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China’s Qualitative
Economic
Transformation
Edited by
Xianming Yang
China’s Qualitative Economic Transformation
Xianming Yang
Editor
China’s Qualitative
Economic
Transformation
Translated by Fuyu Chen
Editor
Xianming Yang
Yunnan University
Kunming, China
Translated by
Fuyu Chen
Chongqing Jiaotong University
Chongqing, China
Sponsored by the Chinese Fund for the Humanities and Social Sciences
ISBN 978-981-19-4436-9 ISBN 978-981-19-4437-6 (eBook)

https://doi.org/10.1007/978-981-19-4437-6
© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer
Nature Singapore Pte Ltd. 2023
This work is subject to copyright. All rights are solely and exclusively licensed by the
Publisher, whether the whole or part of the material is concerned, specifically the rights of
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189721, Singapore
Contents
1 W
hy the Dynamic Evolution of China’s Comparative
Advantages Must Be Accelerated 1
Xianming Yang, Ning Huang, and Sujun Shao
2 R
esource Constraints in the Dynamic Evolution of
China’s Comparative Advantages 37
Xincheng Zhao
3 F
actor Substitution, Technological Progress, and the
Dynamic Evolution of Chinese Manufacturing’s
Comparative Advantages 61
Meng Zheng
4 O
ptimization of Human Capital Structure and the
Dynamic Evolution of China’s Comparative Advantages 87
Xiaolong Tao
5 I ndustrial Agglomeration and Dynamic Evolution of

China’s Comparative Advantages103
Guoqing Zhao, Yishuang Yang, and Wei Hou
v
vi Contents
6 H
ome Market Effect, Spatial Efficiency of Industries,
and the Dynamic Evolution of China’s Comparative
Advantages151
Ya Li
7 M
arket Integration and the Dynamic Evolution of
China’s Comparative Advantages171
Yan Liu and Fan Yuan
8 I nteractive Development of Imports and Exports

and the Dynamic Evolution of China’s Comparative
Advantages189
Zhijian Liu
9 U
pgrading in Global Value Chains, the Dynamic
Evolution of Comparative Advantages, and China’s
Position229
Ming Wu
10 N
ational Absorptive Capacity and the Dynamic
Evolution of China’s Comparative Advantages257
Haibin Yang
Bibliography289
List of Contributors
Xianming Yang Development Institute, Yunnan University, Kunming,

China
Ning Huang Development Institute, Yunnan University, Kunming, China
Sujun Shao Development Institute, Yunnan University, Kunming, China
Xincheng Zhao Development Institute, Yunnan University,
Kunming, China
Meng Zheng Development Institute, Yunnan University, Kunming, China
Xiaolong Tao School of Business and Tourism Management, Yunnan
University, Kunming, China
Guoqing Zhao School of Statistics and Mathematics, Yunnan University
of Finance and Economics, Kunming, China
Yishuang Yang Research Institute for Indian ocean Economies, Yunnan
University of Finance and Economics, Kunming, China
Wei Hou Development Institute, Yunnan University, Kunming, China
Ya Li Development Institute, Yunnan University, Kunming, China
Yan Liu Development Institute, Yunnan University, Kunming, China
Fan Yuan Development Institute, Yunnan University, Kunming, China
Zhijian Liu Development Institute, Yunnan University, Kunming, China
vii
viii List of Contributors
Ming Wu Development Institute, Yunnan University, Kunming, China

Haibin Yang International Business School, Yunnan University of
Finance and Economics, Kunming, China
Fuyu Chen Chongqing Jiaotong University, Chongqing, China
List of Figures
Fig. 1.1 China’s Dynamic Capacity for Comparative Advantages 16

Fig. 2.1 Dynamic Changes in China’s Water Resources. Source: The
water resource statistics between 1981 and 1988 are the total
annual runoff of rivers discounted to 0.96 of the original
statistics; those between 1989 and 1996 are the surface water
resources discounted to 0.96 of the original statistics; those
between 1997 and 2002 are the sum of the surface water and
ground water resources minus the overlap between them; and
those between 2002 and 2017 are from China Statistical
Yearbooks of Environment50
Fig. 2.2 China’s Total Energy Production and Consumption
1978–2017. Source: China National Bureau of Statistics.
China Statistical Yearbook 2017. Beijing: China Statistics
Press, 2018 52
Fig. 2.3 Prospect of China’s Economic Growth Against Natural
Resource Constraints 55
Fig. 3.1 Steps of Research 64
Fig. 3.2 Scatter Diagram of the Comparative Advantages, Factor
Substitution Elasticity, FDI, and R&D of Chinese
Manufacturing76
Fig. 5.1 Average Values of Regional Specialized Division and
Agglomeration 2003–2008 119
Fig. 5.2 Average Values of Regional Specialized Division and
Agglomeration 2009–2016 120
Fig. 5.3 Average Values of Regional Large-Scale Agglomeration
2003–2008 (%) 121
ix
x List of Figures
Fig. 5.4 Average Values of Regional Large-Scale Agglomeration

2009–2016 (%) 122
Fig. 6.1 Home Market Effects of China’s Eastern, Central, and
Western Regions 166
Fig. 7.1 Market Segmentation Index in China 181
Fig. 8.1 History of China’s Foreign Trade Surplus 1978–2017. Source:
Website of China National Bureau of Statistics (NBS) 191
Fig. 8.2 Changes in Outstanding Funds for Foreign Exchange and
Base Money Supply of China’s Central Bank. Source: The
website of the People’s Bank of China; China Financial
Statistics Yearbooks; and the exchange rates over the past years
(adjusted and sorted by the author) 195
Fig. 8.3 Links of Foreign Trade, Capital Formation, and Dynamic
Evolution of Comparative Advantages 204
Fig. 8.4 Foreign Trade, Industrial Structure Upgrading, and Dynamic
Evolution of Comparative Advantages 209
Fig. 9.1 The Complex Network of Comparative Advantage Evolution
and the Upgrading in Global Value Chains 233
Fig. 9.2 Dynamic Coupling Between the Upgrading in Global Value
Chains and the Evolution of Comparative Advantages 234
Fig. 9.3 Index of Industrial Coupling Among China, Japan, and US 244
Fig. 9.4 Changes in the IVD Index of Chinese Industries 245
Fig. 9.5 Changes in the IVD Index of US Industries 245
Fig. 9.6 Changes in the IVD Index of Japanese Industries 246
Fig. 9.7 Changes in World Market Share of Chinese Industries 249
Fig. 9.8 Changes in World Market Share of US Industries 249
Fig. 9.9 Changes in World Market Share of Japanese Industries 250
Fig. 9.10 Changes in the Profitability of Chinese Industries 250
Fig. 9.11 Changes in the Profitability of US Industries 251
Fig. 9.12 Changes in the Profitability of Japanese Industries 251
Fig. 9.13 Contribution of Chinese Industries to the National Economy 254
Fig. 9.14 Contribution of US Industries to the National Economy 254
Fig. 9.15 Contribution of Japanese Industries to the National Economy 255
Fig. 10.1 Comparison of China’s FDI and GDP 1987–2017 271
List of Tables
Table 1.1 China’s Factor Accumulation, 1995–2017 9

Table 1.2 China’s Technological Progress, 1995–2017 10
Table 1.3 China’s Realization of Economies of Scale, 1995–2017 12
Table 1.4 China’s Accumulation of Human Capital, 1995–2017 13
Table 1.5 China’s Trade Policy Inclination, 1995–2017 14
Table 1.6 China’s Dynamic Capacity for Comparative Advantages,
1995–201715
Table 1.7 China’s Export Trade, 1995–2017 17
Table 1.8 Revealed Comparative Advantages of China’s Export
Commodities, 1995–2017 19
Table 1.9 Comparison of Commodity Export Concentration,
1995–201721
Table 1.10 Comparison of Commodity Diversity, 1995–2017 22
Table 1.11 Changes in China’s NBTT, 1995–2017 25
Table 2.1 Growth Drags of Natural Resources on Economy 49
Table 3.1 Statistical Characteristics of Relevant Variables 75
Table 3.2 Baseline Regression Results and Handling of Endogenous
Problems77
Table 3.3 Results of the Robustness Tests 81
Table 4.1 Changes in China’s Comparative Advantages and Source
Factors, 1995–2017 96
Table 4.2 Results of ADF Unit Root Test 97
Table 4.3 Results of Multiple Regression Models and Unit Root Test
of Residuals 98
Table 4.4 Results of Granger Causality Test 99
xi
xii List of Tables
Table 5.1 Measurement of Regional Agglomeration of Four

Classifications of Industries, 2003–2008 117
Table 5.2 Measurement of Regional Agglomeration of Four
Table 5.3 Significance Test of Regional Agglomeration of China’s Four
Table 5.4 Significance Test of Regional Agglomeration of China’s Four
Table 5.5 Provincial Averages of Comparative Advantages,
2003–2008127
Table 5.6 Provincial Averages of Comparative Advantages,
2009–2016127
Table 5.7 Contribution of Industrial Agglomeration to Dynamic
Specialized Advantages in Trade, 2003–2008 132
Comparative Advantages of Imports and Exports,
2003–2008134
Table 5.9 Effects of Industrial Agglomeration on Dynamic
Comparative Advantages of Export Scale, 2003–2008 137
Specialized Advantages in Trade, 2009–2016 139
Comparative Advantages of Imports and Exports,
2009–2016141
Table 5.12 Effects of Industrial Agglomeration on Dynamic
Comparative Advantages of Export Scale, 2003–2008 142
Table 6.1 Overall and By-Industry Coefficients of Trade Gravity Model
of Chinese Manufacturing 159
Table 6.2 Rankings and Compositions of Home Market Effects of 31
Provinces/Regions/Municipalities in China 162
Table 6.3 Composition of Home Market Effects of China’s Eastern,
Central, and Western Regions 163
Table 6.4 By-Industry Home Market Effects in Descending Order 165
Table 7.1 Comparative Advantages in Sino-US Trade: SITC
Classifications Correct to Two Decimal Places 184
Table 8.1 Changes in China’s Dependence on Foreign Trade (%),
1978–1997193
Table 8.2 Unit Root Test Results 212
Table 8.3 Johansen Co-Integration Relationship Test 212
Table 8.4 FDI’s “Crowding-in” and “Crowding-out” Effects on
Domestic Capital 214
List of Tables xiii

Table 9.1 Industrial Performance Matrix of Division of Labor on the
Global Value Chain 239
Table 9.2 The World Input-Output Tables of Three Regions 242
Table 9.3 Countries/Regions Covered by WIOTs 243
Table 9.4 Industrial Classifications in WIOTs 243
Table 9.5 Rankings of Chinese, Japanese, and US Industries in IVD
Index247
Table 9.6 Comparison of IVD and World Market Share of Chinese,
US, and Japanese Manufacturing 253
Table 10.1 China’s FDI and GDP, 1987–2017 270
Table 10.2 Results of the Stationarity Test of the Variables 277
Table 10.3 Co-Integration Test Results of Variables GROWTH, GFDI,
K, H, and GFDI*OPEN1278
Table 10.4 Co-Integration Test Results of Variables GROWTH, GFDI,
K, H, and GFDI*OPEN2279
Table 10.5 Regression Results of the Influence of Trade Openness on
the Economic Growth Effect of FDI 279
Table 10.6 By-Region Test Results of the Influence of Trade Openness
on FDI’s Economic Growth Effect 281
CHAPTER 1
Why the Dynamic Evolution of China’s

Comparative Advantages Must
Be Accelerated
Xianming Yang, Ning Huang, and Sujun Shao
1.1 The Dynamic Evolution of China’s

Comparative Advantages
For sustained growth, an open economy must keep dynamic its compara-
tive advantages. This is particularly true for developing countries imple-
menting the strategy of economic opening-up. Different from the
immediate benefits of an open economy, such as the short-term effects of
export and foreign exchange growth, the dynamic evolution of compara-
tive advantages are mainly reflected in changes of the quality, quantity,
organization, and allocation of growth factors. Corresponding to different
stages of economic opening, new growth factors (or those different from
the existing ones in quality and size) will replace the existing ones that
used to support foreign investment and trade development, and will
support the development of a new round of export-oriented economy,
X. Yang (*) • N. Huang • S. Shao

Development Institute, Yunnan University, Kunming, China
e-mail: xmyang@ynu.edu.cn; huangning@ynu.edu.cn; 25836338@qq.com
© The Author(s), under exclusive license to Springer Nature 1

Singapore Pte Ltd. 2023
X. Yang (ed.), China’s Qualitative Economic Transformation,
https://doi.org/10.1007/978-981-19-4437-6_1
2 X. YANG ET AL.
giving rise to structural upgrading and other effects. Thus, the dynamic
development of comparative advantages becomes the basis of increasing
returns of an open economy. On the other hand, the weakening and stag-
nation of comparative advantages is the fundamental reason for decrease
or withdrawal of external resources, such as foreign direct investment
(FDI).1 The studies and focus on the dynamic evolution of comparative
advantages originate in people’s concern over economic reality. How to
sustain growth of the Chinese economy? How to prevent China from
becoming a loser in globalization? These are two correlated questions.
Since its accession to the WTO, China’s integration with the world
economy has significantly accelerated and the country has become the
world’s largest FDI destination open economy that is also strongly depen-
dent on foreign trade. However, issues such as what obstacles the country
faces while trying to develop the dynamics of its comparative advantages
under the opening-up policy and how to boost such development in this
new phase of economic opening are still important research topics. The
2002 United Nations Trade and Development Report analyzed how, in
China and other countries, being stuck at the low end of the global value
chains leads to the asymmetry between growth in the value and in the
volume of trade. The report argues that it is a composition fallacy to infer
from competition in the export volume of FDI-driven, and labor-intensive
products that there is more generalized competition. It concludes that if
China does not step up its effort to realize industrial upgrade by capital-
izing on FDI technology, it would be stuck competing with other devel-
oping countries at the low end of the global value chains. These conclusions
alert us to the importance of assuming the global market competition
perspective in our analysis of the potential pressure for China to adjust its
economic structure due to its inability to fully realize the country’s com-
parative advantages.
Since the early twenty-first century, Chinese scholars have been paying
attention to the urgency of the dynamic evolution of China’s comparative
advantages. For example, in view of China’s strong dependency on foreign
investment, some scholars discussed the reasons for inadequate develop-
ment of China’s dynamic comparative advantages by examining the special
relationship between FDI and China’s trade development, market
1
United Nations Conference on Trade and Development (UNCTAD), Foreign Direct
Investment Policy Boosting Development: National and International Outlook (Beijing: China
Financial and Economic Publishing House, 2005).
1 WHY THE DYNAMIC EVOLUTION OF CHINA’S COMPARATIVE… 3
distortion caused by intense intra-government competition in investment

policy,2 and industrial development strategies. Others were more inter-
ested in how FDI behavior can inhibit the dynamic evolution of China’s
comparative advantages, especially given the impact of international man-
ufacturing shift on China’s domestic industries.3 Obviously, there is a sig-
nificant deviation between the development stage of China’s economic
opening and the dynamics of its comparative advantages, which has not
only caught people’s attention but also become an important starting
point for studies on strategic adjustments. Since China’s entry into the
WTO, its export-oriented economy has been developing rapidly, and its
revealed comparative advantages (RCA) playing a prominent part.
Meanwhile, the Chinese economy was marked by a path dependence on
the export-oriented strategy. Under such macroscopic circumstances, it is
extremely difficult to proactively adjust the export-oriented strategy for
economic development, which has practically slowed down the dynamic
evolution of China’s comparative advantages.
The outbreak of the 2008 international financial crisis highlighted the
imbalance in the world economy and had a significant impact on the
Chinese economy. Against the background of economic globalization and
by means of the world currency—the US dollar, it had evolved from a
national financial crisis into a global one. Due to the “Triffin Dilemma”
and the lack of a constraint mechanism for dollar issuance, the dollar stan-
dard system has a decreasing effect on world economic development but
closely correlates the global economy with the US economy. This financial
crisis has had a huge impact on the Chinese economy, exposing various
structural contradictions among different regions, industries, and even
enterprises in China. Meanwhile, the traditional model of growth and
technological development, as well as China’s industrial structure, has suf-
fered the impact. Clearly, in the long run, the key to sustainable economic
growth is to reshape the model of development. At the same time, certain
2
Song Hong, “The Particularity Bound to Disappear: On the Integration of China with
the World Economy in Light of Investment and Trade,” International Trade, no. 1 (2003):
47–50; Zhong Wei and Qin Donghai, “The Structure of International Capital Inflow and
the Intense Competition Among Governments for FDI,” Management World, no. 10
(2003): 24–33.
3
Zheng Jianghuai et al., “International Manufacturing Capital Transfer: Motivation,
Technology Learning, and Policy Orientation—An Empirical Study on Supportive Industries
in the Development Zone Along the Yangtze River in Jiangsu Province,” Management
World, no. 11 (2005): 29–38.
4 X. YANG ET AL.
signs in China’s economic performance indicate that the Chinese econ-

omy has entered a new stage of transformation and development.
To begin with, China’s advantage in cheap labor will diminish.
According to estimates, it will dissipate between 2020 and 2025. By that
time, the transfer of surplus labor from rural China will largely complete
and the country’s labor cost will increase rapidly. By contrast, India,
another populous country, has a younger and larger labor force and a
lower per capita income. According to statistics of the World Bank, the
GDP per capita of China was USD 5345 in 2008, and the figure for India
was USD 2753. Other statistics show that the number of Chinese aged 15
to 34 was 380.11 million, accounting for 29.07% of the total population;
the figure for India was 382.96 million (34.99%). Under such circum-
stances, there are good reasons to doubt if China’s labor-intensive indus-
tries will be able to sustain their global competitiveness. On the other
hand, it is of long-term strategic value to increase investment in accumula-
tion of human capital and to foster new advantages of quality human
resources in China.
Furthermore, China is faced with increasing pressure to transform its
processing, trade, and production system. In the post-crisis era, it is pre-
dicted that China will go through a stage of rapid increase in its costs of
environment, resources, and factors, such as land, coal, electricity, oil, and
transportation, and in the RMB exchange rate. This will offset the com-
prehensive advantage of China’s investment environment and greatly
reduce China’s appeal to cost-driven FDI. Compared with China, India is
currently underdeveloped in infrastructure facilities and manufacturing
productivity. Suppose India endeavors to significantly improve its infra-
structure conditions and its supportive system for manufacturing in the
next ten years. Then it is likely for international capital looking for low-
cost processing and assembling bases to shift from China to India, and as
a result, great changes will take place to the processing and trade system in
Asia and the world. Obviously, China’s processing, trade, and production
system is faced with tremendous pressure for transformation. For such a
transformation, it is important to localize in China the production system
of foreign investment. A possible choice will be to constantly increase the
proportion of local value added in industrial output, to promote local
industrial support, and to facilitate local enterprises’ growth into main
parts of processing and trade.
In addition, the model of innovation through technological imitation
that China had adopted a long time ago has been challenged. There are
indeed substantial increases in the value added of China’s high-tech indus-

tries and long-term growth in the export of China’s high-tech products.
According to our empirical studies, however, China’s industrial enterprises
above designated size are obviously insufficient in research and develop-
ment (R&D) input, the proportion of their R&D expenditures in sales is
much too low, and only a small fraction of such enterprises have really
attached importance to R&D. It is true that foreign-funded enterprises
are in possession of larger numbers of invention patents, but the value-
added links they allocate in China are mainly labor-intensive processing
and assembling—neither is significant in terms of the technological spill-
over effect. In contrast, Chinese enterprises with invention patents are
mainly large-sized sci-tech ones that are small in number. This has given
rise to a contradiction. On the one hand, according to statistics of the
Organization for Economic Co-Operation and Development (OECD),
China has replaced the US as the world’s largest exporter of information
and communications technology products. This is borne out by United
States Bureau of the Census (USBC) data which show that a large portion
of America’s imports of information and communications technology
products and photoelectric products comes from China. For a certain
period of time, in terms of high-tech product trade, the US deficit with
China exceeded that with the rest of the world. On the other hand, for a
long time, over 95% of China’s high-tech products exported to the US are
realized by means of processing trade and over 90% of such products are
produced by foreign-funded enterprises.4 Therefore, it will be difficult for
Chinese manufacturing to transit from imitative innovation to home-
grown innovation.
In fact, the dynamic evolution of China’s comparative advantages
affects the growth quality and the direction of development of the Chinese
economy in various ways. Some scholars have pointed out that the funda-
mental reason why an economy might remain stuck in the “middle-income
trap” is the slow evolution of its comparative advantages and the slow pace
of industrial upgrade.5 Therefore, the dynamic evolution of China’s com-
parative advantages has serious implications for the country’s ability to
4
Zhang Yansheng, “The Post-Crisis Era: The Utmost Importance of China’s
Transformation of Foreign Trade Growth Model,” International Economic Review, no. 1
(2010): 108–13.
5
Wu Yejun and Zhang Qizi, “The Evolution of Comparative Advantages and Economic
Growth: An Empirical Analysis of the Argentine Economy,” China Industrial Economics,
no. 2 (2012): 37–46.
6 X. YANG ET AL.
overcome the “middle-income trap.” With the gradual disappearance of

the traditional factor dividends—such as labor, land, and other resources,
China can hardly avoid the “middle-income trap” with its path depen-
dence on traditional comparative advantages unless it can actively build up
new dynamic comparative advantages. Other scholars have noted the close
relationship between the dynamic evolution of comparative advantages
and the upgrading of industrial structures, and argued that the country
should try to exercise control over its industrial restructuring by adjusting
changes in areas such as capital accumulation, technological innovation,
and development of intermediate sectors where it claims comparative
advantage.6 They believe that, relative to the external constraints of factor
endowments, there must be an optimal path of technological progress that
we must follow if we are to realize fully the potential of our comparative
advantages and maintain our industrial competitiveness. Studies indicate
that the dynamic evolution of comparative advantages may not be a con-
tinuous process—there may be interruptions in the course of industrial
upgrade based on comparative advantages. And economies moving from
middle income to high income are most likely to confront this threat.
Some scholars point out that, within the framework of endogenous com-
parative advantages, a country’s comparative advantages may come from
various sources and that, in the long run, it is in China’s interest to dis-
cover and integrate highly relevant sources of comparative advantages,
especially in such a large economy.7
Obviously, during this period of growth transformation, it is particu-
larly important and relevant to study the dynamic evolution of China’s
comparative advantages. For the foreseeable future, there will be corre-
sponding adjustments to the role of the two major factors shaping the
world economy—the financial globalization and the new science and tech-
nology revolution. Globalization may slow down and major economies of
the world will have a hard time making adjustments. Through the devel-
opment of its export-oriented economy, China has already integrated itself
with the world economy and is one of the biggest beneficiaries of
6
Gan Chunhui and Yu Dianfan, “China’s Establishment of Comparative Advantages: A
Strategic Perspective,” Academic Monthly, no. 4 (2013): 14.
7
Lin Shanlang, Report on China’s Core Competitiveness: Problems, Status, Challenges,
and Countermeasures (Beijing: China Development Press, 2005).
economic globalization. It is unnecessary and impossible for China to dis-

sociate itself from the world economy. On the contrary, China must adapt
to the growth and transformation of the world economy and pursue
dynamic comparative advantages amidst growth transformation.
The world economic history since industrialization indicates that it is
the combined effect of internal and external factors that makes develop-
ment possible.8 The same is true for China. For example, China’s entry
into the WTO has not only won a pass to the international market for its
enterprises, but also lowered the transaction costs of its participation in
international trade. Currently, China’s trade products mainly reflect its
advantages of technological innovation. Yet it has also achieved distinct
comparative advantages in foreign thanks to a combination of factors,
including division of labor, specialization, and technological absorption,
cheap labor released in a new round of “Industrious Revolution”9 under
reform and opening-up, and gains from reduced cost of trade as a result of
trade facilitation. It is true that the US and other developed countries have
prominent advantages for technological competition on the international
market, but China has its unique comparative advantages.10 Its compara-
tive advantages are both endogenous and exogenous. In light of the
dynamic evolution of comparative advantages, the primary goal of this
study is to discover and analyze factors for potential growth of the Chinese
economy, to find out problems in bringing into play such potential, and to
seek the orientation and countermeasures for strategic adjustments, so as
to achieve greater benefits in international competition.
1.2 Trends in the Dynamic Evolution of China’s

Comparative Advantages
This consists of changes in the dynamic capability and in the dynamic per-
formance of China’s comparative advantages.
8
A. G. Kenwood and A. L. Lougheed, The Growth of the International Economy:
1820–1980, trans. Wang Chunfa (Beijing: Economic Science Press, 1995).
9
For this concept, see Giovanni Arrighi, Adam Smith in Beijing, trans. Lu Aiguo et al.
(Beijing: China Social Sciences Press, 2009), 27.
10
Hua Min, “The Logic and Choices for China’s High-Speed Economic Growth,”
Academic Monthly, no. 7 (2009): 51–61.
8 X. YANG ET AL.
1.2.1 Changes in China’s Capability for the Dynamic

Evolution of the Country’s Comparative Advantages
This part offers a comprehensive evaluation of the dynamic capability of
China’s comparative advantages on the basis of factor accumulation, tech-
nological progress, realization of economies of scale, accumulation of
human capital, and the orientation of its trade policy.
1.2.1.1 China’s Factor Accumulation

To assess changes in China’s factor accumulation, we select growth in
labor force, growth in fixed-asset investment, and the ratio of capital to
labor as the indicators. From 1995 to 2017, China’s working-age popula-
tion increased from 813.93 million to 998.29 million persons, up by
184.36 million persons (22.65%) or 0.93% annually. Over the same period,
China’s fixed-asset investment grew from RMB 1071.1 billion to RMB
22,444.5 billion (at the 1990 constant price11), increasing by more than
20 times (RMB 21,373.3 billion) or 14.83% annually.
China’s fixed-asset investment increased significantly faster than its
labor force. It has resulted in a rise in the ratio of capital to labor which
increased from 0.1316 in 1995 to 2.2483 in 2017, up by more than 17
times or 13.77% annually. This indicates that China’s comparative advan-
tages in capital have been constantly strengthened. Propelled by the con-
stant increase of these influencing factors, the indicator of China’s factor
accumulation has been on the rise (See Table 1.1). Such changes in China’s
capital, labor, and ratio of capital to labor have brought about changes in
China’s factor accumulation. This shows that production factors are a
dynamic concept and that comparative advantages based on production
factors are also dynamic. The greater the changes in the factor accumula-
tion, the more dynamic the comparative advantages and the stronger the
dynamic capacity of the comparative advantages.
1.2.1.2 China’s Technological Progress

To assess China’s technological progress, we select labor productivity,
R&D input, and patents as the evaluation indicators. From 1995 to 2017,
China’s labor productivity increased more than six times from RMB 4944
per person to RMB 29,754 per person, up by RMB 24,811 per person or
8.50% annually. Over this period, China’s invention patents authorization
11
All statistics in this chapter are at the 1990 constant price unless stated otherwise.
Table 1.1 China’s Factor Accumulation, 1995–2017

Year Labor force Investment Investment-to-labor Indicator
(million persons) (billion RMB) ratio
1995 813.93 1071.1 0.1316 0.0082

1996 822.45 1179.3 0.1434 0.0183
1997 834.48 1262.2 0.1513 0.0418
1998 843.38 1439.7 0.1707 0.0631
1999 851.57 1519.3 0.1784 0.0797
2000 889.10 1657.5 0.1864 0.1483
2001 898.49 1866.3 0.2077 0.1713
2002 903.02 2177.2 0.2411 0.1892
2003 909.76 2721.2 0.2991 0.2186
2004 921.84 3267.4 0.3544 0.2568
2005 941.97 4051.7 0.4301 0.3159
2006 950.68 4946.0 0.5203 0.3591
2007 958.33 5942.2 0.6201 0.4037
2008 966.80 6863.7 0.7099 0.4469
2009 974.84 9137.5 0.9373 0.5321
2010 999.38 9885.5 0.9892 0.5945
2011 1002.83 11,477.0 1.1445 0.6498
2012 1004.03 13,655.1 1.3600 0.7198
2013 1005.82 16,217.1 1.6123 0.8025
2014 1004.69 18,511.2 1.8425 0.8726
2015 1003.61 20,692.2 2.0618 0.9392
2016 1002.60 22,461.7 2.2403 0.9932
2017 998.29 22,444.5 2.2483 0.9867
Source: National Data (http://data.stats.gov.cn/), sorted and calculated by the author
rocketed from 3.39 thousand items to 421.14 thousand items, up by

24.49% annually. Over that same period, its R&D expenditures increased
from RMB 34.9 billion to RMB 1760.6 billion, up by 50 times or 19.51%
annually. Meanwhile, the number of R&D personnel increased from
0.7517 million persons to 4.0346 million persons, up more than five times
or by 7.93% annually. Besides, the proportion of R&D expenditures in
GDP increased from 0.57% to 2.15%, up by 1.58 percentage points or
6.22% annually, and R&D personnel (per thousand employed persons)
grew from 1.104 persons to 5.195 persons, up by 4.091 persons or 7.69%
annually (See Table 1.2). Due to the constant increase of these factors, the
indicator of China’s technological progress was on the rise over this period.
As technological progress improved the marginal productivity of the pro-
duction factors or nurtured scarce factors, the comparative advantages
Table 1.2 China’s Technological Progress, 1995–2017
10
Year Labor Invention patents R&D R&D R&D personnel R&D personnel/ Indicator
productivity authorization expenditures expenditures (million thousand persons
(RMB/person) (thousand) (billion RMB) in GDP (%) persons)
1995 4944 3.39 34.9 0.57 0.7517 1.104 0.0021

1996 5365 2.98 40.4 0.56 0.8040 1.166 0.0099
X. YANG ET AL.
1997 5787 3.49 50.9 0.64 0.8312 1.190 0.0243

1998 6168 4.73 55.1 0.65 0.7552 1.069 0.0199
1999 6571 7.64 67.9 0.75 0.8217 1.151 0.0425
2000 7060 12.68 89.6 0.89 0.9220 1.279 0.0753
2001 7574 16.30 104.2 0.94 0.9565 1.314 0.0897
2002 8211 21.47 128.8 1.06 1.0351 1.413 0.1188
2003 8980 37.15 154.0 1.12 1.0948 1.485 0.1452
2004 9817 49.36 196.6 1.21 1.1526 1.552 0.1754
2005 10,880 53.31 245.0 1.31 1.3648 1.828 0.2205
2006 12,210 57.79 300.3 1.37 1.5025 2.004 0.2571
2007 13,884 67.95 371.0 1.37 1.7362 2.305 0.3038
2008 15,175 93.71 461.6 1.45 1.9654 2.601 0.3627
2009 16,544 128.49 580.2 1.66 2.2913 3.022 0.4539
2010 18,237 135.11 706.3 1.71 2.5540 3.356 0.5121
2011 19,896 172.11 868.7 1.78 2.8830 3.773 0.5942
2012 21,381 217.11 1029.8 1.91 3.2470 4.233 0.6887
2013 22,960 207.69 1184.7 2.00 3.5330 4.590 0.7485
2014 24,548 233.23 1301.6 2.03 3.7106 4.803 0.8016
2015 26,176 359.32 1417.0 2.07 3.7588 4.853 0.8823
2016 27,885 404.21 1567.7 2.12 3.8781 4.997 0.9437
2017 29,754 420.14 1760.6 2.15 4.0336 5.195 0.9938
Notes: 1. Source: National Data (http://data.stats.gov.cn/), sorted and calculated by the author
2. R&D expenditures at the current prices
became more prominent or started to transform and thus materialize the

dynamic changes of the comparative advantages. That is to say, the rise in
China’s technological progress is invariably accompanied by increase in
the intensity of the dynamic evolution of China’s comparative advantages.
1.2.1.3 China’s Realization of Economies of Scale

In order to assess China’s realization of economies of scale, we select the
marginal labor-output ratio, the marginal capital-output ratio, and the
specialization degree as indicators for evaluation. From 1995 to 2017,
there were significant variations in China’s marginal capital-output ratio,
which was on a clear downward trend. It was 3.1738 in 1995, 4.1982 in
1999—the highest in the observation period, and 0.4741 in 2009—the
lowest in that period. Meanwhile, China’s marginal labor-output ratio
increased considerably, rising from 0.0422 in 1995 to 0.9518 in 2017.
Over that same period, there were no significant changes in China’s spe-
cialization degree, which rose first and dropped later and then rose again.
It was 0.3850 in 1995, peaked at 0.3955 in 2002, and then peaked again
at 0.4490 in 2017. Facilitated by changes in the marginal labor-output
ratio, the marginal capital-output ratio, and the specialization degree,
there were significant variations in the indictor of China’s realization of
economies of scale. The economies of scale aim to raise the marginal pro-
ductivity of the production factors, to lower the unit cost, and to expand
the market share, so as to make the comparative advantages more promi-
nent and realize the dynamic evolution of the comparative advantages.
The variation in such indictors had some unstable effect on the degree of
dynamic evolution of China’s comparative advantages (See Table 1.3).
1.2.1.4 China’s Accumulation of Human Capital

In order to assess China’s accumulation of human capital, we select the
number of college students per million persons, the number of hospital
beds per thousand persons, and the number of professionals per thousand
working-age persons as the indicators for evaluation. In our findings, the
number of college students per million persons increased from 4570 in
1995 to 25,760 in 2017 by 8.18% annually, up by 21,990 persons or
approximately six times. The number of hospital beds per thousand per-
sons rose from 1.689 in 1995 to 5.722 in 2017 at an annual average rate
of 5.70%, up by 4.033 or approximately four times. Over that same period,
the number of professionals per thousand working-age population
increased from 29.022 to 42.848 at an annual average rate of 1.78%, up
12 X. YANG ET AL.
Table 1.3 China’s Realization of Economies of Scale, 1995–2017

Year Marginal capital- Marginal labor- Specialization Indicator
output ratio output ratio degree
1995 3.1738 0.0422 0.3850 0.3684

1996 3.0887 0.0377 0.3949 0.3915
1997 4.1179 0.0392 0.3921 0.4749
1998 1.7836 0.0388 0.3918 0.2649
1999 4.1982 0.0441 0.3936 0.4889
2000 2.8831 0.0576 0.3900 0.3643
2001 2.0330 0.0596 0.3884 0.2837
2002 1.6194 0.1042 0.3955 0.2861
2003 1.1100 0.1324 0.3822 0.2075
2004 1.2257 0.1268 0.3677 0.1687
2005 1.0593 0.2169 0.3649 0.1777
2006 1.1552 0.3121 0.3607 0.2072
2007 1.3078 0.3798 0.3464 0.1994
2008 1.0956 0.4155 0.3597 0.2364
2009 0.4741 0.4083 0.3818 0.2499
2010 1.7838 0.4817 0.3834 0.3992
2011 0.8329 0.4208 0.3837 0.2928
2012 0.5487 0.4208 0.3981 0.3143
2013 0.4973 0.4667 0.4095 0.3635
2014 0.5623 0.4674 0.4240 0.4165
2015 0.6004 0.6614 0.4387 0.5384
2016 0.7718 0.8985 0.4490 0.6739
2017 0.8489 0.9518 0.4462 0.6912
by 13.826 persons. Boosted by the constant increase of these indicators,

China’s human capital accumulation was on the rise from 1995 to 2017
(except for the period from 2001 to 2004). Human capital exerts influ-
ence on the dynamic evolution of comparative advantages by means of the
factor effect, the spillover effect, and the absorption effect. The more
abundant the accumulation of human capital, the more significant these
effects, and the more likely for the comparative advantages to transfer—
thus the higher the dynamic degree of the comparative advantages. China’s
constant increase of its human capital accumulation has provided a potent
driving force for the dynamics of its comparative advantages (See
Table 1.4).
Table 1.4 China’s Accumulation of Human Capital, 1995–2017

Year College students per Hospital beds per Professionals per thousand Indicator
million persons thousand persons working-age population
1995 4570 0.689 29.022 0.0031

1996 4700 1.785 28.892 0.0100
1997 4820 1.887 29.354 0.0314
1998 5190 1.995 29.607 0.0521
1999 5940 2.108 30.017 0.0831
2000 7230 2.229 40.055 0.3531
2001 9310 2.356 29.806 0.1515
2002 11,460 2.490 29.831 0.1970
2003 12,980 2.490 29.483 0.2126
2004 14,200 2.560 29.332 0.2340
2005 16,130 2.620 36.930 0.4508
2006 18,160 2.703 29.740 0.3179
2007 19,240 2.829 29.932 0.3499
2008 20,420 3.046 30.569 0.4016
2009 21,280 3.315 30.611 0.4383
2010 21,890 3.580 37.002 0.6225
2011 22,530 3.840 30.842 0.5069
2012 23,350 4.240 38.817 0.7433
2013 24,180 4.550 39.310 0.7938
2014 24,880 4.850 40.108 0.8487
2015 25,240 5.110 40.965 0.8963
2016 25,300 5.368 41.865 0.9400
2017 25,760 5.722 42.848 0.9979
1.2.1.5 China’s Trade Policy Inclination

In order to assess China’s trade policy inclination, we select the customs
duty rate, the exchange rate, and the ratio of processing trade to general
trade as the indicators for evaluation. Our findings show a downward
trend in China’s real customs duty rate, which dropped from 2.6414% in
1995 to 2.4023% in 2017. Meanwhile, the USD-to-RMB exchange rate
declined rapidly from 8.3510 in 1995 to 6.7518 in 2017. Over this period,
the ratio of processing trade to general trade rose first and then dropped—
it first increased from 1.0326 in 1995 to 1.4071 in 1998 and then dropped
to 0.6166 in 2017. Due to such changes, there was a rapid decline in the
trade policy indicator in fluctuation. Trade policy affects trading possibili-
ties and transaction costs and thus influences the quantity and price of
trade, which reveals its comparative side. A clear and stable trade policy
14 X. YANG ET AL.
Table 1.5 China’s Trade Policy Inclination, 1995–2017

Year Real customs USD-to-RMB Ratio of processing Indicator
duty rate exchange rate trade to general trade
1995 2.6414 8.3510 1.0326 0.6555

1996 2.6117 8.3142 1.3420 0.7849
1997 2.7060 8.2898 1.2774 0.7399
1998 2.6926 8.2791 1.4071 0.7949
1999 4.0930 8.2783 1.4012 0.6579
2000 4.0264 8.2784 1.3087 0.6232
2001 4.1694 8.2770 1.3181 0.6180
2002 2.8828 8.2770 1.3209 0.7323
2003 2.6996 8.2770 1.3286 0.7605
2004 2.2478 8.2768 1.3465 0.8467
2005 1.9644 8.1917 1.3218 0.8913
2006 1.8016 7.9718 1.2260 0.8664
2007 1.9545 7.6040 1.1469 0.7316
2008 2.2256 6.9451 1.0190 0.5123
2009 2.1624 6.8310 1.1080 0.5465
2010 2.1413 6.7695 1.0272 0.5079
2011 2.2615 6.4588 0.9109 0.3858
2012 2.4250 6.3125 0.8733 0.3163
2013 2.1734 6.1932 0.7913 0.3142
2014 2.3625 6.1428 0.7346 0.2437
2015 2.4544 6.2284 0.6567 0.2070
2016 2.4806 6.6423 0.6332 0.2551
2017 2.4023 6.7518 0.6166 0.2785
inclination is not only conducive to expanding the size of international

trade and lowering trade costs, but also to bringing into play the existing
comparative advantages and exploring new sources of comparative advan-
tages, and thus facilitates the realization of the dynamic evolution of com-
parative advantages. Relatively speaking, China’s trade policy inclination is
clear and stable, which ensures a strong dynamic capacity for comparative
advantages (See Table 1.5).
1.2.1.6 Evaluation of China’s Dynamic Capacity

for Comparative Advantages
Based on changes in the afore-mentioned factors in the dynamic capacity
for comparative advantages and with the assumption that all these factors
have an equal effect on the dynamic capacity for comparative advantages,

we calculate the indicator of the dynamic capacity for comparative advan-
tages by simply using the arithmetic mean. Table 1.6 shows the results.
As we can see in Table 1.6, China’s dynamic capacity for comparative
advantages was generally on the rise. This trend is quite noticeable,
although there were intermittent fluctuations. In the fluctuation from
1995 to 2017, it only declined in 1998, 2001, 2005–2007, and 2011,
compared with the figure a year earlier. The decline in 1998 was mainly
due to the fluctuation in economies of scale which was primarily caused by
significant changes in the marginal output of capital. The decreases in the
other years were mainly because of insufficient realization of economies of
Table 1.6 China’s Dynamic Capacity for Comparative Advantages, 1995–2017

Year Factor Technological Economies Human Trade Dynamic
accumulation progress of scale capital policy capacity for
accumulation inclination comparative
advantages
1995 0.0082 0.0021 0.3684 0.0031 0.6555 0.2075

1996 0.0183 0.0099 0.3915 0.0100 0.7849 0.2429
1997 0.0418 0.0243 0.4749 0.0314 0.7399 0.2625
1998 0.0631 0.0199 0.2649 0.0521 0.7949 0.2390
1999 0.0797 0.0425 0.4889 0.0831 0.6579 0.2704
2000 0.1483 0.0753 0.3643 0.3531 0.6232 0.3128
2001 0.1713 0.0897 0.2837 0.1515 0.6180 0.2628
2002 0.1892 0.1188 0.2861 0.1970 0.7323 0.3047
2003 0.2186 0.1452 0.2075 0.2126 0.7605 0.3089
2004 0.2568 0.1754 0.1687 0.2340 0.8467 0.3363
2005 0.3159 0.2205 0.1777 0.4508 0.8913 0.4112
2006 0.3591 0.2571 0.2072 0.3179 0.8664 0.4015
2007 0.4037 0.3038 0.1994 0.3499 0.7316 0.3977
2008 0.4469 0.3627 0.2364 0.4016 0.5123 0.3920
2009 0.5321 0.4539 0.2499 0.4383 0.5465 0.4441
2010 0.5945 0.5121 0.3992 0.6225 0.5079 0.5272
2011 0.6498 0.5942 0.2928 0.5069 0.3858 0.4859
2012 0.7198 0.6887 0.3143 0.7433 0.3163 0.5565
2013 0.8025 0.7485 0.3635 0.7938 0.3142 0.6045
2014 0.8726 0.8016 0.4165 0.8487 0.2437 0.6366
2015 0.9392 0.8823 0.5384 0.8963 0.2070 0.6926
2016 0.9932 0.9437 0.6739 0.9400 0.2551 0.7612
2017 0.9867 0.9938 0.6912 0.9979 0.2785 0.7896
16 X. YANG ET AL.
scale—which was also caused by a lower marginal output of capital—and

the trade policies that were adverse to export (See Fig. 1.1).
1.2.2 Changes in China’s Comparative Advantages

Comparative advantages are the cornerstone of international trade. The
most direct form of the dynamic evolution of comparative advantages is
changes in the trade volume, followed by changes in the competitiveness
on the international market.
1.2.2.1 China’s Export Trade

Over the past decades, China’s export trade increased rapidly and its share
in the global market kept rising. Its export trade increased from USD
148.780 billion in 1995 to USD 2263.346 billion in 2017, up by 13.17%
annually, which was much higher than the global average growth of 5.76%.
Meanwhile, the proportion of China’s export trade in global export trade
increased from 2.87% to 12.76% (See Table 1.7).
Fig. 1.1 China’s Dynamic Capacity for Comparative Advantages

Table 1.7 China’s Export Trade, 1995–2017

Year China (billion USD) Global (billion USD) China’s global share (%)
1995 148.780 5176.236 2.87

1996 151.048 5410.859 2.79
1997 182.792 5599.525 3.26
1998 183.712 5509.646 3.33
1999 194.931 5722.820 3.41
2000 249.203 6452.318 3.86
2001 266.098 6195.068 4.30
2002 325.596 6499.786 5.01
2003 438.228 7589.983 5.77
2004 593.326 9223.768 6.43
2005 761.953 10,502.489 7.25
2006 968.978 12,127.770 7.99
2007 1220.456 14,020.770 8.70
2008 1430.693 16,148.882 8.86
2009 1201.612 12,555.786 9.57
2010 1577.754 15,302.149 10.31
2011 1898.381 18,339.071 10.35
2012 2048.714 18,512.641 11.07
2013 2209.005 18,949.886 11.66
2014 2342.293 18,985.777 12.34
2015 2273.468 16,531.558 13.75
2016 2097.632 16,031.517 13.08
2017 2263.346 17,732.796 12.76
Source: UNCTAD database, calculated and sorted by the author
1.2.2.2 The Revealed Comparative Advantages of China’s

Export Commodities
According to Balassa’s index of revealed comparative advantages,12 the
formula for calculation is
12
Bela Balassa. “Trade Liberalization and Revealed Comparative Advantage,” The
Manchester School of Economics and Social Studies 33, (1965): 99–123.
18 X. YANG ET AL.
Xij
n
X ij
RCAij m
i 1
(1.1)
Xij
j 1
m n
X j 1 i 1
ij
where RCAij stands for the revealed comparative advantages of Country i

in Export Commodity j, Xij for the export volume of Country i in Export
Commodity j, n for the number of countries, and m for the number of
export commodities.
Based on statistics of the UNCTAD database and using Formula (1.1),
we calculated the revealed comparative advantages of China’s export com-
modities (See Table 1.8).
From 1995 to 2017, there were significant increases in the revealed
comparative advantages of China’s manufactured products and significant
decreases in those of China’s primary products.
A. Manufactured products
Of Chinese manufactured products, labor- and resource-intensive

products were highest in the comparative advantage, followed by low-
tech-
intensive products. Yet the comparative advantage of labor- and
resource-intensive products was declining, while that of low-tech-intensive
manufactured products was increasing in this period. Meanwhile, the
comparative disadvantage of China’s high-tech-intensive manufactures
had turned into a comparative advantage, but its medium-tech-intensive
products remained at a comparative disadvantage.
B. Primary products
Chinese primary products (food, agricultural raw materials, mineral

products, and fuels) were invariably at a comparative disadvantage—in
particular fuels which were at the most prominent disadvantage.
Table 1.8 Revealed Comparative Advantages of China’s Export Commodities, 1995–2017
Year Primary Primary products Manufactured Manufactured products
products products
Food Agricultural Mineral Fuels Labor- and Low-tech- Medium-tech- High-tech-
raw materials products resource- intensive intensive intensive intensive
1995 0.7061 0.9224 0.6737 0.6251 0.4897 1.1501 2.9086 1.5380 0.6213 0.7350
1996 0.6763 0.9052 0.6985 0.5889 0.4583 1.1567 2.8761 1.4567 0.6529 0.7811
1997 0.6509 0.8279 0.6552 0.6640 0.4608 1.1581 2.9179 1.4843 0.6651 0.7631
1998 0.6409 0.7804 0.5697 0.6723 0.4569 1.1456 2.7591 1.4506 0.6810 0.8194
1999 0.5794 0.7592 0.6611 0.7052 0.3205 1.1589 2.7429 1.4551 0.7372 0.8377
2000 0.5322 0.8158 0.6072 0.6579 0.3031 1.2014 2.7850 1.6150 0.7954 0.8711
2001 0.5161 0.7399 0.5053 0.6196 0.3229 1.1984 2.6450 1.4727 0.7883 0.9399
2002 0.4679 0.6768 0.4516 0.5937 0.2738 1.2069 2.5297 1.3369 0.7901 1.0358
2003 0.4214 0.6012 0.3797 0.5957 0.2519 1.2300 2.4438 1.3041 0.7599 1.1655
2004 0.3680 0.5127 0.3298 0.6050 0.2187 1.2667 2.3906 1.3539 0.7725 1.2702
2005 0.3106 0.4931 0.3382 0.5328 0.1670 1.3196 2.4470 1.3644 0.8126 1.3545
2006 0.2745 0.4596 0.3146 0.5069 0.1246 1.3438 2.5224 1.4689 0.8475 1.3456
2007 0.2483 0.4147 0.3057 0.4055 0.1185 1.3586 2.4699 1.5379 0.8755 1.3729
2008 0.2259 0.3615 0.3243 0.4014 0.1249 1.4292 2.5418 1.6207 0.9787 1.4155
2009 0.2275 0.3662 0.3345 0.3178 0.1174 1.4039 2.5203 1.4139 1.0000 1.3611
2010 0.2189 0.3773 0.3058 0.3045 0.1095 1.4265 2.5823 1.5387 0.9904 1.3927
2011 0.2067 0.3811 0.3375 0.3091 0.0951 1.4820 2.6827 1.6222 1.0350 1.4393
2012 0.1890 0.3665 0.3184 0.2950 0.0822 1.4986 2.7148 1.6037 1.0561 1.4637
2013 0.1910 0.3522 0.3121 0.2981 0.0866 1.4910 2.6536 1.5280 1.0638 1.4621
2014 0.1987 0.3426 0.3283 0.3275 0.0890 1.4434 2.5269 1.5716 1.0530 1.3840
2015 0.2254 0.3376 0.2946 0.3251 0.1060 1.3566 2.3636 1.5723 1.0111 1.2633
2016 0.2596 0.3643 0.3075 0.3229 0.1342 1.3288 2.3170 1.5036 1.0140 1.2353
1 WHY THE DYNAMIC EVOLUTION OF CHINA’S COMPARATIVE…
2017 0.2477 0.3570 0.2881 0.3137 0.1379 1.3477 2.3092 1.4773 1.0511 1.2671

19
20 X. YANG ET AL.
1.2.2.3 China’s Index of Concentration on the International Market

The index of international market concentration, also known as the
Herfindahl-Hirschmann Index, is a measure of the market position. It can
be calculated using the following formula:
2
xi
n X 1 / n
i 1
, X= i 1 xi
n
Hj (1.2)
1 1 / n
where Hj stands for the market concentration of Country j and xi for

Export Commodity i in the SITC classifications.
From 1995 to 2017, China experienced considerable increases in its
index of concentration on the international market. Of the largest five
countries in terms of the export size, China had relatively significant
increases, second only to the Netherlands. In terms of the concentration
on the international market, however, it remained quite low among these
five countries, only higher than the US (See Table 1.9).
1.2.2.4 China’s International Market Diversity Index

The diversity index reflects the structural differences between an econo-
my’s export commodities and the global average. The larger the index, the
more different the economy’s export commodities from the global aver-
age. The index can be calculated using the degree of absolute deviation
between the two structures using the following formula:
Sj
t hij hi
2
where hij stands for the proportion of Export Commodity i in the com-
modity export of Country j, and hi for the proportion of Export
Commodity i in the global commodity export.
As we can see in Table 1.10, China had a rather high degree of diversity
on the international market, but it tended to decrease in recent years.
1.2.2.5 China’s Net Barter Terms of Trade

Net Barter Terms of Trade (NBTT), also known as the commodity terms
of trade, refers to the ratio between the prices of exports and imports of a
Table 1.9 Comparison of Commodity Export Concentration, 1995–2017

Year China Germany Japan Netherlands US
1995 0.0700 0.0820 0.1235 0.0529 0.0746

1996 0.0726 0.0859 0.1218 0.0597 0.0773
1997 0.0726 0.0880 0.1274 0.0617 0.0808
1998 0.0745 0.0921 0.1345 0.0686 0.0881
1999 0.0768 0.0981 0.1373 0.0713 0.0923
2000 0.0772 0.1047 0.1353 0.1381 0.0914
2001 0.0808 0.1000 0.1351 0.1261 0.0857
2002 0.0878 0.1040 0.1487 0.1141 0.0845
2003 0.1020 0.1123 0.1455 0.1061 0.0805
2004 0.1083 0.1049 0.1361 0.1007 0.0904
2005 0.1100 0.0956 0.1346 0.1014 0.0902
2006 0.1096 0.0897 0.1421 0.1062 0.0755
2007 0.1037 0.0980 0.1464 0.1003 0.0738
2008 0.0971 0.0917 0.1413 0.1228 0.0691
2009 0.1087 0.0942 0.1188 0.1213 0.0876
2010 0.1065 0.0970 0.1251 0.1198 0.0820
2011 0.0988 0.0919 0.1149 0.1040 0.0834
2012 0.1015 0.0925 0.1233 0.1174 0.0897
2013 0.1031 0.0925 0.1268 0.1125 0.0951
2014 0.1006 0.0972 0.1269 0.0981 0.0955
2015 0.1041 0.1047 0.1353 0.0817 0.0969
2016 0.1051 0.1064 0.1409 0.0730 0.0993
2017 0.0964 0.0990 0.1389 0.0746 0.0968
Average 0.0943 0.0966 0.1331 0.0970 0.0861
Average increase 1.4662 0.8619 0.5325 1.5696 1.1928
country. It reflects the variation in a country’s unit values of import in

exchange for unit values of export. It can be calculated using the following
formula:
IPx
NBTT 100 (1.4)
IPm
where IPx stands for unit values of export and IPm for unit values of
import. Generally, empirical studies of trade terms analyze the price index
of both import and export commodities or that of classified import and
export commodities. This is because, according to international trade
22 X. YANG ET AL.
Table 1.10 Comparison of Commodity Diversity, 1995–2017

Year China Germany Japan Netherlands US
1995 0.4780 0.2784 0.3849 0.3419 0.2706

1996 0.4694 0.2893 0.3802 0.3399 0.2756
1997 0.4663 0.2876 0.3930 0.3129 0.2674
1998 0.4641 0.2677 0.3796 0.3310 0.2561
1999 0.4603 0.2709 0.3756 0.3336 0.2573
2000 0.4560 0.2852 0.3766 0.3697 0.2641
2001 0.4539 0.2653 0.3805 0.3636 0.2595
2002 0.4600 0.2633 0.3707 0.3675 0.2613
2003 0.4702 0.2792 0.4040 0.3506 0.2578
2004 0.4647 0.2783 0.4005 0.3367 0.2579
2005 0.4612 0.2885 0.4118 0.3396 0.2658
2006 0.4533 0.2833 0.3820 0.3619 0.2750
2007 0.4527 0.2920 0.4197 0.3398 0.2683
2008 0.4591 0.3101 0.4307 0.3440 0.2692
2009 0.4559 0.3147 0.4193 0.3400 0.2551
2010 0.4531 0.3240 0.4326 0.3529 0.2512
2011 0.4634 0.3362 0.4008 0.3413 0.2551
2012 0.4694 0.3474 0.4208 0.3518 0.2540
2013 0.4674 0.3510 0.4201 0.3389 0.2560
2014 0.4489 0.3400 0.4577 0.3287 0.2507
2015 0.4214 0.3194 0.4346 0.3288 0.2462
2016 0.4109 0.3103 0.4018 0.3219 0.2438
2017 0.4125 0.3119 0.4252 0.3255 0.2429
Average 0.4553 0.2997 0.4045 0.3418 0.2592
Average increase −0.6674 0.5180 0.4536 −0.2243 −0.4899
theories based on the law of comparative advantage, it is impossible for a

country to export and import exactly the same commodity at the same
time—there must be some difference in what it exports and imports.
Therefore, there are no net barter terms of trade that specifically analyze
every of the commodities exported or imported. Accordingly, the index of
export and import prices in Formula 1.4 is not an individual one for a
given commodity, but a composite one for all the commodities or a type
of commodities. As the price index is an indicator of the quality, and,
according to the principles of index compilation, the derivation of a qual-
ity index generally adopts the Laspeyres index, IPx and IPm can be respec-
tively calculated using the following formulas:
P Q x
1i
x
0i
IPx i
(1.5)
P Q
i
x
0i
x
0i
P
j
m
1j Q0mj
IPm (1.6)
P
j
m
0j Q0mj
In Formula 1.5, P1xi stands for the export price of Commodity i within
the report period, P0xi for the import price of Commodity i within the base
period, and Q0xi for the export quantity of Commodity i within the base
period. In Formula 1.6, P1mj stands for the import price of Commodity j
within the report period, P0mj for the import price of Commodity j within
the base period, and Q0mj for the import quantity of Commodity j within
the report period.
According to Formula 1.4, if we set a given year as the base period and
a country’s NBTT as 100 in that year, we will be able to see the changes
in its net barter terms of trade within the report period by calculating its
price indexes of imports and exports. If its NBTT is greater than 100
within the report period, its trade terms have improved compared with
that in the base period; if its NBTT is smaller than 100, its trade terms
have deteriorated. Therefore, the NBTT does not reflect a country’s trade
interest or trade position at a given time point, but the changes in its trade
interest and trade position within a continuous trade process.
As the term indicates, the NBTT reflects the changes in a country’s
import capacity in exchange for its export of commodities, or, compared
with the quantity in the base period, how many import commodities it can
exchange by exporting one unit of commodities in the report period. If
the NBTT increases, this country is able to exchange more import com-
modities with one unit of export commodities compared with the base
period, or, in other words, its import capacity improves. If the NBTT
decreases, this country is able to exchange less import commodities with
one unit of export commodities compared with the base period, or, in
other words, its import capacity declines. Nonetheless, the real economic
activity is much more complicated and the changes in trade terms are the
result of multiple factors. Therefore, we should not generalize about the
NBTT’s influence on the trade interest of a country. Rather we must make
24 X. YANG ET AL.
specific analysis in this regard. In the course of economic growth, the dete-
rioration of a country’s NBTT does not mean the absolute deterioration
in its trade. NBTT focuses on the prices on the international market and
therefore reflects changes in the international value rather than the national
value. Similarly, even if the trade terms of a country remain constant, it
does not necessarily follow that there is no change in its trade interest—it
is probably because some changes in the trade interest caused by relevant
factors (such as cost, demand, and supply) are ignored.
As the NBTT describes, by means of price variation, the deterioration
or improvement of a country’s competition conditions on the interna-
tional market, it can directly reflect the changes in this country’s benefit
from its imports in exchange for exports. A rise in the NBTT indicates
relative increase in export prices or relative decrease in import prices,
which means a higher value of imported goods in exchange for exported
goods and, ceteris paribus, an expansion in the trade benefit. On the con-
trary, a decline in the NBTT indicates relative decrease in export prices or
relative increase in import prices, which means a lower value of imported
goods in exchange for exported goods and, ceteris paribus, a shrinkage in
the trade benefit.13 Therefore, the NBTT index is the most practical indi-
cator of the trade terms.
As we can find in Table 1.11, China’s NBTT is clearly on the decline.
1.3 Research Topics on the Dynamic Evolution

of China’s Comparative Advantages
From a global perspective, we are currently in a development stage of

multi-dimensional globalization; from China’s standpoint, it is now in a
historical period of growth transformation. China’s economic growth in
every stage is realized relying on the most basic comparative advantages
within certain institutional frameworks. China’s position in the world
economy is consistent with the size, structure, and quality of its compara-
tive advantages. Yet, as periodical growth factors, some comparative
advantages are bound to enter a stage of decreasing returns sooner or later
like other production factors. Therefore, in order to sustain long-term
13
As there are too many commodities in international trade, it is impossible to use the
individual price index in calculation of the price index. Usually we adopt the general price
index in the form of the weighted average of many commodity prices. So the NBTT reflects
not the absolute amount but the change in trade benefit.
Table 1.11 Changes in China’s NBTT, 1995–2017

Year Index of export prices Index of import prices NBTT
1995 100.00 100.00 100.00

1996 101.90 98.06 103.92
1997 102.86 95.15 108.10
1998 99.05 91.26 108.53
1999 96.19 94.17 102.14
2000 95.24 97.09 98.10
2001 92.71 96.99 95.58
2002 89.74 99.32 90.36
2003 91.63 100.51 91.16
2004 99.96 112.27 89.04
2005 102.66 118.33 86.76
2006 106.97 121.88 87.77
2007 112.43 129.44 86.86
2008 121.42 147.69 82.22
2009 113.90 127.46 89.36
2010 116.74 145.05 80.49
2011 129.12 166.51 77.54
2012 131.18 167.68 78.24
2013 130.40 164.83 79.11
2014 130.78 160.73 81.37
2015 127.66 140.64 90.77
2016 116.14 128.23 90.57
2017 117.06 136.70 85.63
growth of the Chinese economy through transformation, we must bring

into shape new sources or new portfolios of comparative advantages. For
China’s economic growth, it is necessary to rebuild its comparative advan-
tages so as to adapt to the demands of a new stage of growth.
In order to study the dynamic evolution of comparative advantages, it
is necessary to understand the inherent logic of the development of the
theory of comparative advantage, and it is particularly important not only
to unpack the theory itself but also to trace its historical development.
Starting with the attributes of comparative advantages, we will try to
understand how comparative advantages is able to evolve over time by
examining the development and the dynamic performance of the theory
of comparative advantage and how to assess the dynamic evolution and
dynamic capacity of comparative advantages. Our research will lay a solid
foundation for further analysis of the contents of the dynamic evolution of
26 X. YANG ET AL.
China’s comparative advantages. What problems does China face with in

the new stage of development of its comparative advantages? We must
make in-depth analysis from the perspectives of the trend and challenges.
How to evaluate the degree of dynamic evolution of China’s comparative
advantages in the international economy? This involves its net income in
the international trade and may be studied by way of a research on its trade
terms. Since the two famous development economists Raúl Prebisch and
Hans Singer put forward the theory of deteriorating trade terms for devel-
oping countries, there has been a protracted argument over it. As the
world enters a new round of globalization, the debate about this topic has
taken on new meaning and value. Through forty years of reform and
opening-up, China has grown into one of the most important economies
in international trade, and the relationship between China’s trade develop-
ment and trade terms has become an important part of research on its
dynamic comparative advantages. As the trade terms theory is rich in
meaning, it is worthwhile for us to further explore how to scientifically
and comprehensively estimate China’s trade terms and their changes in
different stages, and whether it is feasible to take changes in the trade
terms as a measurement of the dynamic comparative advantages. To meet
these challenges, however, we must seek and analyze what weakens the
trend of dynamic evolution of China’s comparative advantages. The effect
of China’s trade and industry policies on the dynamics of its comparative
advantages has always been a key focus of applied economics and theoreti-
cal studies. Yet only by making qualitative and empirical studies can we
accurately evaluate the effects of such policies. Obviously, we must con-
template the path of dynamic evolution of China’s comparative advan-
tages against the background of the dual constraints, i.e., the global
economic conditions and the domestic structural adjustments. Within the
analytical framework of endogenous and exogenous comparative advan-
tages, we must lay more emphasis on improvements of the endogenous
sources of comparative advantages, which are more sensitive to dynamic
changes, and put forward paths for the dynamic evolution of China’s com-
parative advantages. This is consistent with the real changes in the sources
of China’s comparative advantages.
The constraint of limited natural resources on economic growth is an
old topic. Since the times of Thomas R. Malthus, people have been paying
attention to the influence of the depletion of natural resources—such as
land, oil, and mineral resources—on growth, but growth stagnation due
to the consumption of natural resources has never occurred. This is
probably because technological progress, human capital, and the increas-

ing scale have offset the constraint of natural resources on growth. Yet
what effect will the exhaustible resources have on the dynamic evolution
of China’s comparative advantages? One of the characteristics of natural
resources is that they are largest in stock in the primary stage, but with the
increase of resource consumption their stock decreases. Therefore,
resource constraint does exist unless alternatives can be found at a large
size. According to the theory of exogenous comparative advantages, the
difference in resource endowments determines the comparative advan-
tages among countries. As it is short of resources on a per capita basis,
China is subject to an obvious resource constraint on the dynamics of its
comparative advantages, which will impede its economic growth. Our first
consideration should be given to the transformation and development of
the resource-based economy. Yet the further question is how a resource-
deficient country can obtain comparative advantages in international com-
petition. Now that the opening economy has provided external conditions
for China to break away from its resource constraints, the theory of endog-
enous comparative advantages must focus on how to obtain comparative
advantages—other than resource advantages—under the condition of an
opening economy. Endogenous comparative advantages are not necessar-
ily related to the resource endowments of a country—they are not
endowed by nature, but created by this country or acquired through hard
work. Two countries similar in resource endowments can be quite differ-
ent in their competitiveness. A country with better resource endowments
may not be highly competitive, while a country with poor resource endow-
ments may be highly competitive—there are plenty of such examples.
Therefore, an important topic for the development strategy of a major
country is how to create new competitive advantages or shake off the
resource dilemma during the transformation of the resource-based
economy.
Fundamentally, a country’s comparative advantages are determined by
its factor endowment structure. For this reason, it is believed that factor
accumulation is the core of the dynamic evolution of comparative advan-
tages.14 With the accumulation of production factors, the internal factor
endowment will change, so will the comparative advantages. Under the
14
Justin Yifu Lin and Li Yongjun, “Comparative Advantages, Competitive Advantages,
and the Economic Development of Developing Countries,” Management World, no. 7
(2003): 21–28.
28 X. YANG ET AL.
condition of economic opening-up, a country’s dynamic comparative

advantages depend, to some extent, on the relative changes in the factor
endowments of other countries. Yet what relationship among the factors
is the most conducive to the improvement of the comparative advantages?
Some economists analyzed the rapid economic growth in Japan and other
East Asian countries and found that the most important driving force for
the economic miracles therein is not necessarily a high-level savings rate or
more efficient technological progress, but a high level of capital-labor sub-
stitution elasticity in these countries. It is thus necessary to take into con-
sideration the relation between factor substitution and economic growth
when we study the core issue of the dynamic evolution of comparative
advantages, namely, factor accumulation. As for China, it has achieved a
high level of capital-labor substitution elasticity and sustained rapid eco-
nomic growth since the implementation of reform and opening-up. But
how to realize long-term, steady economic growth under decreasing mar-
ginal returns to investment? With the development of the Chinese manu-
facturing—especially with the rapid growth of China’s labor- and
resource-intensive industries, the prices of labor, energy, and other factors
gradually increase, so do the production costs of the Chinese manufactur-
ing.15 Therefore, we must value the capital-labor substitution elasticity in
economic growth, comprehend the relationship between factor substitu-
tion and dynamic comparative advantages in the course of factor accumu-
lation in light of factor substitution and technological progress, and realize
the effective and rational allocation of factors by means of technological
progress, so as to boost the dynamic evolution of China’s comparative
advantages.
Closely related to the factor endowment structure is human capital.
The positive correlation between human capital accumulation and eco-
nomic growth has long been confirmed by economists. In the theory of
comparative advantages, human capital accumulation is closely related to
endogenous sources, such as learning by doing, technological innovation,
labor division, and professionalization. Human capital accumulation is dif-
ferent from physical capital accumulation in that, as Robert E. Lucas Jr.
15
From 2001 to 2010, the total costs of Chinese manufacturing (including capital, labor,
energy, and input in intermediate goods) increased by 3.19 times, or approximately 13.76%
annually (Statistics provided by the author). Meanwhile, the value added of Chinese manu-
facturing increased from RMB 3461.423 billion in 2001 to RMB 8850.267 in 2010, up by
2.56 times or an annual average of 10.99% only (The World Bank database).
pointed out, the former follows a law—a certain degree of endeavor results
in the growth of the human capital stock at a constant rate, irrelevant to
the size of the existing stock.16 As Lucas further pointed out, human capi-
tal accumulation is a social phenomenon that involves human groups, and
therefore poles apart from physical capital accumulation in forms.17 Yet
while making further studies on the role of human capital in the dynamic
mechanism of comparative advantages, we have to distinguish the con-
cepts of human capital stock and human capital structure, which are cor-
related but different in meanings. Theodore W. Schultz made a clear
distinction between the two because, in his eyes, the productivity value of
human capital endowment depends largely on its composition which is
related to the opportunity on the market that serves it. According to
Schultz, the heterogeneity of the concept of human capital is reflected in
the incremental way in which wages increases with the level of professional
training workers have received. In fact, he agreed that the composition of
human capital has a greater influence on technological absorption and
innovation than the average stock of human capital does. Of all the factors
boosting economic growth and convergence of income levels, which
makes a greater contribution? The human capital stock or the human capi-
tal structure? This depends on which stage of development a country is in
and its socioeconomic structure. As there is abundant literature on human
capital and the dynamic evolution of comparative advantages, we will
focus on the role of human capital structure, highlighting the importance
of the optimization of human capital composition. According to the
meaning of dynamic comparative advantages, they are closely related to
human capital accumulation. In our findings, apart from the fact that, as a
production factor, human capital boosts comparative advantages, the
structural optimization of human capital and human capital stock contrib-
ute to the realization of dynamic comparative advantages. As a source of
dynamic comparative advantages, the structure of human capital was
already discussed in earlier literature of economics of development. When
discussing appropriate technology that matches the technological demand
of a developing economy, people have come to see that the real value of
localized education will exceed that of ubiquitous education. And this is in
fact a matter of human capital structure. As the structure of human capital
16
Theodore W. Schultz, Origins of Increasing Returns (Beijing: Peking University Press,
2001), 25.
17
Ibid.
30 X. YANG ET AL.
underlines, different stages of development and different levels of industri-

alization require different types of professionals and different structures of
knowledge. When human capital stock reaches a certain threshold, the
rationality of human capital structure—the appropriate match with the
structure of human capital demand—will play a fairly positive role on the
dynamic evolution of comparative advantages. It is generally believed that
the establishment of a state innovative system is important part of social
innovation, without which it is impossible to directly link up the techno-
logical gap and the special knowledge gap,18 and technological innovation
cannot gain effective support from intellectuals, organizations, or other
social resources. Therefore, the stability and diversity of a country’s inno-
vative system is an indicator of its capacity to boost technological accumu-
lation. Undoubtedly, technological innovation is an important source of
endogenous comparative advantages, whereas the innovative system is the
source of exogenous comparative advantages. Technological progress
requires support of the innovative system. An innovative system can be
regional, sectoral, national, or global. In such a big country as China,
whether its regional innovative systems work has a direct influence on the
efficiency of the national innovative system. Based on the uneven regional
development and the fundamental role of the regional innovative system
in China, we will focus on the country’s regional innovative system while
studying the technological innovation mechanisms. By analyzing the
weaknesses in China’s regional innovative capacity, we will aim at support-
ing the development of regional innovative capacity, so as to facilitate the
progress in China’s overall comparative advantage.
Is industrial agglomeration another source of endogenous comparative
advantages? The answer is yes. Agglomeration leads to economies of scale
and is positively significant for the formation and development of com-
parative advantages. On the one hand, such agglomeration is the cluster-
ing of enterprises. It not only results in advantages of the enterprise
clusters, but also gains competitive advantages for and boosts the develop-
ment of individual enterprises within the aggregation area, which further
facilitates the expansion and growth of the whole aggregation area.
Agglomeration economies refer to the aggregation of the production of
correlated products on a certain scale in a certain area, which reduces the
18
Paola Criscuolo and Rajneesh Narula, “National Absorptive Capacity and the Stage of
Development,” Report at Conference on “Innovation, Learning and Technological
Dynamism of Developing Countries,” (2013) Maastricht.
production costs or transaction expenses of the enterprises. On the other

hand, such agglomeration is also the concentration of factors. As enter-
prises aggregate, the factors also concentrate more quickly in a particular
space. As it reduces the factor and transaction costs, the agglomeration of
factors and enterprises can stimulate the industrial growth within a given
space, giving rise to the “oasis effect.” Under the trend of deepened devel-
opment of the international division of labor, regional industrial aggrega-
tion and division is the basis for establishing industrial comparative
advantages. Industrial agglomeration and comparative advantages are cor-
related variables that determine growth. They reflect the spatial heteroge-
neity of industrial economic behavior and resource endowments from
different perspectives. Comparative advantages are the basis of industrial
agglomeration, while the cyclical growth of industrial agglomeration accu-
mulates and creates new advantages. In this way, we can realize the
dynamic evolution of comparative advantages and boost the structural
upgrading of comparative advantages. In China, a big developing country,
there are large gaps in its regional comparative advantages. Meanwhile,
due to the heterogeneity of its industrial agglomeration, there are signifi-
cant differences in its regional growth effect as well as in the speed of
dynamic evolution of comparative advantages in its different regions.
Therefore, the conflict and integration of dynamic evolution of compara-
tive advantages with industrial agglomeration is the key to boosting
regional growth transformation and coordinated regional development.
To study the dynamic evolution of China’s comparative advantages, it is
impossible to avoid industrial agglomeration in the country.
Is the size of the local market a new source of comparative advantages?
If there is an “excessive demand” for a commodity in a given region, such
need in the regional market will produce an “amplification effect” which
causes the production to exceed the demand right there and thus realizes
the export of this product. This is an important concept in spatial eco-
nomics—“the domestic (home) market effect.” The amplification effect of
such an “excessive demand” originates in the increasing returns to scale
and the agglomeration effect. In the comparative advantage model, the
excessive demand for a commodity will result in its export, and in the
returns-to-scale model, a region with an excessive demand will become
the area of production and export of this product.19 In other words, if an
19
D. R. Davis and D. E. Weinstein, “Does Economic Geography Matter for International
Specialization?” National Bureau of Economic Research, no. w5706 (1996).
32 X. YANG ET AL.
industry has a home market effect within a region, there must be a large
local demand for this industry, and to choose the industrial location on
that basis can most efficiently improve the efficiency of resource alloca-
tion. According to the view of the “home market effect,” we must realize
that economies of scale that exceed the factor endowments are a new
source of comparative advantages. A similar topic for research is how to
bring into play the comparative advantage of China’s market integration.
Similar to industrial agglomeration, market integration can be regarded as
a source of endogenous comparative advantages because of its economies-
of-scale effect. As Adam Smith narrated in The Wealth of Nations, the
deepening of the division of labor and the expansion of the market will
give rise to economies of scale. According to Smith, all economic entities
in the division of labor are both producers and consumers, and there is a
self-expansion mechanism, which keeps accumulating, between the divi-
sion of labor and the expansion of the market. Moreover, the division of
labor in different industries has an interactive effect, causing constant
improvements of professional collaboration and market dependence of the
overall economy. This is the dynamic mechanism among the division of
labor, increasing returns, and economies of scale. Undoubtedly, market
integration will facilitate this dynamic mechanism, whereas market seg-
mentation will impede or ruin it. Through an empirical analysis of the
segmentation and integration of the Chinese market, we find that the scale
economies effect generated in this process is another force that boosts the
dynamic evolution of comparative advantages.
When comparative advantages are studied as the basis for a country’s
participation in the international trade, the interactive relationship between
trade development and comparative advantages is usually ignored—even
though trade in itself can be a way to obtain comparative advantages.
Meanwhile, based on the expansion of the source of comparative advan-
tages under economic opening-up, the factors of development are better
positioned to break the limitation of traditional boundaries and flow
worldwide. In fact, the interaction between import and export is the most
important way to facilitate the formation of state capital, technological
progress, and structural adjustments. Therefore, the key to a country’s
realization of its dynamic transformation of comparative advantages is to
effectively “settle down” the factors of development flowing among coun-
tries by means of the factor-induced and factor spillover effects in its
imports and exports. A remarkable characteristic of the Chinese economy
is a long-term trade surplus in the world market and the international
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8 I nteractive Development of Imports and Exports

Xianming Yang Development Institute, Yunnan University, Kunming,

Ming Wu Development Institute, Yunnan University, Kunming, China

Fig. 1.1 China’s Dynamic Capacity for Comparative Advantages 16

Fig. 5.4 Average Values of Regional Large-Scale Agglomeration

Table 1.1 China’s Factor Accumulation, 1995–2017 9

Table 5.1 Measurement of Regional Agglomeration of Four

Table 8.6 Johansen Co-Integration Relationship Test 215

Why the Dynamic Evolution of China’s

Xianming Yang, Ning Huang, and Sujun Shao

1.1 The Dynamic Evolution of China’s

X. Yang (*) • N. Huang • S. Shao

© The Author(s), under exclusive license to Springer Nature 1

distortion caused by intense intra-government competition in investment

signs in China’s economic performance indicate that the Chinese econ-

indeed substantial increases in the value added of China’s high-tech indus-

overcome the “middle-income trap.” With the gradual disappearance of

economic globalization. It is unnecessary and impossible for China to dis-

1.2 Trends in the Dynamic Evolution of China’s

1.2.1 Changes in China’s Capability for the Dynamic

1.2.1.1 China’s Factor Accumulation

1.2.1.2 China’s Technological Progress

Table 1.1 China’s Factor Accumulation, 1995–2017

1995 813.93 1071.1 0.1316 0.0082

Source: National Data (http://data.stats.gov.cn/), sorted and calculated by the author

rocketed from 3.39 thousand items to 421.14 thousand items, up by

1995 4944 3.39 34.9 0.57 0.7517 1.104 0.0021

1997 5787 3.49 50.9 0.64 0.8312 1.190 0.0243

became more prominent or started to transform and thus materialize the

1.2.1.3 China’s Realization of Economies of Scale

1.2.1.4 China’s Accumulation of Human Capital

Table 1.3 China’s Realization of Economies of Scale, 1995–2017

1995 3.1738 0.0422 0.3850 0.3684

Source: National Data (http://data.stats.gov.cn/), sorted and calculated by the author

by 13.826 persons. Boosted by the constant increase of these indicators,

Table 1.4 China’s Accumulation of Human Capital, 1995–2017

1995 4570 0.689 29.022 0.0031

Source: National Data (http://data.stats.gov.cn/), sorted and calculated by the author

1.2.1.5 China’s Trade Policy Inclination

Table 1.5 China’s Trade Policy Inclination, 1995–2017

1995 2.6414 8.3510 1.0326 0.6555

Source: National Data (http://data.stats.gov.cn/), sorted and calculated by the author

inclination is not only conducive to expanding the size of international

1.2.1.6 Evaluation of China’s Dynamic Capacity

have an equal effect on the dynamic capacity for comparative advantages,

Table 1.6 China’s Dynamic Capacity for Comparative Advantages, 1995–2017

1995 0.0082 0.0021 0.3684 0.0031 0.6555 0.2075

scale—which was also caused by a lower marginal output of capital—and

1.2.2 Changes in China’s Comparative Advantages

1.2.2.1 China’s Export Trade

Fig. 1.1 China’s Dynamic Capacity for Comparative Advantages

Table 1.7 China’s Export Trade, 1995–2017

5 I ndustrial Agglomeration and Dynamic Evolution of

8 I nteractive Development of Imports and Exports

Fig. 1.1 China’s Dynamic Capacity for Comparative Advantages 16

Table 1.1 China’s Factor Accumulation, 1995–2017 9

Table 8.6 Johansen Co-Integration Relationship Test 215

1.2.1.1 China’s Factor Accumulation

1.2.1.2 China’s Technological Progress

1.2.1.3 China’s Realization of Economies of Scale

1.2.1.4 China’s Accumulation of Human Capital

1.2.1.5 China’s Trade Policy Inclination

1.2.1.6 Evaluation of China’s Dynamic Capacity

1.2.2.1 China’s Export Trade

1.2.2.2 The Revealed Comparative Advantages of China’s

1.2.2.3 China’s Index of Concentration on the International Market

1.2.2.4 China’s International Market Diversity Index

1.2.2.5 China’s Net Barter Terms of Trade