The complementarities of the bilateral trade between China and the European Union

As international trade between China and the European Union has significantly expanded over the past twenty years, there has been growing interest in the literature on understanding the drivers of bilateral trade between the two partners. In this paper, we look in particular at the role that the Theory of Comparative Advantage and the Theory of Intra-Industry Trade may play in explaining the actual flows over the period between 2003 and 2007. China has a comparative advantage in labor-intensive products and a comparative disadvantage in the primary and technology-intensive or capital-intensive products; similarly, the European Union has a moderate comparative advantage in the primary and technology-intensive or capital-intensive products, while the comparative advantage in the technology-intensive or capital-intensive products has become more pronounced. Secondly, our analysis also suggests the intra-industry trade is becoming more and more important in the trade relationship between China and the European Union. Lastly, China and the European Union have strong complementarity relations in bilateral trade.