China-EU trade and investment relations from a global value chains approach

Project description:

The rapid growth in global value chain (GVC) activity has become a main feature of the international economic integration process in recent years. It is thought to be one of the most important drivers of the deepening trade and investment relationships between China and the EU. However, the role played by GVCs in trade relations, the economic consequences for the countries involved, and their wider policy implications are not yet fully explored and understood. This project aims to shed light on these issues by focusing on EU-China bilateral GVCs.

General Objectives:

The objective of the study is to analyze the participation of EU firms in GVCs involving China in the automotive, chemicals and ICT sectors. Here, a deeper understanding of the role of China as a location for different activities underlying value creation will be sought, as a basis for the design of future policy initiatives on issues such as investment rules and intellectual property rights, amongst others, which are believed to be crucial for the emergence and development of GVCs.

Project Structure and Involvement of CASE:

Five broad areas will be covered by the study:

1. Description of the evolution of GVCs between the EU and China in the focus sectors;
2. Highlighting of the trade and investment linkages between the identified GVCs spanning across China and the EU and between these two economies and the rest of the world;
3. Identifying and analyzing the factors driving EU firms’ decision to engage in international fragmentation of production in these sectors and the choice between engaging in FDI (via setting up of affiliates in China) or arm’s length operations (via local suppliers in China);
4. Providing an analysis of the role played by policy instruments in promoting (or hindering) the creation and/or expansion of GVCs across China and the EU, making a distinction between trade-related policy elements (such as tariffs, NTMs including investment-related) and wider economic policy elements such as innovation policy; and
5. Building on elements listed above, discuss the importance of multilateral and bilateral policy initiatives and domestic policy reform for the emergence of GVCs across China and EU and to determine the ability of each partner to reap income from those GVCs.

The following three methods will be used to analyze the focus sectors:

• Sectoral study using summary statistics and measures of GVC activity to provide a picture of bilateral GVC activity between the EU and China;
• Econometric approach carried out at the sectoral (to identify the impact of policy variables on various measures of GVC activity) and at the firm level (to look at the reasons for engaging in GVC activity and then investigate the different modes of engagement); and
• Case studies at the industry level looking at the characteristics of firms engaging in GVC activity.
   

The CASE expert will supervise and contribute to the firm-level econometric analysis.