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The Latest Technological Revolution: Impacts on China’s Regional Economy and Policy Recommendations

( drc ) 2018-12-14

By Sun Zhiyan

Research Report Vol.20 No.6, 2018

The latest technological revolution with telecommunications, cloud computing, intelligent manufacturing and modern transportation at the core has had an important influence on the trans-regional flow, spatial layout and agglomeration pattern of economic factors such as capital, population and knowledge, and has become an important driving force for regional economic restructuring. The impacts of technological advances on the regional economic landscape are reflected at different levels, such as the spatial adjustment of different industries and the changes in urban structure. These impacts have undermined the role of some policy tools under the new technological conditions, so actions should be taken as soon as possible to offset such impacts. The author analyzes the changes in the spatial layout of different industries in China, comprehensively evaluates the regional economic impacts of the new round of technological revolution, and puts forward proposals on addressing the problems in regional development and on further improving regional policies.

I. Trends of Spatial Distribution of Industries in the Latest Technological Revolution

To better observe the impacts of technological advances on the spatial layout of different industries, this report takes cities at and above the prefecture level as the main spatial unit, and based on the industry-specific urban employment data, focuses on analyzing technology-intensive industries or industries subject to relatively significant influences from new technologies, including manufacturing, middle- and high-end commercial service industries (finance and insurance; information transmission, computer services and software; leasing and commercial services; scientific research, technology services and geological exploration), and traditional service industries (accommodation and catering, wholesale and retail, transportation, etc.).

1. More prominent trend of agglomeration of manufacturing in surrounding areas of big cities, and higher degree of regional agglomeration

With the application of the Internet of Things, intelligent manufacturing, remote control and other technologies in manufacturing, important changes have taken place in the factor portfolio, ways of production, and regional layout of the industry. First, at the national level, the concentration ratio CR10 (proportion of jobs in the top 10 cities in the total of 286 cities at and above the prefectural level) was 27.8% in 2016, slightly higher than in 2006. The eastern region is still a main destination of manufacturing, and the share of manufacturing jobs in the national total stayed around 60% from 2006 to 2016. Second, in terms of the changes in spatial layout of the four regions of China, the eastern region, a leader in manufacturing transformation and upgrading, has seen changes in spatial layout in the midst of steady agglomeration. The proportion of manufacturing in big cities like Beijing, Shanghai, Guangzhou and Hangzhou has declined significantly, and their surrounding areas are becoming new agglomerations. The central and northeastern regions show similar trends, where manufacturing is agglomerating in provincial capitals or large central cities in the region. The western region has witnessed the most prominent changes. In 2016, the employment concentration ratio (CR5) in manufacturing of the region increased about 8 percentage points compared with 2006, and Chengdu and Chongqing provided more than 60% of the new jobs in the region.

At the national level, the manufacturing sector has not seen spatial dispersion or transfer of expected to accompany new technology, but is agglomerating in large cities or the surrounding areas at the regional level. A main reason is that under the new technological conditions, the physical space demand of the manufacturing sector, especially the technology-intensive middle- and high-end industries, is on the decline. This, coupled with the substitution of new technology for labor and improvement of industrial productivity, has greatly alleviated the pressure from rising prices of land, labor and other factors, reducing the cost of spatial agglomeration. Another important reason is the rapid development of modern transportation systems. The logistics and distribution efficiency has improved remarkably, and the logistics cost in the whole industrial chain has reduced, changing the location preference of manufacturing enterprises. Those at the higher end of the manufacturing industry tend to prefer the metropolitan periphery, which not only can cut the cost of agglomeration, but also allow them to make use of the abundant talent, information, technology and other quality resources in metropolitan areas.

2. Intensified spatial agglomeration of middle- and high-end service industries, and prominent circular cumulative effect of dominant areas

In 2016, the employment concentration ratio (CR10) was 55.4% in the information transmission, computer services and software industry, 52.2% in leasing and commercial services, and 44.8% in scientific research, technology services, and geological exploration. The concentration ratio in information transmission, computer services and software rose 18 percentage points from that of 2006[]①, the largest increase among the selected industries. From 2006 to 2016, more than one third of the new jobs in the above three industries flowed to Beijing, Shanghai and other dominant areas, reflecting the prominent circular cumulative effect. They are followed by Chengdu and Chongqing, which have seen relatively large job increases and are the center of middle- and high-end service industries in the western region.

In addition to the reduction of agglomeration cost owing to technological advances, another important reason for the relatively high degree of spatial agglomeration of middle- and high-end service industries is that the development of information technology has significantly strengthened the standardization, modularization and mobility of specialized services or products. The supply and management of services and products can be achieved elsewhere relying on the Internet, video, remote monitoring and other technologies. That middle- and high-end service industries are concentrated in metropolitan areas is related to their industry characteristics such as the relatively high technical threshold and high requirements for the skills of practitioners and public service quality in their region. Therefore, the location-specific advantages of the comparatively developed regions are strengthened, which may further reinforce the siphon effect.

4. Relatively distinct spatial dispersion of financial, insurance and transportation industries

With the application of information technology and the improvement of modern transportation systems, the financial and transportation industries have shown a relatively obvious trend of spatial dispersion, setting them apart from other industries. While jobs in these industries still account for a high proportion in Beijing, Shanghai and other super cities, job growth in other areas has accelerated significantly. In 2016, about 23.2% of the new jobs in the financial and insurance industries were created in cities with 5 to 8 million permanent residents, and approximately 20.3% of the new jobs in the transportation, warehousing and postal sector were in cities with 3 to 5 million permanent residents. This shows that under the new technological conditions, the two industries are extending to smaller cities, and to a certain extent reflects the deepening of functional division within the industries: some low-tech links are transferring from large, expensive cities to cheaper areas.

II. Impact Analysis of the Latest Technological Revolution on Regional Economic Structure

Compared with the second technological revolution, the latest round of technological revolution influences regional economy mainly through two paths. One is the effect of technological substitution and spatial compression, that is, influencing the spatial distribution of economic activities by substituting labor force or reducing the marginal demand of economic activities for physical space to expand spatial agglomeration of economic activities. The other is the virtual interconnected space created by new technology, which reshapes the relationship between regions. In other words, new spatial linkages between regions are established through the Internet, blockchain, cloud computing and other technologies, enabling real-time and convenient linkages between production, transaction, management, control and other functions of the supply chain fundamentally. This has fundamentally changed the path of factor flow and spatial allocation, and formed a new pattern of division of functions between regions based on the whole supply chain.


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