Measurement of China’s “External Market Provider” Role: Trade-Margin Decomposition and Gravity Determinants

This paper measures China’s role as an “external market provider” by quantifying, for 168 source countries during 2001–2022, the share of each country’s exports absorbed by China and decomposing that share into extensive (product coverage), quantity, and price margins using the Hummels–Klenow framework. To characterize destination-market concentration, we construct an HHI-based network diversification indicator from export-destination shares and interpret it from a complementary information-theoretic perspective, where higher concentration corresponds to lower diversification and stronger dependence. We document the dynamics of China’s market-provision role and estimate an extended gravity-type model with country- and year-fixed effects. The results show that China’s external market-provider role expanded markedly after WTO accession, with growth driven mainly by the quantity margin and, after 2018, increasingly supported by the price margin. Economic proximity and similarity in global value-chain position are associated with stronger China-absorption shares, while greater destination concentration relative to China is associated with lower China-absorption shares. Free trade agreements are linked to stronger, more extensive, and larger margins. Robustness checks based on lagged covariates, additional controls, higher-dimensional fixed effects, Tobit estimation, and winsorization support the main findings. Overall, the paper provides a replicable framework for measuring destination-market pull and shows how China’s import-side role varies across products, regions, and development groups, while using the information-theoretic perspective as a supplementary interpretation of diversification patterns rather than as a separate empirical tool.