This paper utilizes a previously unavailable database on the commodity transactions of firms to analyze internal trade in China. This database is built from value-added tax (VAT) invoices collected under a comprehensive management information system, the Golden Tax Project (GTP). This project was established in 1994 to monitor and administer VAT collection and has been improved over the subsequent years. We present the structure, function, and evolution of the GTP, which provides reliable information on transaction values across provinces. We have access only to part of the GTP data set relevant to internal trade. The data suggests that internal trade in China has grown quickly but with seasonal fluctuations. Although the interprovincial trade in China is smaller than the interstate trade in United States and the intra-European Union trade, the high growth rate of the interprovincial trade suggests that economic connections among the provinces are strengthening. The positive relationship between internal trade and international trade in most regressions suggests the possible complementarity between these two types of trade.
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