The Integration of China and East European Countries in Global Networks Les Etudes de l'Ifri, No. 2, Paris, Ifri, 2004
The emergence of global production networks (GPNs) has a major impact on trade between low- and high-wage countries. This paper explains that multinationals from Japan, the United States and Europe have nevertheless not developed their global networks to the same extent and with the same purposes. It first focuses on trade between China and the Triad regions. It then examines intra-firm trade by companies located in France, comparing trade patterns with China on the one hand and with Central and Eastern European countries (CEECs) on the other hand.
The examination of French intra-firm trade (IFT) confirms that European groups focus on the Chinese local market, while American and even more Japanese companies tend to be more involved in vertical trade with China. These differences may be related to the international specialization of European countries. In the case of France, for example, aerospace products represent a major export to China, and they do not generate much intra-firm trade or vertical specialization. On the contrary, there is intense IFT, including for transformation, in consumer electronics, for which European countries typically have no comparative advantage. IFT in electronics is largely organized by foreign subsidiaries.
The role of wage levels in the location of production and trade flows is often underscored in the economic literature. This consideration is indeed important when comparing the role of China and CEECs in world trade and their respective positions in GPNs. The paper nevertheless draws attention to the importance of the specialization of flagships' home country. The comparison between the car industry and electronics is a case in point. One major characteristic of European multinationals is thus related to the comparative advantage of major European countries in the car industry. French IFT patterns also confirm the regional focus of GPNs. The geographical patterns of IFT with CEECs are strongly influenced by the proximity with EU countries, in particular France and Germany. Conversely, American and Japanese firms weigh relatively more in IFT between France and China. One specific characteristic of European multinationals is thus related to the integration of the EU and the enlargement process.
Frédérique Sachwald is Head of Economic Studies at Ifri and adjunct professor at University Paris Nord.
A previous version of this study has been presented at the Tokyo Club Research Meeting, held at the Brookings Institution, Washington, D.C., on February 8-9 2004.
The author is indebted to Vincent Vasques and Rachid Zairi for research assistance.