How do EU countries differ from Asian ones in their integration to China’s value chain?

• In two of our previous reports in a series dedicated to China’s role in the transformation of global value chains (GVC), we have looked into China’s relationship with Asian economies and European Union (EU) member states, respectively. We find that EU and Asia’s level of integration in China’s value chain is about the same but the trend is different.
• Asian economies are generally decreasing their participation in China’s value chain, with the exception of Singapore, Vietnam and Bangladesh, while most EU economies are increasing such participation (namely 19 of the 28 EU member states).
• Beyond the degree of participation in the value chain, it is important to understand how symmetric it is. In other words, we want to understand whether the change of participation in China’s value chain is explained by more/less imports of intermediate goods from China (FVA) and/or more/less exports of intermediate goods for China’s re-exports (DVX).
• In the case of Asia, most economies are reducing their integration with China although the same asymmetry exists. Asian countries also tend to see a decline in their exports of intermediate goods to China, which is even bigger than that of European countries. This is particularly worrisome for Japan and Korea, large exporters of intermediate goods to China, but also Singapore. At the same time, their own imports of intermediate goods from China do increase but not as much as for European countries.
• In the case of Europe, the general pattern for all countries, with the exception of Germany, is more FVA and less DVX with China. This means European economies are importing more intermediates from China while they are exporting fewer intermediate goods for China’s re-exports. Such unfavorable asymmetry in EU’s integration in China’s value chain does not augur well for Europe. In fact, it probably reflects EU countries’ loss of competitiveness in intermediate goods while China continues to move up the ladder.
• In other words, both European and Asian economies have an increasingly asymmetrical relation with China’s value chain although in a different way (bigger fall of exports for Asia and bigger increase of imports for Europe). Furthermore, and most importantly, European economies are increasing their dependence on China but Asian’s are reducing it. This point is probably explained by Europe’s decreasing regional trade integration as opposed to an increasing one for most Asian countries, especially ASEAN and even North Asia.
• In a nutshell, although the EU remains the most integrated regional value chain in the world, recent trends since 2014 are worrisome, especially when comparing it with Asia.

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