THE EVOLVING GEOGRAPHY OF CHINA’S INDUSTRIAL PRODUCTION:
IMPLICATIONS FOR POLLUTION DYNAMICS AND URBAN QUALITY OF LIFE
Manufacturing on the move...
As the “The World’s Factory”, China’s industrialization has largely been driven by the fast growth of export-oriented and labor-intensive industries in the coastal areas in Eastern China. Since the mid-2000s, the rising congestion costs associated with the industrial agglomeration in large coastal cities began to drive the shift of the nation’s industrial geography.
"What market factors contribute to the geographical shift of manufacturing activities?"
"What institutional factors contribute to the geographical shift of manufacturing activities?"
"Regional Growth Policies"
Vast infrastructure investment
Rising income inequality across regions
Implications for Spatial Variation of Income, Pollution and Local Quality of Life
To reduce this high income inequality between the coastal areas and inland areas, China’s central government made large fiscal transfer payments to under-developed inland regions. Such transfers had a short-term effect in reducing regional income inequality.
Chen and Groenwold, 2010
But in the long-run, increasing the mobility of labor and firms is believed to be a better way to mitigate such income inequality issue.
Lu, 2013
The labor income gap between coastal cities and inland cities shrank slightly from 1.4 in 2005 to 1.3 in 2010 (NBSC). However, the income increase in those inland cities has been accompanied with more industrial pollution emission there.
Pollution Production as a Consequence of Industrial Location Choice
Current data shows that the geographical shift is likely to be a zero-sum game. However, if the technique effect out-weighs the scale and composition effects in the long-run in inland cities, it is possible that the on-going geography dynamics of industrial production will not become a zero-sum pollution game.
Energy Production as a Function of Industry Location
Negative Side:
Insufficient monitoring of the operation desulfurization equipment.
High carbon emissions factor
Positive Side:
Densely populated coastal area will be exposed to less pollution.
Newly-built coal-fired power plants are required to install desulfurization equipment.
Spatial Displacement Effects Caused by Differential Environmental Regulation
Two kinds of environmental regulations in China
Administrative interventions such as stipulation of filter installment
Economic incentives such as pollution levy
"A DOMESTIC POLLUTION HAVEN"
Many energy-intensive manufacturing firms relocated or started their new business in inland cities with lower production cost and laxer environmental regulation.
The Local Quality of Life Impact of Industrial Pollution Dynamics
Industrial emission directly affects a city’s air and water pollution levels.
Proportions of different sources contributed
on Beijing’s PM2.5 concentration
Industrial pollution has many negative impacts on local quality of life, such as lowering worker productivity, hurting children and the elderly, and reducing the desire to outdoor activities.
A revealed preference methodology to identify urban households' demand for non-market goods, including urban environmental amenities
The urban quality of life literature emphasizes that spatial variation in wages and rents represents a compensating differential for place based local public goods.
Elasticity estimates of the real estate capitalization rates of PM10 concentration
* All else equal, a 1% decrease in PM10 concentration is associated with a 0.32 – 0.64% increase in home price.
In both periods, the richer coastal cities have a higher willingness-to-pay for less PM10 pollution than the poorer inland cities, and both numbers are rising over time.
This finding may incentivize local governments to internalize quality of life effects because this will increase their land's value.
This paper has surveyed several literatures to provide a comprehensive overview of the spatial evolution of industrial production, income, pollution and quality of life across China’s cities over the last 30 years. We can predict that, as the
booming industrial activities continue to generate income growth in the inland area, urban households there will also have a higher willingness-to-pay for local quality of life, and will push local leaders to impose stricter environmental regulations.
Team
Siqi Zheng
MIT Sustainable Urbanization Lab, Department of Urban Studies and Planning,
Center for Real Estate
Cong Sun
Shanghai University of Economics and Finance
Ye Qi
School of Public Policy and Management
Tsinghua University
Matthew Kahn
University of Southern California and NBER
Publications
Zheng, S., Sun, C., Qi, Y., & Kahn, M. E. (2014). The evolving geography of China's industrial production: Implications for pollution dynamics and urban quality of life. Journal of Economic Surveys, 28(4), 709-724.