Machinery and Chinas Trade-Growth Nexus 741 the labour intensity of the mechanical and electronic exports exceed those sold in the domestic market by an extremely wide margin Our analysis thus makes a necessary correction to the picture of China's exports composition painted by the World Bank (1994). This study, which provides comprehensive analysis of the relative labour productivity of the industries corresponding to Chinas exports, covers the period up to 1990 and concludes that for the near term, Chinas major export opportunities mainly lie within the labor intensive products '(p 255) This conclusion appears to be farfetched in view of its own findings. In the main, the study emphasizes the exports expansion of labour intensive products like clothing, footwear and toys and sporting goods, which combined to increase their share in total exports from 10. 4 per cent in 1980 to 16.7 per cent in 1985 and 31.6 per cent in 1990. Yet the study also recognizes that the sector whose share in China's exports grew the fastest over 1985-90 was actually electrical machinery-from 1 2 per cent in 1980 to 1.9 per cent in 1985 and 10.5 per cent in 1990-and that virtually all products in this sector are classified as capital intensive according to the criterion of relative value added per employee(World Bank, 1994; Table I in Annex 7.2). The main reasons for drawing the conclusion, therefore, seer to be two: first, that by 1990 labour-intensive products still accounted r a over whelming share of total exports, and, second, that compared with the early or mid 1980s the exports share of these products was on a rising trend The acceleration of the rate of growth of non-labour intensive exports like electrica machinery, however, implies that a linear projection of this kind might not be appro- priate. In other words, the growth of exports that do not accord with the given comparative advantage implies that there is no pre-determined, natural path of exports growth. The fast increasing exports share of mechanical and electronic products in the subsequent years through 1996 appears to confirm such a judgement 3 THE GROWTH SIDE: THE CENTRALITY OF TECHNOLOGICAL DEVELOPMENT That a significant and increasing share of China's manufacturing exports is not plained by the country's endowment-determined comparative advantage implies that we need to turn to look for the sources of competitiveness from the production side of the trade-growth nexus. In this section, we give a schematic account of the pattern of China's industrial growth over the 1980-96 period that puts technology imports and development at the centre. This is to provide the background for our more detailed analysis of the insights that can be derived from the case of the electronics industry. In the first place, however, it is intended to assess the impact of trade on growth from an alternative perspective Table 6 presents a picture of structural change of Chinese industry, which contrasts arply with the evolution of the country's exports composition. It is particularly noted that the industries that have been chiefly responsible for the expansion of facturing exports, i.e., textiles, clothing and leather prc are in fac main loser in terms of their output shares in Chinese industry as a whole-from 18 per cent in 1980 to 12 per cent in 1996. In contrast, the mechanical and electronic industry has its output share increased from 22 to 27 per cent. But this sector started exports expansion only from 1988 and was in fact a laggard in this respect before 01998 John Wiley Sons, Ltd J.mnt.Dev.10,733-74901998)the labour intensity of the mechanical and electronic exports exceed those sold in the domestic market by an extremely wide margin. Our analysis thus makes a necessary correction to the picture of China's exports composition painted by the World Bank (1994). This study, which provides a comprehensive analysis of the relative labour productivity of the industries corresponding to China's exports, covers the period up to 1990 and concludes that `for the near term, China's major export opportunities mainly lie within the labor￾intensive products.' (p. 255) This conclusion appears to be farfetched in view of its own ®ndings. In the main, the study emphasizes the exports expansion of labour￾intensive products like clothing, footwear and toys and sporting goods, which combined to increase their share in total exports from 10.4 per cent in 1980 to 16.7 per cent in 1985 and 31.6 per cent in 1990. Yet the study also recognizes that the sector whose share in China's exports grew the fastest over 1985±90 was actually electrical machinery Ð from 1.2 per cent in 1980 to 1.9 per cent in 1985 and 10.5 per cent in 1990 Ð and that virtually all products in this sector are classi®ed as capital intensive according to the criterion of relative value added per employee (World Bank, 1994; Table 1 in Annex 7.2). The main reasons for drawing the conclusion, therefore, seem to be two: ®rst, that by 1990 labour-intensive products still accounted for a over￾whelming share of total exports, and, second, that compared with the early or mid- 1980s the exports share of these products was on a rising trend. The acceleration of the rate of growth of non-labour intensive exports like electrical machinery, however, implies that a linear projection of this kind might not be appro￾priate. In other words, the growth of exports that do not accord with the given comparative advantage implies that there is no pre-determined, natural path of exports growth. The fast increasing exports share of mechanical and electronic products in the subsequent years through 1996 appears to con®rm such a judgement. 3 THE GROWTH SIDE: THE CENTRALITY OF TECHNOLOGICAL DEVELOPMENT That a signi®cant and increasing share of China's manufacturing exports is not explained by the country's endowment-determined comparative advantage implies that we need to turn to look for the sources of competitiveness from the production side of the trade-growth nexus. In this section, we give a schematic account of the pattern of China's industrial growth over the 1980±96 period that puts technology imports and development at the centre. This is to provide the background for our more detailed analysis of the insights that can be derived from the case of the electronics industry. In the ®rst place, however, it is intended to assess the impact of trade on growth from an alternative perspective. Table 6 presents a picture of structural change of Chinese industry, which contrasts sharply with the evolution of the country's exports composition. It is particularly noted that the industries that have been chie¯y responsible for the expansion of manufacturing exports, i.e., textiles, clothing and leather products, are in fact the main loser in terms of their output shares in Chinese industry as a wholeÐ from 18 per cent in 1980 to 12 per cent in 1996. In contrast, the mechanical and electronics industry has its output share increased from 22 to 27 per cent. But this sector started exports expansion only from 1988 and was in fact a laggard in this respect before #1998 John Wiley & Sons, Ltd. J. Int. Dev. 10, 733±749 (1998) Machinery and China's Trade±Growth Nexus 741