Customer capital and trade intermediaries: evidence from China

Using a unique dataset that links the production and sales activities of Chinese exporting firms, we document a systematic wedge between the value of goods firms produce for export and the value of goods they sell in foreign markets. We show that this pattern reflects the presence of exporters that also operate as trade intermediaries, which we term producer intermediaries. We further document that firms with greater accumulated marketing expenditures are more likely to become producer intermediaries. Motivated by these facts, we develop a theoretical framework in which firms can lend and borrow customer capital through outsourcing relationships. In this environment, firms with high foreign customer capital can facilitate trade by channeling export demand to more productive firms with limited customer capital, even when frictions impede efficient outsourcing. Estimating the model, we find that the gains from outsourcing are substantial and that producer intermediaries account for a large share of these gains.