Manufacturing Paradoxes: Foreign Ownership, Governance and Value Chains in China's Light Industries

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Utilizing Chinese industrial data and detailed transactional trade data, this paper finds two paradoxes. First, the distribution of FDI across value chains in light industries is the opposite of many extant explanations. Second, China’s dominance as an exporter is belied by the weaknesses of its domestic firms within the governance of value chains, with important implications for firm upgrading. By analyzing millions of US Customs Bureau trade transactions, the paradoxes are resolved by examining intermediary contractors in East Asian value chains. Even 30 years after reforms began and in the technologically simplest industries, Chinese firms continue to struggle to break through substantial ‘contractual’ barriers to entry.