This paper provides a comprehensive overview of China’s processing trade using highly disaggregated 2010 transaction-level data. By highlighting the key role of processing trade in China’s foreign trade, we argue that various free-trade zones have served as important instruments in boosting processing trade. We then explore various characteristics of processing imports from both industry-level and firm-level perspectives: origin countries of imports, main products, transport modes, entry ports, consumption destinations, quality of commodities, and scope of processing trade. A careful estimation of firm-level total factor productivity using the Olley–Pakes approach suggests that processing firms are less productive than non-processing firms. We also contribute to the literature by offering an efficient way of matching firm-level production data with transaction-level trade data, a rather challenging task due to data format restrictions.

Keywords:Processing Trade, Export Processing Zones, Quality of Products, Firm Scope, Total Factor Productivity, Transaction-Level Trade Data, Firm-Level Evidence

JEL Code:F1, L1, O1

[1] Corresponding Author, China Center for Economic Research, National School of Development, Peking University, Beijing ,100871, China. Tel: (+86)10-6275-3109; Email: mjyu@ccer.pku.edu.cn .

[2] Department of Applied Economics, Guanghua School of Management, Peking University, Email: Wei.tian08@gmail.com .