The Role of High-Speed Railways in Advancing China’s Position in Global Value Chains

The study explores how China's high-speed railways (HSR) enhance domestic value-added in exports by connecting exporters with local suppliers, reducing costs, and diversifying inputs. Using innovative methodologies, it highlights HSR’s transformative role in advancing global value chains and economic modernization.

The study "Firm Linkages and Domestic Value Added in Exports: Moving up the Global Value Chains with High-Speed Railways," authored by Hiau Looi Kee from the World Bank, Enze Xie of Zhejiang University, and Mingzhi Xu of Peking University, investigates how high-speed railways (HSR) drive China's domestic value-added ratio (DVAR) in exports. Conducted under the World Bank's Development Research Group, this research pioneers a method for estimating firm-level DVAR using customs transaction data. By bypassing traditional reliance on input-output tables, it offers a dynamic perspective on how infrastructure reshapes firm linkages. The study aligns with China’s rapid infrastructure modernization since 2000, particularly the expansion of its HSR network, and examines its role in the nation’s strategic climb in global value chains.

High-Speed Railways: A Catalyst for Growth

China’s growing HSR network has had transformative economic implications. By connecting exporters with domestic suppliers, HSR has enabled firms to substitute imports with locally sourced materials, enhancing the domestic value embedded in exports. The study demonstrates that HSR reduces communication costs, promotes efficient interactions, and lowers material prices by facilitating supplier connections over long distances. This shift increases access to diverse domestic inputs, driving up DVAR and reducing dependency on foreign supply chains. Using a two-sector model, the authors establish that this connectivity not only reduces costs but also spurs regional integration and economic dynamism.

A Novel Approach to Measuring Domestic Value-Added

The research introduces a groundbreaking methodology to calculate firm-level DVAR. Traditional approaches, which rely on aggregate data from input-output tables, often obscure firm-level dynamics and are less effective in countries without comprehensive census data. Instead, this study uses customs transaction data to estimate the share of imports used in exports, yielding a more accurate depiction of firm behavior. Additionally, it innovates a method to map firm-level input-output linkages by matching import and export product codes, creating a nuanced understanding of how HSR facilitates domestic supply chain integration. These methodological advancements enable broader applicability, particularly for developing economies.

Transformative Impacts on Firms and Industries

The findings reveal that HSR expansion has disproportionately benefited certain types of firms and industries. Foreign-invested enterprises, processing firms, and those in high-tech sectors like electronics have experienced the most significant DVAR gains. HSR’s ability to efficiently connect firms with domestic suppliers over medium-to-long distances has been particularly impactful. Additionally, firms importing homogeneous inputs have seen greater increases in DVAR, as these materials are more easily replaced with domestic alternatives. Geographically, regions newly connected to the HSR network have exhibited marked improvements, underscoring the infrastructure’s role in fostering equitable development across China’s diverse economic landscape.

Implications for Global Economic Strategies

China’s experience offers valuable lessons for other nations seeking to ascend global value chains. The study underscores the critical role of modern infrastructure in enabling countries to capture greater domestic value in exports. While trade liberalization and foreign direct investment have traditionally been seen as primary drivers of economic upgrading, this research highlights the complementary importance of transportation networks. By reducing logistical barriers and enhancing domestic material competitiveness, HSR contributes to structural transformation and economic resilience. The insights extend beyond China, offering a replicable framework for policymakers in developing countries aiming to strengthen their participation in global production systems.

A Roadmap for Sustainable Growth

The research offers compelling evidence of HSR’s transformative potential in enhancing domestic value creation and advancing global economic integration. By linking exporters with domestic suppliers and fostering efficient resource use, HSR emerges as a vital driver of economic modernization. The study not only sheds light on China’s success in moving up the value chain but also provides actionable insights for other nations. The authors emphasize the broad applicability of their methodology, which leverages customs transaction data and firm-level linkages to analyze domestic value-added dynamics in diverse contexts. With ongoing efforts to expand this approach globally, including analyses of other countries, the research stands as a testament to the critical role of infrastructure in fostering inclusive and sustainable economic growth.