The Impacts of Japanese and US Outsourcing on Chinese Firms

This paper investigates the impact of manufacturing outsourcing to China from its two biggest trading partners - the USA and Japan, for the period of 1990–2008. Both a fundamental model and an augmented model are established, using export data of intermediate goods and two subcategories, processed goods and parts and components (P&C). We find that output growth is positively correlated with outsourcing, and outsourcing from the USA and Japan exerts lower effects than the average level. Our results show that Chinese outsourcees not only access higher productivity than their domestic non‐outsourcee counterparts, but also generate spillover effects to the non‐outsourcees. Moreover, outsourcees of Japanese multinational corporations (MNCs) gain more technological advantage while outsourcees of US origin act as a more effective external stimulus to increase production of non‐outsourcees in China.