industrial clusters, China, local development

Marco Bellandi

Silvia Lombardi

English

Research Papers in Economics

 
Working  
papers 
 
 
 
 
 
THE CLUSTER EXPERIENCE IN CHINA  
 
Marco Bellandi  
Silvia Lombardi  
 
 
 
 
 
 
Keywords: industrial clusters, China, local development 
JEL: L16, O53  
 
Marco Bellandi  
Full Professor of Applied Economics  
Faculty of Economics, University of Florence 
marco.bellandi@unifi.it 
 
 
Silvia Lombardi,  
Research Grant 
Faculty of Economics, University of Florence 
silvia.lombardi@unifi.it 
 
 
 
 
 
c.MET Working paper 1/2009 
August 2009 
 
 
© 2009 by Marco Bellandi and Silvia Lombardi. All rights reserved. Short sections of text, not 
to exceed  two  paragraphs, may be quoted without explicit permission provided that full 
credit, including © notice, is given to the source. 
 Pag. 1 of 8 
 
 
THE CLUSTER EXPERIENCE IN CHINA  
 
1. China’s industrial development over the last 30 years and its engines of 
growth 
 
In the aftermath of China’s 30 years anniversary of reform policies opening the 
door to international exchanges, the Chinese industrial development has been 
celebrated along the 2008, before the explosion of the global crisis, as the result of 
a wide set of interconnected levers, public and private, played at local, national, 
and international levels.  
In fact the process of Chinese market transition has overlapped since the late 
1970s with deep institutional changes, whose gradual adoption has gone together 
with achievements and contradictions as well. For example, a breakthrough on 
private property protection was achieved in 1997, when the 15th Communist party 
congress defined private ownership of enterprises non only as a supplementary 
component of the economy, but as an import one, allowing an official 
acknowledgement of the tremendous growth of the private business sector in the 
last two decades, and giving way to a wave of official privatization of State and 
collectively owned enterprises. 
Despite the recent effects of global slowdown, coupling with the effects of some 
fiscal restrictive measures undertaken by the Chinese government in the first part 
of 2008 in order to prevent the burst of inflationary problems, the real rate of 
growth of Chinese GDP in 2008 has been 9%. In 2007 it was 12%, with exports 
growing 25% with respect to 2006. 
By the way, the huge growth of Chinese economy in the last 30 years has brought a 
great and perhaps too fast change in the fabric of the world economy.  Just an 
example is what has happened to the consumption of refined copper: at the 
beginning of the 1990s the consumption of China was around 500.000 tons per 
year; that of U.S.A was around 2.000.000 tons; in 2004 China’s was more than 
3.000.000 tons and U.S.A’s below 2.500.000 tons.1
                                                        
1 See World Bureau of Metal Statistics,Metallgesellschaft AG, US Department of Interiors. 
 Pag. 2 of 8 
 
In the same time, industrialization has gone together with a quick process of 
urbanization. The proportion of urban population on total population rose from 
18% in 1978 to 44% I 2006, and we remember that this is a country with 1.3 
billion people. Industrialization and urbanization have contributed t a significant 
reduction in the number of poor people (hundreds of millions less), but poverty is 
still a great problem, together with the growth of regional and social inequalities. 
In fact the major regional engines of economic and industrial growth correspond to 
coastal areas. Poor young people from the rural areas, both of the same coastal 
areas, and from the inner provinces, have migrated to supply very cheap labor 
force to the manufacturing and construction industries: a labor force with very low 
protection against exploitation by private and public bosses and without welfare 
rights in the places where they have migrated for work. 
 
2. The new industries in China  
 
Among the factors fuelling the growth of Chinese industries, a big role has been 
played surely by large inflows of investments of MNES from industrialized 
countries, attracted by the extended possibility of exploiting cheap labor and land, 
and with the support of good logistic infrastructure. However other factors have 
played an important role as well: for example the network of overseas Chinese 
entrepreneurs, migrated in the past to HK, Taiwan and elsewhere,  coming back 
with the open door policy, and investing in their old homeland, with the support of 
technical, human, financial, relational capital developed abroad. These 
international networks combine with local forces of development, represented by 
local pools of craft, trade and entrepreneurial traditions in various areas, especially 
in the coastal provinces, with the presence of State owned enterprises and town 
and village collective enterprises, and with multi-level pro-growth policies, 
sometimes successful, when not weakened too much by corruption problems. 
 All such factors concentrate in a few huge regional systems, comprising an 
important role of industrial clusters, localized either in specialized towns or in 
large metropolitan areas, sometimes with cross cluster value chain relations: in 
particular, the Yangtze River Delta,  the Pearl River Delta, and the Bohai Bay Rim. Pag. 3 of 8 
 
The Pearl River Delta (hereinafter PRD), which, in the common accepted definition 
(Enright and Scott, 2005) encompasses nine prefectures of Guangdong province, 
neighbouring Hong Kong; the Yangtze River Delta (hereinafter YRD), which 
encompasses sixteen prefectures distributed across the southern part of Jiangsu 
province, the northern part of Zhejiang province and the Shanghai municipality; 
the Beijing–Tianjin corridor within the wider Bohai Bay Rim economic zone, which 
is overall composed of Beijing, Tianjin, Hebei, Shandong and Liaoning. 
The high growth rate achieved by the industrial sector of coastal areas has relied 
on industrial preferential policies designed by central government, which initially 
took place with the establishment in 1980 of four Special Economic Zones (SEZs) 
in Guangdong and Fujian provinces, and by further opening up to FDI of fourteen 
coastal cities since 1984. While in the first stage of reforms central policy attention 
was mainly focused on Guangdong province and its interactions with Hong Kong 
and Macao, by providing fiscal incentives in order to attract FDI within SEZs, in the 
1990s the policy focus shifted to the area around Shanghai. Nowadays, policy 
attention is focused on the municipality of Tianjin, whose integration with 
neighbouring Beijing and Hebei province is a policy priority asserted into the 
agenda of China’s 11th Five-Year Plan, but also on the interior, with the great 
regional city of Chongqing.  
 
3. Industrial clusters in China: An overview 
 
The identification of the multiple forms of industrial organization in China is not an 
easy task given the lack of a complete official survey of industrial clusters at local 
level carried out on the basis of a unified empirical definition. Different 
combinations of prevailing factors at the local level, as Foreign Direct Investments 
(FDI), different sectors of specialization, local entrepreneurship, public policy, 
SOEs and the effect of their privatization, have led to a great variety of specialized 
industrial clusters (Jiang, 2003; Bellandi and Di Tommaso, 2005; Li and Fung, 
2006; Sun et al, 2007). Industrial clusters concentrate in the coastal areas of the 
YRD, PRD and the Bohai Bay Rim and can be classified into a set of categories Pag. 4 of 8 
 
which identify the process formation of the industrial cluster as well as its main 
characters. 
Some industrial clusters have been propelled by local private craft and 
manufacturing attitudes. This is a typical character showed by many industrial 
clusters distributed across the Zhejiang province (Wang Z., 2008), but also in other 
areas of China, as the metal processing cluster in Xiaolan town (Zhongshan 
prefecture, Guangdong province) and the fireworks manufacturing cluster in 
Wanzai county (Jianxi province). Another type of industrial clusters, which can be 
related to the first one, is the market-driven type. In this case, the presence of a 
wide number of wholesale markets is the key for industrial development: in some 
coastal areas, in particular in Zhejiang, industrial development has been based on 
the presence of specialized markets as a complementary factor (Sonobe et al, 2004; 
Wang Z., 2006). Also the Shandong province hosts clusters, such as the wood 
cluster in Linyi prefecture which relies on a set of wholesale markets (Li and Fung 
2006). Resource-driven clusters rely on the abundance of natural resources which 
gives the incentive for sector specialization, as in the case of food processing 
cluster in Luohe city (Hunan province) and timber processing cluster in Pizhou 
county (northern Jiangsu province). 
Export-oriented and FDI-driven industrial clusters are a large category of 
industrial clusters spread across the country, with a high concentration in the 
Guangdong province. The presence of FDI is associated to a high level of export. 
Actually, the great part of such clusters are born as export processing bases 
producing goods for overseas final markets. From a systemic point of view a very 
important factor associated to these industrial clusters is the presence of Economic 
Development Zones, as well as Export Processing areas, at central, provincial or 
county level, which are the result of specific policies in order to attract foreign 
capital in targeted industrial sectors.  
High-tech industrial clusters are a very different category of industrial clusters 
given the nature of the process of their formation. In fact, in this case FDI may be 
involved but the linkages with Chinese universities and research centres play a 
more central role. The clearest example here is the Zhonguancun high-tech cluster 
in Beijing which benefits from linkages with the Chinese Academy of Social 
Sciences, Beijing University and Tsinghua University. Key is also the public funding Pag. 5 of 8 
 
from central government which makes it possible the industry-university relation 
and the start up of IT enterprises clustered in the area. Another case of industry-
university linkage is in Shenzhen, where the university and research institutions 
are contributing to the transformation of Shenzhen from a low-cost manufacturing 
base to higher value added activities centre (Chen and Kenney, 2007). Of course in 
many real cases such characters combine in various ways, and transform along 
various forms of evolutionary paths, more or less tied to territories of localization. 
The prevalence of local private businesses shapes the majority of industrial 
clusters in Zhejiang province, while FDI prevail (differently) in Jiangsu province 
and Fujian province, and Guangdong province has benefited from FDI, trade 
relations and managerial capabilities from Hong Kong, (El Sayed et al, 2006). 
Moreover, the presence of wholesale specialized markets is constant in the textile 
and apparel sector (Li and Fung 2007). In general, recent studies identify the 
presence of 536 industrial clusters characterized by the presence of SMEs (small 
and medium sized enterprises) and showing a quite delimited localization. They 
are concentrated in the richest 15 provinces of China. In particular the largest part 
of such clusters concentrate in the three great territorial engines recalled before. 
The density is highest in the province of Zhejiang in the YRD. In the same YRD 
there is the highest concentration of science based clusters. In the PRD and in the 
Northern Rim there are many cases of SMEs clusters as well, but in these regions 
there is a proportionally higher proportion of cluster led respectively by MNEs 
(multinational enterprises) and by SOEs  (Wang and Mei, 2009). Some clusters, of 
various types, have also emerging, in the last period, in the central area of 
Chongqing and in the inner provinces bordering the coastal ones, which constitute 
the current localization choice in the light of the re-localization trend which is 
undergoing in coastal areas. 
 
4. Conclusions 
 
We conclude with a couple of reflections on prospects. The first reflection comes 
from some in-depth investigation on the characters and competitive advantages of 
Chinese clusters. The factors which have propelled the growth of the new Chinese Pag. 6 of 8 
 
industries do not refer only to huge productive capacities characterized by large 
economies of scale and the exploitation of cheap labor and land.  Local forces bring 
about the realization of goods and components in suppliers and traditional 
industries, substituting the low-to-medium quality parts of production realized in 
the clusters and districts of industrialized countries. Moreover there is here the 
possibility of growth of district capacities, in terms of quality, innovation, 
flexibility, extending in prospect the competitive international challenge to the 
medium-to-high quality part of international value chains of household, personnel, 
and light mechanical goods, that is the core of district made in Italy, district made 
in Spain, etc.  
The second and final reflection concerns the effects of the global economic 
downturn on the prospects of Chinese clusters. It can be seen from just a few data 
how things are getting worse also for China in the last months of 2008. And 
nowadays things are still worse, even if the Chinese government has started to 
investing huge amount of money in new infrastructure and fiscal stimulus. Exports 
realized by FIEs (Foreign Invested Enterprises) accounts for over a half of the 
national export volume. Some of these firms, legally recognized as Wholly Foreign 
Owned Enterprises (WFOEs) and Joint Ventures, produce original equipment 
manufacturing as well as exploit fiscal and economic advantages offered by Export 
Processing Zones and expose very closely China to the global economic downturn. 
Contraction of foreign markets determines in particular the closure of this type of 
FDI financed firms, as well as local small firms export oriented which are 
particularly diffuse in the PRD. As reported by the CTA2
The closing down of thousands of factories is a particularly visible effect of 
economic crisis in the PRD and the YRD where rural migrant workers are laid off 
and are forced to head back home, the majority of them with no unemployment 
insurance
, textile sector witnessed a 
drop in exports of 19.7% with respect to previous year. Small local private 
enterprises were especially affected (decrease of exports of 44.4%). 
3
                                                        
2  Data refer to the first eleven months of 2008. Download from:   
http://textile.2456.com/eng/feature/details.asp?fsiid=4&fsid=3002&e=1 
. The PRD industry, traditionally hosting a wide number of firms 
3 The Malasian Insider, China’s workers head home jobless. 1 January 2009.  
Download:  http://www.themalaysianinsider.com/index.php/business/12457-chinas-workers-head-
home-jobless Pag. 7 of 8 
 
exploiting low costs of processing, is experiencing a “hollowing out” effect since 
some international investors are moving towards neighbouring low-wages 
developing countries as Vietnam, Cambodia, Indonesia4
Credible information on what is happening in the Chinese clusters is lacking by and 
large. However what has been recalled before suggests that clusters based largely 
on FDI, and especially those specialized in export processing, are deeply hit. Many 
of such clusters may suddenly disappear. But of course, since powerful local forces 
and state regulation play an important role in many clusters, there will be a 
process of selection, and the MNEs which have developed roots in the Chinese 
institutional and social context will be helped to stay in place and survive. A similar 
selection will concern Chinese companies. Evolutionary discontinuities and social 
eruptions are not to be excluded. And the management of the close financial and 
trade connection with USA – one of the sources of the current global crisis- will not 
be easy. But, in my opinion, it is without doubt that the Chinese new industries will 
emerge after the crisis, perhaps leaner, perhaps more oriented to internal markets, 
but also with enhanced factors of inner productivity in many international markets 
and international value chains. 
. The dramatic social effect 
of economic crisis reflects the weaknesses of the current way out from poverty 
based on urban labour market and low value added productions requiring 
unskilled labour, and the necessary steps forward that China needs to implement 
for a sustainable development. In particular, linkages between industrialization 
and urbanization need to be re-adjusted in the light of the progressive increase in 
the mobility of factors of production, which probably constitutes an additional 
fundamental and institutional change in China’s transition to market rules. 
 
References 
Bellandi M. and Di Tommaso M.R., 2005, The Case of Specialized Towns in 
Guangdong, China, European Planning Studies Vol. 13, No. 5, July 2005, 
Routledge. 
Chen K., Kenney M., 2007, Universities/Research Institutes and Regional Innovation 
Systems: The Cases of Beijing and Shenzhen, World Development Vol. 35, No. 6, 
pp. 1056–1074. 
                                                        
4  George Wehrfritz, Dark Clouds Over The Delta  Newsweek, July 2008 Issue.  Downloaded  from:  
http://www.newsweek.com/id/143661  Pag. 8 of 8 
 
ElSayed A., Kulich R., Lake L., Megahed S., 2006, The Chinese Apparel Cluster in 
Guangdong, Institute for Strategy and Competitiveness, Harvard Business 
School. 
Enright M.J., Scott E., Chang Ka-Mun, 2005, Regional Powerhouse: The Greater Pearl 
River Delta and The Rise of China, John Viley & Sons (Asia) Pte Ltd. 
Jiang, X. (2003). “Geographical Distribution of Foreign Investment in China: 
Industrial Clusters and Their Significance.” China & World Economy 1: 15-24. 
Li and Fung 2006, Overview of the Industrial Clusters in China, Industrial Clusters 
Series, Issue 1. 
Li and Fung, 2007, Apparel production and cluster development in China, Industry 
Series, December 2007 Issue. 
Sun J., Fu X., Wang Z., 2007, Research on Chinese Industrial Cluster Patterns —Take 
Haier Household Electrical Appliance as an Example, Chinese Business Review, 
Jan. 2007, Volume 6, No.1 (Serial No.43) 
Sonobe T., Hu D., Otsuke K., 2004, From inferior to superior products: an inquiry 
into the Wenzhou model of industrial development in China, Journal of 
Comparative Economics, Vol. 32, pp. 542–563. 
Wang J. and Mei L. (2009), “Trajectories and Prospects of Industrial districts in 
China”, forthcoming in Handbook of industrial districts, Becattini G., Bellandi 
M., and De Propris L. (eds.), Edward Elgar. 
Wang Z., 2006, The Economic Growth of China’s Private Sector: A case of Study of 
Zhejiang Province, China and World Economy, Vol. 3, Issue 4, pp. 109-120. 
Wang Z., 2008, The Private Sector and China's Market Development, Chandos Asian 
Studies Series, Chandos Publishing. 
 

Apparel production and cluster development in China, Industry Series,

Dark Clouds Over The Delta Newsweek,

Geographical Distribution of Foreign Investment in China:

Regional Powerhouse: The Greater Pearl River Delta and The Rise of China,

Research on Chinese Industrial Cluster Patterns —Take Haier Household Electrical Appliance as an Example, Chinese Business Review,

The Case of Specialized Towns in Guangdong,

The Economic Growth of China’s Private Sector: A case of

The Private Sector and China's Market Development, Chandos Asian Studies Series,

Universities/Research Institutes and Regional Innovation Systems: The Cases of Beijing and

The Cluster Experience In China

http://193.205.129.80/repec/cme/wpaper/cmetwp_01_2009.pdf

The Cluster Experience In China

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics