the globalization.
- Manufacturing factories in China closed down as well as most
factories globally.
- Transportation and logistics services shut down.
Because GVC is a circulation of production and multilateral
trade, the epidemic would cause trouble to both producer and
consumer, and demand and supply would suffer shock. As
one of largest “world factory” and exporting country, China is
facing new difficulty. https://gcaptain.com/coronavirus-disrupts-global-container-shipping/

10. 04 Why China Needs to Strengthen Integration in Global Value Chains?
https://blogwatch.tv/2018/06/china-belt-road-initiative/china-belt-road-initiative-bri/
Belt and Road Initiative (BRI)
Promoter and Organizer
The BRI was launched by China in 2015, with the main objective to
promote the economic cooperation among countries in Asia, Africa,
and Europe, covering 28 countries along the Belt (the “Silk Road
Economic Belt” stretching from China to Europe) and 37 countries
along the Road (the 21st Century Maritime Silk Road spanning from
the South China Sea to India Ocean and South Pacific) It includes 6
international economic corridors with essential transport routes and,
which are 5 land routes and one maritime.
As BRI deepens, the trade models and industry development
patterns between China and countries involved BRI probably
change, which means creating new functional fragmentation
and integration patterns within GVCs. As the launcher, promoter
and organizer of BRI, China needs to sustain and deepen its
integration in GVCs.

11. 05 Suggested Policy Options for China Deeping Participation to GVCs
 Enhancing connectivity to lower trade costs could help China cost less on logistics and may cover the loss of higher
tariffs.
- Rebalance and repurpose trade infrastructure.
- Improve port infrastructure and governance.
- Improve connectivity of landlocked countries and of remote regions within China.
 Governments plays an important role in promoting domestic supply chain linkages and FDI spillovers, including
lead firms and domestic SME supplies.
 The capacity of national and regional innovation systems needs to expand. Governments can even establish
innovation parks to induce agglomerations of innovators. It is crucial for China to enhance its benefits in GVCs.
 It is time for China to find opportunities to transit to advanced manufacturing and services from basic manufacturing
based on innovation support. Also, it is good time to transit from commodities specialization to limited
manufacturing GVCs.
 Contracts enforcement, intellectual property rights protection and standards should be strengthen to provide
regulatory environment.
(1) Policies for Enhancing Participation in GVCs

12. 05 Suggested Policy Options for China Deeping Participation to GVCs
(2) Policies for Sustaining Participation in GVCs
 Ensuring job-rich investment in GVCs, including quantity
and quality of jobs
- China should provide jobs for the poor and low-skilled workers
and try to educate them to skill-high experts.
- Women and youth should be ignored. Governments can help
facilitate women’s access to jobs in GVCs to encourage them to
participate the global economic and SEMs play a role in training
them. The youth should be supported in education and skill
development to take advantage to the opportunity of GVC jobs.
- Wages, health and safety of employees should be protected in
GVC work. It is more important for GVC workers in the COVID-
19 epidemic.
 Since environmental sustainability in production and
governance in GVCs is increasing critical to its ongoing
viability, China should pay attention on environment-green
regulations.
https://news.sky.com/story/coronavirus-china-tries-to-go-back-to-work-to-heal-illness-inflicted-
economy-11951814

13.  On Trade:
- To sustain beneficial trade openness, China needs to
deepen traditional trade cooperation to address
remaining barriers to trade in goods and services, as well
as other measures that distort trade. For example,
subsidies and the activities of state-owned enterprises.
 Beyond Trade:
- Coordination between countries on investment in
transport and communication infrastructure can
improve international connectivity. Also, gains are larger
when governments collaborate to expedite trade
simultaneously. China should enhance the Belt and Road
Initiative to the cooperation between it and other involving
countries. On the one hand, BRI could help China deepen
integration in GVCs; on the other hand, the trade
relationships would be strengthened within GVCs.
05 Suggested Policy Options for China Deeping Participation to GVCs
(3) Policies for International Cooperation to Deep Integration
Source: https://www.fes-indonesia.org/programs/international-cooperation-in-the-
region-and-beyond/

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