Industrial Agglomeration and Dispersion in China: Spatial reformation of the "workshop of the world"

With rising labor costs in China, some scholars assert that its labor-intensive industries will succumb to latecomer economies, and China's era as the "workshop of the world" will end. There is, however, little agreement regarding whether labor-intensive industries, now concentrated along the coast, are relocating to other regions. How does agglomeration affect this relocation? How does this relocation process affect the Asian Production Network (APN)? To approach these issues, this paper examines the determinants of industrial relocation in China by using province- and city-level data from 2004 to 2010, which some scholars call the "post-Lewisian turning point." We particularly focus on the significant gap in economic development in China, especially in regard to industrial agglomeration and dispersion. The results show that the capital-labor ratio is positively related to industrial growth in the coastal areas but negatively related in the central regions. Although agglomeration economies have been weak, the absolute scale of local industry includes a positive effect. In sum, both dispersion and agglomeration forces are observed, suggesting the existence of multi-force dynamics of spatial relocation in China.