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China is facing serious water scarcity, and the effects of international trade on its water resources have been widely examined. Processing exports account for nearly half of China's gross exports. Adopting China's multi-regional input–output table that captures processing exports, we enrich the literature on virtual water exports by accounting for trade heterogeneity. The results show that China's virtual water exports show a significant trade heterogeneity. Normal and processing exports are attributed to 86.7% and 13.3% of the Agriculture sector's water use induced by exports respectively. Conversely, normal and processing exports are attributed to 31.8% and 68.3% of the Communications Equipment, Computers sector's water use induced by exports respectively. In addition, a cross-regional compensation is needed to deal with the unequal regional distribution of water uses and economic benefits related to exports. [ABSTRACT FROM AUTHOR]

Distinguishing processing trade is crucial to national input-output table-based research on China's international trade. This paper further investigates the importance of distinguishing China's processing trade in multicountry input-output table-based studies. We focus on the bias in China's bilateral trade in value added caused by China's undistinguished processing trade. We construct a product-by-product world input-output table capturing China's processing trade based on the World Input-Output Database. Empirical studies show that, if China's processing trade is undistinguished, the profile of China's bilateral trade in value added would be seriously distorted; China's bilateral net trade in value added with some economies, such as Japan, Korea and Taiwan, would be significantly underestimated, while it would be significantly overestimated for some other economies, such as the United States. Distinguishing processing trade in multicountry input-output tables is also crucial when China's bilateral trade in value added is considered. [ABSTRACT FROM AUTHOR]

Vertical specialization (VS) is often measured by the import contents of the exports, using an input–output (I–O) framework. Half of China's exports are processing exports, which largely depend on imported intermediate inputs and tie up upstream as well as downstream trade partners. Thus, one would expect to find strong VS for China. Using the ‘ordinary’ I–O tables, however, this is not the case. Because the production of processing exports is only a small part of total production, the average input structure in the I–O table hides the typical features of processing exports. Using adapted, tripartite I–O tables (for 2002 and 2007) in which the processing exports have been singled out, indeed reveals the expected strong VS in China. [ABSTRACT FROM AUTHOR]