Services Liberalization and Manufacturing Imports: Evidence From Chinese Firms

ABSTRACT This study investigates how services liberalization influences firm import behavior, leveraging China's 2002 revision of the Catalogue for the Guidance of Foreign Investment Industries (CIFD) as a quasi‐natural experiment. Using Chinese firm‐level panel data, we demonstrate that services liberalization significantly increases imports by alleviating financing constraints, expanding production scale, and enhancing production efficiency. These effects are more pronounced among non‐state‐owned firms, upstream manufacturers, capital‐intensive industries, and exporters. Although services liberalization increases imports of intermediate and capital goods, it exerts no significant impact on consumer goods imports. Sectoral analysis reveals positive effects from liberalizing finance, distribution, and transportation. Furthermore, an analysis employing a region‐industry‐year perspective based on China's post‐WTO commitments under the General Agreement on Trade in Services (GATS) robustly corroborates these findings. Broader conceptual analysis shows that services liberalization also facilitates firms' entry into import markets, expands their imported product baskets, upgrades import quality, accelerates industry‐level import growth, and induces product switching. Finally, we establish that import growth spurred by liberalization enhances firm performance, highlighting its tangible economic benefits.