China as the Workshop of the World: Measuring the Role of Foreign Direct Investment Through Manufacturing Sectors and Products

In this paper, we focus on the role of China's manufacturing in the international division of labor from the perspective of foreign direct investment (FDI). We first discuss the contribution made by China's manufacturing sector to capital accumulation, manifested internally by domestic oversaving and externally by China's trade surplus. China's output under various conditions is then measured, and the role of FDI in different manufacturing industries, differentiated according to technological type, is examined. Deconstructing the trade balance and highlighting the role of processing, the analysis provides details on the role of FDI in China's merchandise trade. The analysis also shows that China's distorted research and development expenditure in various manufacturing industries is related to lack of innovation capacity in the high-technology industries dominated by FDI.