Economic Transition and Industrial Restructuring in China: Structural Convergence or Divergence?

Abstract

China has undergone substantial industrial restructuring since the economic transition. The triple process of marketisation, globalisation and decentralisation has had a significant influence on the changes in industrial structures in Chinese provinces. Using provincial–industrial level data for 1980–2003, this article finds that Chinese provinces are quite similar in their industrial structures. The interior provinces, however, have gradually specialised in resource-based industries, so their industrial structures deviate from the national structure, while the coastal provinces host fairly similar industries. Statistical analysis found that marketisation had enhanced the role of comparative advantage in natural resources, stimulating the divergence of industrial structures of provinces with different resource endowments while encouraging provinces with comparable endowments to develop similar industries. However, decentralisation generates economic fragmentation of domestic markets, fueling inter-provincial protectionism and rational imitation, and leading to the convergence of industrial structures among provinces. Globalisation has two effects. On the one hand, the globalised provinces have been converging in their industrial structures. On the other hand, the globalised provinces have rather different industrial structures from the underperforming provinces in exports and utilisation of FDI. This result implies that economic transition and its consequences are critical in understanding industrial restructuring in the transitional economies.

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HE Canfei

He Canfei and Zhu Shengjun, Department of Urban and Regional Planning, Peking University, Beijing 100871, China. [email protected]. This research is funded by the National Science Foundation of China (No. 40401015).