Social Sciences in China (Chinese Edition)

No.1, 2017

 

Financing Constraints and Moving Up in the Global Value Chain: Theory and Evidence from Chinese Processing Trade Enterprises

(Abstract)

 

Ma Shuzhong, Zhang Hongsheng and Wang Xiaoxiao

 

Our empirical research introduces the processing trade in supplied or purchased materials into a theoretical model on the basis of data from Chinese manufacturing enterprises and customs authorities, in a study of the relationship between financing constraints on enterprises in the processing trade and their upward movement in the global value chain. Our findings show that highly productive enterprises process purchased materials and occupy higher positions in the global value chain, while those with low productivity process materials supplied by customers and occupy lower positions in the global value chain. The higher links in the value chain are more likely to suffer from financing constraints, so enterprises with fewer constraints stay higher up the value chain. In other words, enterprises with fewer financing constraints and higher productivity are more likely to move up the value chain. The two factors interact positively, leading enterprises to assume higher positions in the global value chain. This is of immediate significance for encouraging Chinese enterprises to move up the global value chain and upgrade manufacturing industry.