China’s role in the global economy has been a topic of intense academic and policy debate. This paper examines the factors driving the evolution of China’s production and trade patterns using firm-level data and a quantitative model. The findings imply that capital accumulation has shifted production toward more capital-intensive industries, and labor-biased productivity growth has allowed China to maintain a competitive edge in labor-intensive sectors. These forces also explain the trajectory of China’s inverted U-shape trade openness, which peaked around the mid-2000s before declining, even though global exposure to Chinese exports rose continuously.