Firm Linkages and Domestic Value Added in Exports

Investment Rating - The report does not explicitly provide an investment rating for the industry. Core Insights - The expansion of high-speed railways (HSR) in China has significantly contributed to increasing the domestic value-added ratio (DVAR) in exports by enhancing firm linkages between domestic suppliers and exporters [2][10][11]. - A novel methodology developed in the report estimates firm-level DVAR using customs transaction data, allowing for a more accurate assessment of domestic value addition without relying on traditional industry input-output tables [11][27]. - The findings indicate that HSR facilitates the substitution of domestic materials for imported ones, thereby increasing DVAR, particularly for processing exporters and firms in the electronics sector [13][15][20]. Summary by Sections Introduction - The report discusses the role of HSR in China's infrastructure modernization and its impact on global value chains (GVCs), particularly in increasing DVAR through improved firm-to-firm linkages [10][11]. Methodology - A new approach to estimate DVAR is introduced, which relies solely on customs transaction data, eliminating the need for matching with industrial census data [11][27]. - The methodology allows for the estimation of the share of imports used for exports, providing a clearer picture of domestic value addition in exports [29][36]. Empirical Findings - The analysis shows that as the proportion of potential domestic suppliers connected via HSR increases, firm-level DVAR also rises, especially for firms engaged in processing trade [13][15][20]. - The report highlights that HSR connections significantly enhance domestic supply chain integration, leading to lower material prices and greater access to a variety of domestic inputs [13][15][20]. Background of HSR Development - The report outlines the historical context of HSR development in China, emphasizing its rapid expansion since 2008 and its role in reshaping transportation infrastructure [21][22]. Comparative Analysis - HSR is compared to other transportation modes, highlighting its unique attributes such as being passenger-dedicated and primarily used for business purposes, which facilitates better communication and business interactions [22][24]. Network Effects - The report discusses the network effects of HSR, noting that indirect connections through multiple lines significantly enhance the value of HSR for firms, impacting their DVAR positively [26][24]. Conclusion - The report concludes that HSR plays a critical role in advancing China's position in global value chains by facilitating domestic sourcing and enhancing firm-level DVAR through improved transportation links [20][18].