Ascending the global value chain position through import preference differentiation: evidence from China

Abstract The existing literature on global value chain (GVC) positioning has focused predominantly on supply-side determinants such as firm productivity, factor endowments, and institutional quality, while the role of destination-market demand structure remains largely unexplored. This paper investigates whether and how destination-specific import preference differentiation (IPD)—defined as the extent to which a destination country’s within-industry import structure across HS6 products deviates from the world-average import structure, thereby capturing destination-specific dispersion in demand composition rather than the scale, concentration, or breadth of imports—affects the GVC position of Chinese manufacturing exporters. Using matched data from the Chinese Industrial Enterprises Database, the Chinese Customs Trade Database, the BACI-CEPII database, and the World Input–Output Database for the period 2000–2014, we construct a firm-destination-year measure of import preference differentiation, aggregated from destination-industry-year variation, and a composite GVC position indicator that captures both export-side upstreamness and import-side downstreamness. We find that greater destination-specific IPD is significantly associated with upstream GVC repositioning, and this result is robust to alternative IPD measures, different GVC position indicators, and instrumental variable estimation. Mechanism analysis shows that IPD expands the export extensive margin, with added varieties concentrated in intermediate and capital goods rather than final-consumption goods, and is accompanied by a compositional decline in export-weighted average quality. Both patterns are consistent with deeper involvement in intermediate-input production through product-scope expansion, rather than constituting independent evidence of upgrading. The extensive margin positively moderates the IPD effect, while product quality negatively moderates it. Further analysis identifies two structural boundary conditions: destination-country institutional quality and firm-level foreign capital embeddedness both amplify the upstream repositioning effect, indicating that external contractual infrastructure and internal network resources are preconditions for translating demand-side preference differentiation into value chain upgrading. Heterogeneity analysis reveals that the IPD effect is concentrated in low-technology and high-technology products and is stronger in developed destination markets. This paper contributes to the literature by introducing within-industry demand structure heterogeneity as an overlooked demand-side driver of GVC positioning, by providing a unified empirical framework that distinguishes mechanism channels from structural boundary conditions, and by extending the demand-side trade literature from demand levels to demand structures. The findings suggest that policymakers should strengthen trade facilitation, intellectual property protection, and overseas market information systems, while firms should develop multi-product capabilities and deepen cross-border collaborative networks to convert differentiated foreign demand into higher-value production roles.