assembled imported parts and components - - as a share of china ’ s total exports have been falling steadily for several years. this trend in part reflects weak global demand, as weaker demand for final goods and services from the advanced economies should have led chinese processing exports to fall disproportionately. it is also consistent with the deceleration of global supply chain formation. although global factors have undoubtedly played a role, however, the evidence suggests that a substantial part of the slowdown in chinese trade reflects developments that are specific to the chinese economy and that are likely to exert a lasting imprint on global trade. 9 first, the rapid expansion of china ’ s manufacturing base over the past 15 years - - made possible by vast reserves of cheap, rural labor - - may simply be reaching its natural limit. accordingly, we would expect china ’ s manufacturing exports to slow. second, china is moving up the sophistication ladder by producing some higher valueadded parts and components itself, instead of importing them. one manifestation of this phenomenon is the higher domestic value - added in chinese exports in recent years, shown by the gray bars in this slide, relative to the period before the global financial crisis. another manifestation can be seen in slide 9, which shows the decline in the share of parts and a recent note from the banque du france - - gaullier, steingress, and zignago ( 2016 ) - - argues that the long run elasticity of world trade to income is unity, and that structural changes in china go a long way in explaining both the sharp rise in the elasticity in the years before the global financial crisis and the subsequent decline in the post - crisis years as china rebalances toward domestic demand. components in china ’ s total manufactured imports from about 65 percent in 2005 to under 50 percent in 2014. 10 these two pieces of evidence suggest that the shift away from parts and components in chinese imports is not just due to lower orders tied to weak import demand in the advanced economies, but also due to the rising productivity and sophistication of the chinese labor force, which is enabling china to move to higher value - added exports. as china moves up the sophistication ladder, you would also expect other countries to take a greater role in the lower steps of the ladder. we do have evidence that some other countries with cheaper labor, such as vietnam and bangladesh, are playing more of a role as exporters in the low - value

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