Urban Expansion, Land Price, and Intra-country Industrial Relocation in China

This study investigates the major role played by urban expansion and high land prices in the current massive industrial relocation and transfer from coastal to inland areas in China.  In 2010 alone, an estimated 2 trillion yuans worth of value-added production is to be relocated.   The urban expansion in coastal cities as a result of economic growth pushes up land prices, which translates into higher housing and food costs, as well as subsistence wages.  The higher prices of land and labor combined quickly erode the geographic advantage of the coastal areas.  To maintain competitiveness, industries that are more land- and labor-intensive are relocating their operations to the adjacent areas (central regions in China) where land prices and wages are much lower.  At the same time coastal cities are upgrading its structure to service-intensive industries that use the resource of land less intensively.

The paper uses a survey data on firms in the Yangtze Delta area, relocating from Shanghai to inland areas. A regression model is set up to test the hypothesis that the relocation decision is mainly influenced by the high land price that results from urban expansion.

The model predicts that the industries that are more land- and unskilled-labor intensive tend to move inland while service industries tend to stay and grow in terms of  their shares in employment and output in coastal cities.   

      This study has academic significance in the following aspects:  Firstly, it investigates and tests the impact of land price as the major and ultimate determinant on relocation; secondly, it studies the reasons for intra-country industrial relocation on a large scale, which is very rare in the global economic history; and thirdly, it would draw conclusions that would have important implications for the land policy.