average in 1999), Beijing and Tianjin (more than 2.5 times the national average), Jiangsu, Zhejiang and Guangdong (between 1.5 and 2 times the national average). During the period of 1990-2000, the textile exports of the coastal region decreased from 32% to 26% (compared to their total exports), and that of the electric and electronic materials increased from 11% to 33%, although the latter were mainly assembly activities. Through import diversification, the increasing openness also leads to an upgrade of the production structure. In 1999, 69% of the imports in China were intermediate products, which enabled China to have a greater variety and a better combination of inputs. With an average high-tech content of 15%<sup>11</sup> , the imports greatly encourage the transfer of technology and the modernization in China (Lemoine and Ünal-Kesenci, 2002).

The giant scale of the Chinese market is becoming increasingly attractive to foreign investors. FDI increased in the Delta of Yangtze, a region with good access to the domestic market, from 25% of the total in 1996 to 35% in 2002.<sup>12</sup> In particular, the FDI strongly contributed to an acceleration of the specialization. In 1999, more than two-thirds of the assembly trade in high-tech industries was carried out by the subsidiaries of foreign firms (Lemoine and Ünal-Kesenci, 2002). The FDI in the Research & Development (R&D) activities, which did not exist until 1986, has grown rapidly. However, the FDI in R&D activities is still limited (in 2002, R&D activities was around 0.5% of the total foreign investments), its distribution is highly unequal across provinces. Cheung and Lin (2004) show that there exists a positive and significant relation between the amount of FDI and the number of patents registered by domestic firms, although most of these patents are minor innovations. Using a sample of the large and medium enterprises in the electronic and textile sectors, Hu and Jefferson (2002) show that the productivity of the firms with foreign participation is higher. If, in the short-run, the competition from the foreign firms may reduce the productivity of the domestic firms; in the long-run, by contrast, it will benefit those domestic firms that survive.

For example, in Shenzhen, with an annual growth rate of 50%, the production of the high-tech sector reached 46% of total industrial production in 2002 (compared to 11% in 1991). This city has hence become a principal technology pole in China, and it has attracted the investments from many large world-class high-tech companies, such as IBM, Compaq, Sanyo, Olympus (Marti, 2003). In the Delta of Yangtze, the zone of Pudong hosts 87 R&D centers and 303 high-tech enterprises (information and communication technologies, biotechnologies), of which the production represents 42.6% of its regional GDP. In China, the regional specializations change with the deepening of the openness and the participation in international division of labor. Brun, Combes and Renard (2002) show that, thanks to the open-door policies and the advantageous geographic positions, firms located in the coastal provinces benefit from a larger economy of scale. The economy of urbanization (externality of the type of Jacobs) strengthens the concentration of activities. A sector grows faster when it benefits from a diversified local environment (Batisse, 2002). Naughton (2002) and Kraay (2002) show that the gap of competitiveness in manufacturing can explain most of the difference of regional growth in China: the increase in productivity is one of the major reasons that leads to the rapid growth of the South-East provinces;

> 11 For the sake of comparison, this ratio is 4% in India.

> 12 Data source: China Statistical Yearbook.

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