The Federal Reserve Board published a FEDS Note analysing how the sectoral composition of China’s exports and imports has evolved and how closely it now resembles the trade baskets of advanced economies. The note introduces a directed “Partner Similarity Index” (PSI) that measures how well an exporter’s sectoral export profile matches an importer’s sectoral import profile, and uses it to document China’s shift toward exporting in the same sophisticated product categories as advanced economies alongside a reduced alignment between Chinese import demand and some advanced-economy export specialisations. Using 3-digit Harmonized System trade data from UN Comtrade for 2010–2023, gravity-model estimates show PSI is strongly associated with bilateral trade flows, with a one percentage point increase in PSI linked to roughly a 2.7% increase in imports (average PSI across partners of 42.9%, standard deviation 14.3%). Over 2010–2023, China’s export similarity increased most with the euro area (up 10%) and also rose with Japan (up about 6 percentage points), with much of the euro-area change attributed to machinery and transport equipment, including a rise in road vehicles’ share of China’s exports from 2.9% in 2013 to 5.9% in 2023. By contrast, the similarity between euro-area exports and Chinese imports fell, largely reflecting declining Chinese imports in machinery and transport equipment, with road vehicles dropping from about 4.5% of Chinese imports in 2013–2017 to 2.7% in 2023; similarity between US exports and Chinese imports remained broadly flat as lower machinery-related imports were offset by higher energy-import shares. The note also points to a post-2017 divergence between rising potential complementarity (as measured by PSI) and realised trade outcomes for some countries, highlighting that the US import share sourced from China declined despite increasing alignment, suggesting trade tensions and restrictions may have affected trade patterns.
Federal Reserve Board 2025-02-28
Federal Reserve Board research introduces a Partner Similarity Index and finds China’s exports increasingly aligned with advanced-economy trade baskets
The Federal Reserve Board's FEDS Note examines China's trade evolution, noting a shift towards exporting sophisticated products akin to advanced economies. It introduces a "Partner Similarity Index" (PSI) to measure export-import alignment, showing increased export similarity with the euro area and Japan, while Chinese import similarity with the euro area declined. The note also observes a divergence between potential complementarity and actual trade outcomes post-2017, suggesting trade tensions may have influenced patterns.