2.1.
TECHNICAL SUMMARY
In this section we exploit the European Business Confidence Survey in China (BCS) to describe European firms’ activity in China, especially that which is related to participation in Global Value Chains (GVCs). In addition to describing firms’ activity we focus on understanding the impact that different regulatory barriers in China may have on European firms and their response to these obstacles. A value chain is defined as the set of production processes and services required to develop a product from its inception to its commercialization. When the processes and services required are implemented in more than one country, we use the term Global Value Chains (GVCs). Firms can be involved in different aspects of any given GVC. However the dataset that we are using is based on EU firms operating in China. This implies that we are unable to observe all the stages of the GVC or all the different firms participating in the entire value chain. Instead, we can determine whether EU firms in China participate in some stage of the GVC. This could be that they are either buyers (importers) or suppliers (exporters) of intermediate goods to other firms located abroad. Using the information available on the exports and imports of intermediate goods, we distinguish between two types of GVC activity. We use the term “backward linkages” to capture the use of imported intermediates by EU firms based in China; and the term ”forward linkages” to capture the supply of intermediate products by EU firms based in China to firms outside of China. In addition, given the information available in the BCS we also explore two additional dimensions of GVC activity. The first one relates to the degree of contractual rigidity, or value chain governance of the backward linkages. This is based on the nature of the contractual relationship of the EU firms in China with their suppliers of intermediates. In the literature on global value chains, forward and backward linkages are also used to reflect linkages with domestic firms. In our sample we can only identify such domestic linkages for the firms that are already also engaged in international linkages. For these firms, therefore, the second dimension explored is the difference between international GVC activities and firms engaging in domestic (China) linkages. This section of the report is composed of a descriptive statistical analysis of the responses of the firms, and a formal econometric analysis. In the descriptive statistical analysis we seek to identify: i) The characteristics of firms that operate in global value chains in China (GVC firms) in comparison to those that do not participate in GVCs (non-GVC firms). ii) The impact that barriers have on the intensity of the backward and forward linkages of GVC firms. iii) The responses that the firms make when faced with barriers. For the formal econometric analysis we address the following specific questions: i) Do GVC firms experience a larger incidence of these barriers than non-GVC firms? ii) Do the barriers impact on the intensity of GVC activity? iii) What is the impact of these barriers on the probability of firm-level responses such as relocating production away from China?
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