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The domestic production network in China has been affected by multiple shocks in recent years, and this study reveals the dynamic changes of the shocks' effects. Based on a domestic trade model with industry-level unobserved factors, we examine the trends of multiple shocks to the domestic market of China's manufacturing industries and find that the domestic market has been bolstered by upward shocks until 2010, while has been depressed by downward shocks thereafter. Furthermore, based on multi-regional input–output analysis, we evaluate the impacts of domestic market shocks on industries' value-added in the domestic value chain (DVC). We find that from 2004 to 2012, the domestic market shocks significantly promoted industries to participate in DVC embodied in the global value chain (DVC1), while after 2012 the shocks began to promote industries to participate in DVC completely based on endogenous capabilities (DVC2). However, the DVC2 position has not been upgraded by domestic market shocks. From another perspective, we investigate the impacts of domestic market shocks on the industrial linkage structure and find that the impact on industries' centrality turns from negative to positive after the 2008 global financial crisis. [ABSTRACT FROM AUTHOR]

This study examines multiple shocks to the external market of China's manufacturing industry based on a trade model with multi-level unobserved factors. We find that the global external market of main industries is suffering constant downward shocks since 2008, while the traditional (non-traditional) markets are further affected by downward (upward) shocks. Private enterprises are more sensitive to shocks. Further, the adjustment of US trade policy toward China has caused China's exports to the US to deviate from the normal path by around 10% from 2015 to 2019, while having no significant effect on China's exports to the other traditional markets. [ABSTRACT FROM AUTHOR]