Abstract
In this paper we seek to understand what is driving the diversification of exports into new (more sophisticated) goods focusing on the possibility that foreign firms act as export catalysts, fostering the creation of new export transactions by domestic firms. There is growing evidence that most of Chinese export rise is due to foreign firms. Several studies argue that foreign firms, typically engaged in processing trade, fully drive the skill content upgrading of exports observed in China (Amiti and Freund, 2010; Xu and Lu, 2009). Amiti and Freund (2010) find that the skill content of China’s manufacturing exports remained unchanged once processing trade is excluded.

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