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China's stock market meltdown made headline news around the world in the summer of 2015. Its impact reverberated across the globe, putting a dent in stock markets in Asia, Europe and America. While the causes of the panic are complex and multiple, one of the deepest fears behind the sell-off was the impression that export-manufacturing – the engine of China's hyper-growth over the past three decades – had hit the doldrums.1 Manufacturing output fell worryingly to a three-year low in 2015 and continued to shrink in 2016.2
While the aggregate picture appears bleak, it must be stressed that only a thin geographic slice of China, concentrated in the coastal cities, makes up the factory of the world. In 2006, the five coastal provinces of Guangdong, Jiangsu, Zhejiang, Shanghai and Shandong accounted for 76 per cent of the value of total exports.3 Undoubtedly, manufacturing has taken a hit in coastal China. Factor and labour costs have risen rapidly, eroding the profits and competitiveness of export manufacturers. This dire situation, reflected in gloomy statistics and media reports, has fanned worries about the weakening of the entire Chinese economy.
The ongoing hype about the manufacturing crisis on the coast, however, has obscured discussion in both scholarly and popular literature of a significant new trend: the migration of capital and investment from wealthy coastal areas into poorer central and western provinces, beginning in the early 2000s.4 This phenomenon is termed “industrial transfer” (chanye zhuanyi 产业转移) in Chinese, which is much harder to define and quantify than industrial output because transfer (or relocation) is dynamic and multifaceted. Nevertheless, one indicator of the scale of industrial transfer is “domestic investment” (shengwai zijin 省外资金), also a relatively new term. Official statistics indicate a steady flow of domestic or interprovincial investment from the coastal to the inland regions. To illustrate, in 2008, the combined value of domestic investment that flowed into the five central provinces of Jiangxi, Henan, Hunan, Hubei and Anhui was 836 billion yuan. In 2015, seven years later, it ballooned to 3,760 billion yuan.5 This was 2.5 times the amount of foreign direct investment (FDI) that poured into China in the same year. Furthermore, this comparison only includes domestic investment in five...