Trade, production fragmentation, and China's carbon dioxide emissions

An input-output framework is adopted to estimate China's carbon dioxide (CO2) emissions as generated by its exports in 2002. More than one half of China's exports are related to international production fragmentation. These processing exports generate relatively little value added but also relatively little emissions. We argue that existing estimates of the CO2 content of China's exports are significantly biased because production fragmentation has not been taken into account appropriately. Using a unique tripartite input-output table, we are able to distinguish processing exports from normal exports. Our results show that China's emissions as embodied in its exports are overestimated by more than 60% if the distinction between processing exports and normal exports is not made. Another finding is that each Yuan of value added generated by processing exports leads to 34% less CO2 emissions than a Yuan of value added generated by normal exports.