2<sup>nd</sup> stage of development; second, whether the progressive transition to the 3<sup>rd</sup> stage – the specialization in high-tech industries – of the costal region leads to a diffusion of the labor intensive activities to the inland provinces. We study whether the labor intensive industries move inland from the coast when looking at the country as a whole; and we study whether these industries move within the region when looking at the coastal region alone. Of course, the economic concentration may depend on a number of factors. The study presented here is subject to data constraints. The objective of this analysis is to provide a first step in understanding the complexities of the spatial disparities of economic concentration in different stages of development in a broader context.

The study is structured as follows: In section 2, we study the polarized development in China, and describe how the gradual open-door policies and the inflow of FDI have led to a strong concentration of the activities and an upgrade of the production structure in the coastal provinces. In section 3, we empirically examine the determination of the geographic concentration of different industries using panel data at the provincial level of the period 1988-97. The conclusions are presented in section 4.

# **2. POLARIZED DEVELOPMENT IN CHINA**

# **2.1. Polarization related to openness and foreign direct investment**

Since the early 1980s, the government of China has gradually extended the open-door policies from the coast to the inland (see map 1). In 1980, the first Special Economic Zones (SEZ) were established in four cities (Shenzhen, Zhuhai, Shantou, and Xiamen) in the coastal provinces Guangdong and Fujian, hometowns of many oversea Chinese investors, to attract FDI.<sup>4</sup> In order to scale up the success to the entire coastal region, the open-door policies were further extended to 14 coastal cities in 1984, to the Delta of Yangtze, the Delta of the Pearl River, and the Delta of Minnan in 1985, and to Hainan in 1988. After the coastal region took-off in the 1980s, the open-door policies were gradually extended to the inland region in the 1990s.

Thanks to special fiscal status and privileges, the coastal region developed into a huge export-oriented workshop. Jones, Li and Owen (2003) study the growth of 200 Chinese cities, and show that the SEZs and the open coastal cities grew at 5.5 and 3 percentage points, respectively, faster than the national average. In 1999, the GDP of the SEZs reached 44.2 billion dollars, which was about 15 times higher than the level achieved before these zones were established in the late 1970s. The exports of the SEZs reached 36 billion dollars, which reflected more than 20% of the total of the entire China.<sup>5</sup> China became a key actor of the international trade thanks to the rapid integration of its coastal region to the world economy since the 1980s (Golub, 1999). In the early 2000s, China became the fourth largest economic power in international trade with a world export market share of 6.1% (Conférence des Nations Unies sur le Commerce et le

> 4 The Special Economic Zones have a status close to that of the duty-free zones (where are these duty-free zones) that allows the experimentation of the western management modes. 5 Data source: Official website of the embassy of China, www.amb-chine.fr/Documents/ Economique/Econews/tequ1116.htm.

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