Figure 4.6 presents Chinese imports of electronic equipment in the two
experiments. The GVC model shows substantial deviations from the standard
GTAP model, particularly for countries outside of East Asia. In many cases,
countries have higher exports in the GVC experiment. In both models, the
resulting rise in China’s real exchange rate causes substitution away from
Chinese sourcing of electronics inputs. Only the GVC model, however,
captures the important differences between Chinese processing and nonprocessing
imports. In this model, Chinese non-processing imports rise, but
Chinese processing imports fall. Even though these imports fall by 10–20
per cent for many countries, processing zones become relatively less reliant
on domestic sourcing because of the even greater (42 per cent) decline in
domestic inputs. Hence, the overall change in Chinese imports from a particular
source depends on how involved that source is in Chinese processing trade.
For many countries in East Asia, the declines in processing imports dominate