ABSTRACT
This chapter introduces China’s export processing regime and provides several stylized facts about processing exporters in China and relates them to the productivity abnormality documented about Chinese exporters. The analysis provides a significant caveat in analyzing the performance of exporters in countries that are highly integrated into global value chains. The chapter discusses the impact of other policies that may explain the poor productivity of processing exporters. The Chinese government has been actively promoting processing trade since the 1980s to stimulate exports. China has two regulatory regimes for processing exports: pure assembly and processing with imported materials. There are some key differences between these two processing regimes. The chapter offers possible interpretations about processing exporters’ unexceptional performance and how well they are supported by the data, and discusses the dynamics of processing status. The processing trade is subject to favorable trade and industrial policies, such as input tariff exemptions and income tax benefits.
