China has experienced rising wage inequality due to rising relative demand for
skilled labour. In this paper, we use a sample of 1,500 firms to investigate the
impact of trade and technology on China’s rising skill demand. We find that export
expansion had a negative direct effect (Heckscher–Ohlin type) and a positive
indirect effect (export-induced skill-biased technical change) on skill demand; the
net effect was found positive and accounted for 5 percent of rising skill demand of
the sample firms. We find that technical change in Chinese firms was on average
skill-neutral, but majority foreign-owned firms experienced skill-biased technical
progress that accounted for 22 percent of the rising skill demand of the sample
firms.