Grographical dynamics and firm spatial strategy in china

This research builds on recent insights in economic geography and economicsociology on industrial relocation/delocalization, upgrading, governance, evolu-tionary economic geography, glob

John Pickles

Canfei He

Geographical Dynamics and Firm Spatial

Strategy in

China

Springer Geography

aiming at researchers, students, and everyone interested in geographical research.The series includes peer-reviewed monographs, edited volumes, textbooks, and con-ference proceedings It covers the entire research area of geography including, butnot limited to, Economic Geography, Physical Geography, Quantitative Geography,and Regional/Urban Planning.

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Shengjun Zhu • John Pickles

Canfei He

Geographical Dynamics and Firm Spatial Strategy

in China

123

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We would like to thank Jennifer Bair, Robert Begg, Adrian Smith, Gary Gereffi,Meenu Tewari, Elizabeth Havice, Scott Kirsch, and Tu Lan for their careful reviewand recommendations on some chapters Colleagues in China assisted infieldworkand interviews in 2011, 2012, 2013, and 2014 We would like to thank Hua Shan(the office director from the China Textile Planning Institute of Construction), JianZheng (project manager from the China National Textile and Apparel Council),

Dr Jici Wang from Peking University, Dr Ningchuan Jiang from Chengdu TextileCollege, Allan Wong of Li and Fung, Stephen Frost and Jacky Wu of CSR Asia,

Gu Qiang of the NDRC, Xubiao Zhang of ILO China, Benjamin Wong ofEuro RSCG and the China Labour Monitor This research was supported in part bythe National Science Foundation Grant Award No BCS 0551085, the CarolinaAsia Center, Grier Woods China Fellowship, and by the Capturing the GainsResearch Network on Economic and Social Upgrading in Global ProductionNetworks (University of Manchester and UK DFID) We also thank the support

of the National Natural Science Foundation of China (No 41271130) Finally,

Dr Canfei He acknowledges thefinancial support of the National Natural ScienceFoundation of China for Distinguished Young Scholars (No 41425001) Theauthors are responsible for all errors and interpretations

v

1 Introduction 1

1.1 Background 1

1.2 The Case of Ningbo 5

1.3 Methodology 8

1.3.1 Data Sources 8

1.3.2 Fieldwork 9

1.4 Synopsis of This Book 10

References 14

Part I Government 2 Bring In, Go Up, Go West, Go Out: Upgrading, Regionalization, and Delocalization in China’s Apparel Production Networks 19

2.1 Introduction 19

2.2 Bring in: Export-Led Assembly and the Rise of China in Global Apparel Value Chains 20

2.3 The Limits of Export-Led, Low-Wage Industrialization 23

2.4 Upgrading, Regionalization, and Delocalization in the Chinese Apparel Industry 26

2.4.1 Go Up: Policies Initiatives on Industrial Upgrading 29

2.4.2 Go West: Regionalization Policies and Inter-regional Competition 34

2.4.3 Go Out: From Bringing-into Outsourcing 41

2.5 Conclusion 45

References 46

Part II Firm

3 Geographical Dynamics and Industrial Relocation: Spatial

Strategies of Apparel Firms in Ningbo, China 51

3.1 Introduction 51

3.2 Conceptualization of Spatial Dynamics: Towards an Analytical Framework 52

3.2.1 Local/Localization 52

3.2.2 Global/Globalization 54

3.2.3 Regional/Regionalization 55

3.2.4 Application to Apparel Industry in China 56

3.3 Geographical Dynamics and Firm Relocation 58

3.3.1 Case A: Relocating as a Lead Firm 59

3.3.2 Case B: Going Out and Racing to the Bottom 60

3.3.3 Case C: Staying and Going Nowhere 61

3.3.4 Case D: Going Along the Coastline 62

3.3.5 Case E: Going in but not Far Away 63

3.4 Relocation in the Global, Regional, and Local Context 64

3.5 Conclusion and Discussion 68

References 70

4 Global, Regional, and Local: New Firm Formation and Spatial Restructuring in China’s Apparel Industry 73

4.1 Introduction 73

4.2 Conceptual Framework and Research Hypotheses 74

4.2.1 Embedding in a Localized Cluster 74

4.2.2 Racing to the Bottom in a Globalized Value Chain 75

4.2.3 Relocating in a Regionalized Way 76

4.2.4 Firm Capability and Different Location Choices 77

4.3 Industrial Relocation and Transforming Pattern of New Firm Formation 79

4.4 Research Design 80

4.4.1 Variables 80

4.4.2 Model Specifications 81

4.5 Statistical Results 83

4.5.1 Transforming New Firm Formation Pattern 84

4.5.2 Temporal Variation 86

4.5.3 Firm Capability and Different Location Choices 89

4.6 Conclusion and Discussion 91

References 94

5 Turkishization of a Chinese Apparel Firm: Fast Fashion,

Regionalization, and the Shift from Global Supplier to New

End Markets 97

5.1 Introduction: Delocalization and Persistence in the Apparel Industry 97

5.2 Globalization and Regionalization: Upgrading Prospect for Geographically‘Remote’ Firms 99

5.3 The Transformation of Seduno 102

5.3.1 Pre-Turkishization Development of Seduno 103

5.3.2 Seduno’s Turkishization Strategies 104

5.4 Findings of the Case Study 109

5.5 Conclusion 114

References 116

Part III Spatial Articulation 6 Institutional Embeddedness and Regional Adaptability and Rigidity in a Chinese Apparel Cluster 121

6.1 Introduction 121

6.2 Lock-In and Lockout 123

6.2.1 Two Trajectories of Path Dependence, Openness of Cluster, and Lock-In 123

6.2.2 Agents, Multiscalar Coevolution, and Lockout 125

6.3 Pipelines to External Knowledge and Negative Lock-In 127

6.4 Harmonies and Disharmonies in the Processes of Coevolution 130

6.4.1 Harmonies and Disharmonies in the Process of Upgrading and Relocation 131

6.4.2 Path-Dependent and Path-Breaking 134

6.5 Conclusion and Discussion 137

References 140

7 Global and Local Governance, and Industrial and Geographical Dynamics: A Tale of Two Clusters 143

7.1 Introduction 143

7.2 Global and Local Governance 145

7.3 Research Design and Study Areas 147

7.4 Two Types of Local Governance 150

7.5 Governance and Industrial and Geographical Dynamics 153

7.5.1 Governance and Industrial Upgrading 153

7.5.2 Governance and Restructuring of Productive Spaces 157

7.5.3 Comparative Discussion 161

7.6 Discussion and Conclusion 163

References 164

8 Going Green or Going Away: Environmental Regulation,

Economic Geography and Firms’ Strategies in China’s

Pollution-Intensive Industries 169

8.1 Introduction 169

8.2 A Heuristic Analytical Framework 174

8.2.1 Pollution Haven Hypothesis, Porter Hypothesis, and Firm Characteristics 174

8.2.2 Regional Hub Effect and Political Environment 175

8.3 Research Design and Site Characteristics 178

8.4 Different Firms, Differ Strategies 179

8.4.1 Firm A: Going Green in Situ 180

8.4.2 Firm B: Relocating to Industrial Parks 182

8.4.3 Firm C: Relocating to‘Pollution Havens’ 183

8.4.4 Firm D: Outsourcing to‘Pollution Havens’ 184

8.4.5 Firm E: Relying on Large Firms 184

8.4.6 Firm F: Waiting and Dying 185

8.5 Going Green or Going Away 186

8.6 Conclusion 192

References 194

9 Summary and Conclusion 199

9.1 Changing Industrial Policies from Various Levels of Governments 200

9.2 Firm Strategies to Increasing Competitive Pressures 200

9.2.1 Delocalization/Relocation 200

9.2.2 Upgrading 202

9.3 Spatial Articulation Between Changing Industrial Policies and Firm Strategies 203

Reference 206

Following the reform and opening-up policies of the late 1970s, China has achieveddramatic economic growth and experienced three fundamental transformations:(1) from a planned to an increasingly market-based economy; (2) from astate-owned, collective economy to one with growing level of private ownership;and (3) from a partially closed economy to one oriented toward export markets (Heand Zhu2007; Wei2001a) The combination of internal reforms and internationaldemand led to a rapid expansion in private-sector-led export growth (Gereffi1999b;

2009)—the so-called BRING IN policy—which in turn generated average annualGDP growth of approximately 9.8% and export expansion of 12.4% annuallythroughout the 1990s, growing to more than 20% a year in the 2000s before theoutbreak of globalfinancial tsunami in 2008 (National Bureau of Statistics of China

2011) Dependence on foreign trade (calculated as the sum of exports and importsdivided by GDP) grew from 30% in 1980 to 60% in 2008 China had become theleading global exporter in 774 items by 2005 and the world’s largest exporter with aworld export share of 8% in 2009 (Inman2010; Yang et al.2006)

With the shift from import substitution to export-oriented strategies, producersdependent on low-wage and unskilled or semiskilled labor and the leveraging ofdomestic advantages, including China’s large potential market and the compara-tively low cost of its other factor inputs: land, electricity, and other raw materials,were able to expand their role in export markets (Gereffi 2009) One notableexample has been the apparel industry, which accounts for a considerable part ofChina’s economic growth and job creation during this period China has the largestapparel industry in the world with more than 3.82 million workers in 2011, pre-dominantly focused on assembly or OEM (original equipment manufacturing)production for global buyers (Feenstra and Hamilton2006; Hamilton and Petrovic

2006) Between 1995 and 2008, China more than doubled its share of globalapparel exports from 15.2% to 33.2% (Gereffi and Frederick2010) Production and

employment of the apparel industry have become heavily concentrated in thecoastal regions of east and southeast China (Fujita and Hu2001; He et al.2008;Wen2004).

In recent years, this model of industrialization has encountered serious limits.These limits are now forcing major changes in the organization and geography ofeconomic activity in the industry (Wang and Mei2009; Yang2012) Most Chineseapparel factories have focused on assembly or OEM production supplying globalbuyers and few have been able to establish a strong position in high-value-added,high-tech, and high-end products (Feenstra and Hamilton 2006; Hamilton andPetrovic 2006) As with general manufacturing expansion, growth in apparel hasbeen driven, at least until recently, by low-wage and unskilled or semiskilledworkers who migrate from western and central to coastal regions (Appelbaum et al

2005; Arnold and Pickles 2011b) As billions of workers and consumers havebecome more direct participants in the global economy as workers and consumers(Gereffi2009), this process has increasingly come to drive China’s rapidly changingeconomic geography creating upward pressure on wages and working conditionsthat are beginning to challenge the‘China price’ and the ‘race to the bottom’ it hascreated (Appelbaum2004; Appelbaum et al.2005; Henderson and Nadvi2011).While China has traditionally been seen as a cheap labor pool, with an almost

infinite supply of labor, workers have responded quickly to new opportunities,forcing wages up and encouraging better work by exiting low-paying andlow-quality jobs (Drewry Supply Chain Advisors 2007) Other factors have alsobeen important, including labor shortages fueled by low wages and poor workingconditions, the appreciation of China’s currency, slackening global demand espe-cially after the outbreak of thefinancial crisis, new regulations dealing with envi-ronment, labor law, and an expanded role for corporate social responsibility (CSR).These factors have squeezed profit margins to such a degree that some manufac-turers have been forced to shed labor or shut down altogether, creating a dilemmafor policy-makers particularly in regions that are highly dependent on the industryfor employment (Wang and Mei2009)

The ‘race to the bottom’ that typified the ‘China price’ and the rapid rise ofChina as a global supplier of clothing over the past decade is thus now changing inways that are having profound effects on the industrial organization and spatialstructure of production and employment, and will change the ways in which weunderstand China’s role in global and regional export markets in the coming years(Chan2010a,b; Lee2007) This book focuses on the apparel industry and asks thefollowing: How, since the early 2000s, the Chinese state and private firms aredealing with negative consequences of low-wage export-oriented production inapparel? Specifically, it seeks to understand, as competitive pressures intensify,what are new government policies andfirm strategies and how do these emergingstrategies affect the spatial patterns, organizational structure, and value segments ofthe Chinese apparel industry

This research builds on recent insights in economic geography and economicsociology on industrial relocation/delocalization, upgrading, governance, evolu-tionary economic geography, global value chains (GVCs), and global production

networks (GPNs) (Bair2009; Boschma and Martin2007; Coe et al.2008a; Gereffi

et al 2005; Pickles and Smith 2011) It focuses on the interaction between thedifferent and related roles of governments and firms and their complementaryand/or conflicting effects in restructuring the geography and organization of theChinese apparel industry In this book, we seek to demonstrate that the model ofinward investment, global sourcing, and export orientation is already undergoingfundamental restructuring, producing new geographies of production andemployment, with the consequent need to re-assess the policy implications of China

in the global production networks

This book will document some of the ways in which different levels of ernment and different kinds of firms are attempting to deal with the intensifiedcompetitive pressures and the dilemma they pose It does so by paying specificattention to three policies and enterprise responses to these pressures: ‘Go Up’(upgrade), ‘Go West’ (westernize to low-cost Western China), and ‘Go Out’(delocalize to other low-cost countries) This book asks three questions: (1) Ascompetitive pressures increase, how are industrial policies from various levels ofgovernments affecting the spatial patterns, organizational structure, and valuesegments of the Chinese apparel industry? (2) How arefirm strategies affecting thespatial patterns, organizational structure, and value segments of the Chinese apparelindustry? (3) How these new government strategies and emergingfirm strategies arerelated and the extent to which they are complementary or in conflict?

gov-The importance of this research lies mainly in its attempt to understand thedifferent and interconnected roles of government policies and firm strategies andtheir effects on the geographies of Chinese apparel production networks As aresult, this research will develop a strategic relational theorization to understand thearticulations between the public and private economic governance in global valuechains and global production networks The research will also provide perhaps thefirst detailed account of the complex geographical dynamics currently restructuringChina’s export-oriented industries These geographical and industrial shifts haveenormous implications in and beyond China for what is possible in post-crisisglobal value chains At the heart of these changes are the millions of migrantworkers whose livelihoods depend on the industry and who with industrialupgrading and delocalization will find new opportunities and constraints as thegeographies of employment change

These are linked stories of uneven regional economic collapse and rebirth,fragmentation and consolidation of production network, spatial and organizationaldynamics, and past and future possibilities for organizing work and competitivenessthrough strategies of industrial and regional upgrading, relocation, and delocal-ization In examining these issues, this book contributes in relation to the followingareas:

1 While most studies of GVCs and GPNs have focused on the diversity of forms

of governance within the value chain, rather than on the role of state actions andgovernment policies, recent work on global value chains and production net-works has stressed the significant role that state action plays in the international,

national, and sub-national formation, constitution, and restructuring offirms inglobal production networks (Gereffi et al 2005) Most recently, Smith (2012)has called for a much fuller engagement within GVC analysis with state theoryand the role of institutional actors and regulations In this book, we analyzeupgrading, regionalization, and delocalization strategies in the context ofnational economic regulation and policies The Chinese state, in particular, hashad important roles to play through national economic regulation and policies inshaping patterns of industrial upgrading, regionalization, and delocalization(Coe et al.2008a; Dicken2007; Liu and Dicken2006).

2 By focusing on China’s apparel industry, this book addresses at different scales(global, regional, and local) the legacies and social structures of the commandeconomy, the changing structure of production and trade networks, and the ways

in which global, regional, and local factors have produced differentiated forms

of industrial and regional upgrading, relocation, and delocalization We areparticularly attentive to the ways in which the specificity and articulation oflocal clusters, networks and social formations with global value chains, andregional production networks inform and alter the broader logics of value cre-ations and circulation As such, this book extends recent work on global pro-duction networks and regional development by emphasizing a multiscalar,analytical approach where global, regional, and local factors all have profoundimpacts over the process of industrial and regional upgrading, relocation, anddelocalization

3 This book also focuses on the diversity of industrial and regional upgradingstrategies pursued to cope with the changes in the wider economic environment

of global production networks The strength of GVC analysis is precisely itsability to provide parsimonious and rigorous analysis of complex systems and to

do so in ways that adjust to geopolitical and historical shifts in the organization

of relations of power in the economy But, as the World Bank, UNCTAD,OECD, and WTO each embark on ambitious plans to incorporate GVC analysesand upgrading trajectories into their policy frameworks, understanding howfirms and regions mobilize a diverse set of upgrading and downgradingstrategies in conditions of changing end markets and shifting regional capacitiesbecomes ever more important (Cattaneo et al.2010) In this research, we hope toopen up a broaderfield for the discussion of firm tactics and regional strategies,highlighting in the process the contingent and conjunctural nature of economicdecision-making, rather than seeing upgrading in linear terms

4 Finally, in this book, we argue that evolutionary economic geography (EEG) is

an emerging paradigm in economic geography, yet it currently remains to someextent isolated from the developments in other theoretical approaches Anagent-based EEG approach not only provides genuine new interpretations forthe main debates in economic geography, such as the coevolution of a widerange of actors, the spatial evolution of industries and clusters, and harmoniesand disharmonies in spatial systems, but also offers interfaces with other theo-retical approaches in economic geography as well as economic sociology anddevelopment studies Recent studies have led to innovative theorizing at the

interface between EEG and institutional economic geography and at the face between EEG and analysis on industrial districts and clusters (Boschma andFrenken 2006, 2009; MacKinnon et al 2009; Martin 2010) This book istherefore to demonstrate that the interface between agent-based EEG approachesand GVC/GPN approaches could be a fertile area for further consideration.

The impact of the transforming business environment and the subsequent fication of competitive pressures is especially marked in the main manufacturingcenters of Chinese apparel industry, such as Zhejiang, Guangdong, and othercoastal provinces We have selected Ningbo city as the primary case study for thisresearch (Fig.1.1) Ningbo is one of the biggest clothing industrial clusters inChina—it produces around 1.3 billion pieces of apparel products each year, whichaccounts for 40% of the provincial production capacity and 12% of the nationaltotal domestic garment production (Li & Fung Research Centre2006) By the end

intensi-of 2006, there were around 131,600 workers employed directly in Ningbo’s more

Fig 1.1 Location of Ningbo Source Compiled by authors

than 2,000 apparel enterprises, accounting for about 5% of the national total(Ningbo Economy Committee 2007) Major products manufactured in Ningboinclude men’s suits, knitted garments, and children’s wear, which account for 44,

65, and 76% of the province’s total production, respectively (Li & Fung ResearchCentre2006; Tan2006)

The traditional Ningbo model was a system of production centered on familyworkshops and embedded in dense, historically rooted local institutions Familiestypically formed the main productions units, relying on social networks and saleagents which bridged producers in Ningbo and domestic-oriented retailers inShanghai (Chen and Zhang2008) Ningbo was a leading region in reforming itseconomy: When China was still dominated by state-owned enterprises, familybusiness units and town and village enterprises had already become the backbone ofNingbo’s apparel industry At this stage, the development of its apparel industrywas largely driven by its supplier–buyer links with Shanghai based on geographicaland social proximity on the one hand, and its historical legacies of craft productionand trading on the other (Chen and Zhang2008) Ningbo’s apparel products began

to penetrate the domestic markets, which were still dominated by central andregional planning and its shortage economy

Since the initiation of reform and opening-up policies in the late 1970s,Ningbo’s apparel industry has experienced two rounds of industrial restructuring.The first round, catalyzed by the reform, was centered on a process of transfor-mation from small family business units to real registered enterprises (shareholdingenterprises or limited liability corporations) and a process of privatization fromstate-owned enterprises to private- or joint-venture enterprises From 1980s to1990s, the first generation of apparel enterprises emerged As marketization, pri-vatization, and globalization deepened,firms also developed their own brands fordomestic markets while taking on export contracts as global buyers increasinglyrelocated apparel production from Hong Kong, Taiwan, and South Korea tomainland China In 1990s, export-oriented production surpassed domestic-orientedproduction and soon comprised the bulk of Ningbo’s apparel industry In the late1990s and early 2000s, nearly two-thirds of Ningbo’s apparel firms export over90% of their production, making Ningbo one of the largest apparel manufacturingand marketing bases in Asia (Li & Fung Research Centre 2006; Zhao and Gu

2009) Thisfirst round of restructuring was stimulated by an enormous increase ininternational demand for export goods, especially those dependent on low-wageand unskilled or semiskilled labor and low-cost factor inputs As a result, Ningbo’sapparelfirms quickly improved productivity, expanded their capacity and capturedeconomies of scale, and tied their production process more closely to the demands

of global buyers (Gereffi2009)

In the mid- to late-2000s, this export-oriented, low-wage model started to bechallenged by the rising cost of labor and labor shortages in China’s coastal region(Wang and Mei2009) Alongside the significant and rapidly changing labor marketdynamics, other factors have also been important, including the appreciation ofChina’s currency, slackening global demand especially after the effects of the Asianfinancial crisis in the late 1990s and the global financial crisis of 2008, new

environment regulations, the effects of China’s new labor law, and the spread ofexpanded corporate social responsibility (CSR) requirements in the industry (Li &Fung Research Centre 2008; Yang 2012) Dwindling international demand andrising production costs together formed an exogenous shock and further led to thesecond round of industrial restructuring in Ningbo’s apparel firms (Fig.1.2), asmany more took advantages of the new opportunities generated by a boomingdomestic market to adjust to weakening export orders.

This second round of restructuring has been characterized by a growingdomestic orientation, particularly in new firms As costs rose and competitivepressures increased, apparel manufacturers recognized the unsustainability oflabor-intensive, low-value, and low-end OEM production, and sought to establishcore competencies in high-value OEM, ODM, and OBM production Ningbo’sentrepreneurs either opted for upgrading to high-value OEM, ODM, and OBMproduction after years of supplying global brands, or started new businesses directlywith high-value OEM, ODM, or OBM production As a result, from the mid- tolate-2000s, a second generation of enterprises emerged whose characteristics wereincreasingly related to medium- and high-value production for domestic markets Inrecent years, a third generation of enterprise is emerging These focus on providingindustrial intermediary services They either receive orders from global brands andthen outsource to competent subcontractors, or perform integrated product devel-opment, sourcing, shipping, and logistics for global buyers Their number andimpacts are still limited, but their emergence signals a new way to participate inGVCs where the capture of rents is heavily dependent on the ability of an actor topull apart the GVC, mediate transactions among its parts, and optimize each step.This evolution of Ningbo’s apparel industry has been shaped by the broadercontext of economic regulations and policies; the parallel and linked transformation

of other manufacturing, agricultural, and service sectors in the region; and by theways in which locally rooted institutions operated under state socialism and

Fig 1.2 Output and export delivery value of Ningbo ’s apparel industry Data source Annual report of Ningbo ’s apparel industry (2011) (Note Export delivery value refers to the value of exported goods on delivery It is an indicator widely used by the China statistical bureau.)

continue to do so (see Pickles and Smith 1998 for a similar argument aboutpost-socialist European transformations) First,firms benefit from labor pools andinterfirm synergies they have cultivated over time, resulting in complicated verticaland horizontal linkages within the cluster Far from the independent producersassumed to typify many export processing platforms, Ningbo’s apparel enterprisesemerged within locally based intensely interwoven networks of trust and personalrelationship (also see (Begg et al.2005; Pickles1995,1998) for analyses of thesesocial networks in European socialist economies) Second, between the first andsecond round of industrial restructuring, the rapid economic growth and exportboom in Ningbo had been partly driven by China’s central government’s com-mitment to encouraging private-sector-led export-oriented industrialization (He

et al.2008; Wei2000) Furthermore, China’s decentralization has also empoweredlocal governments to get involved in shaping the regional economy as planners,developers, and policy-makers, and some of them have become heavy-handedactors that are ever more convinced of the importance of their‘steering’ role (He

et al 2008; Wei 2001b; Wei et al 2007) The Ningbo Government has beenespecially active in pushing forward its apparel industry by offering generousfinancial and technological support to key enterprises, supporting the AnnualNingbo International Fashion Fair (ANIFF), and coordinating between large andsmall firms Industry-based local institutions have flourished in recent years,exemplified by the Ningbo Garment Association (NGA) Established in 1998, NGA

is one of the most influential business associations in Ningbo and it took over therunning of the ANIFF since its initiation In addition, it has been organizing visits

of Ningbo’s apparel firm managers to successful enterprises in China and abroadeach year, often including factory tours and experience exchange It represents theapparel industry in negotiating resource allocation, as well as helping localfirms toestablish design centers and training facilities NGA has also lobbied nationally andregionally for industry supports for land, bank loans, and tax rebates

1.3.1 Data Sources

One database on firm-specific economic and financial variables is central to thefirm-level analysis in this research: China’s Annual Survey of Industrial Firms(ASIF) (1998–2009) The study time period from 1998 to 2009 is critical in terms

of the development of China’s apparel industry as well as its entire manufacturing.This time period is often described as a turning point laden with a variety offar-reaching events which have potentially transformed China’s apparel industry infundamental ways, such as China’s entry into the WTO in 2001, the removal ofquotas on apparel exports to the developed countries in 2005, the appreciation ofChina’s currency since 2005, and the emerging labor shortage and rising production

costs along China’s coastal area since the early 2000s The 2007/8 global financialcrisis which has stimulated Chinese apparel restructuring, upgrading, and relocationalso falls into this time period, though its complete effects may take more than two

or three years to be seen

The ASIF is administered by the National Bureau of Statistics of China andcovers all Chinese industrial state-owned enterprises and non-state-owned enter-prises with annual sales of 5 million RMB or more The database providesfirm-level data on firm structure and operation, including firm identification, loca-tion, capital structure, total profits, total shipments, exported shipments, interme-diary inputs, asset value, inventory, employment, sales value, type of investment,output, value added, R&D expenses, education and training of staff, and wages,social insurance, and benefits paid This research will only focus on the apparelindustry (number 18 two-digit industry in the Industrial Classification for NationalEconomic Activities GB/T 4754-1994 and GB/T 4754-2002)

1.3.2 Fieldwork

The empirical study was undertaken based on recentfield investigation during theperiods of 2011, 2012, and 2013, in Beijing and Ningbo, China The empiricalfoundation includes qualitative in-depth interviews with four groups of agents tounderstand the dynamics of cluster evolution and firm’s strategies in the face ofintensified competitive pressures Due to confidentiality agreements with thecompanies, the identities offirms and interviewees remain with the authors Allinterviews were conducted at the management level, and each was accompanied by

a shop floor visit to see the plant in operation A total of forty-two face-to-faceinterviews were conducted with thirty-one entrepreneurs In addition to companyinterviews, the data collection includes interviews with key informants fromnational and local industrial associations, government officials, and relevant aca-demics and analysts These expert interviews were essential for data triangulationboth with company data and information about policies, regulation, and businessenvironment Specifically, two interviews were conducted with local government

officials Four interviews were conducted with representatives from the localapparel industry association (i.e., Ningbo Garment Association) and another threeinterviews with representatives from national apparel industry association (ChinaNational Textile & Apparel Council and China Textile Planning Institute ofConstruction) Moreover, six interviews were conducted with the leading scholars

of the apparel industry in China, including professors from Peking University,Zhejiang Normal University, and Zhejiang Textile & Fashion College The averageduration of each interview was approximately two hours, and interviews with keyinformants such as representatives from apparel association and government offi-cials, and several leading entrepreneurs took half a day When possible, informantswere interviewed more than once Local government and apparel association werefirst contacted and interviewed, to understand the general structure of Ningbo’s

apparel industry After this, interviews with local apparel entrepreneurs wereorganized with the guidance of local government and apparel association.

In thefirst hour of interview, we used a semistructured method, conversed withrespondents based on some prepared questions, which centered on issues such asthe main products of the company, history, organization, development of staff andturnover, research and development, product and process innovations, spin-offs,diversification strategies or projects, and the internal and external success factorsand barriers to product development and diversification strategies The second hour

of interview was of a much more informal character with no predetermined tions This open-ended methodology allowed respondents to transcend the con-finement of researcher-dominated conversation and unconsciously mentionedsomething of importance For example, the extent to which his/her firm wasembedded into local cluster might highly depend on how close he/she was withother entrepreneurs in the same cluster Discussion of such personal informationcannot be explored thoroughly with predefined specific questions Sometimes,entrepreneurs who were unwilling to evaluate their own strategy if it was not a greatsuccess, however, would likely mention and judge other firms’ strategy Thisenabled us to triangulate key information of onefirm based on the comments fromother entrepreneurs, and sometimes from government officials and apparel associ-ation representatives

ques-The interviews were enriched with secondary information collected fromsector-specific publications, company reports, and Web sites This research wasindebted to Ningbo Garment Association and Zhejiang Textile & Fashion Collegewhich generously shared materials and documents with us, such as Blue Book ofNingbo’s Apparel Industry and Annual Report of Ningbo’s Apparel Industry(2009–2012) The overview of Ningbo’s apparel industry presented above is based

on these secondary materials, which also allowed us to triangulate between differentsources and to verify information collected from interviews

The rest of this book contains a conclusion and six empirical chapters that havebeen organized in three parts: (1) Government: This part sets the stage by intro-ducing the ways in which national economic regulation and new industrial policiesfrom various levels of governments are affecting the spatial patterns, organizationalstructure, and value segments of the Chinese apparel industry; (2) Firm: This partthen analyze the effect of emerging firm strategies over industrial dynamics;(3) Spatial articulation: This part seeks to understand the different and intercon-nected roles of government policies and firm strategies and their effects on thegeographies of Chinese production networks Section1.3also compares Ningbo’sapparel industrial cluster with another industrial cluster in China and examines thevarious adaptations these two clusters have undergone, as well as the mechanismsunderlying the industrial and geographical dynamics within these two clusters

to confront difficulties generated by the increasing social and economic costs of thisregionally concentrated low-wage growth model Specifically, Chap.2 focuses onthe role of the apparel industry in this process It documents the major changes inorganization and geographies of economic activity in the industry, and demon-strates how the central and local state, domestic and international capital, andChinese and other Asian workers are shaping the changing organization andgeography of China’s apparel industry This chapter focuses particularly on statepolicies that have arisen in response to pressure to increase wages from workers,rising materials and energy costs and competition from other low-cost producers inAsia.

Part II: Firm

Chapter 3 Geographical Dynamics and Industrial Relocation: SpatialStrategies of Apparel Firms in Ningbo, China

This chapter examines the diverse trajectories offirm relocation and delocalization

As many studies on the driving mechanism offirm relocation have lagged or failed

to disclose the full view, we develop a comprehensive tri-polar analytical work, which allows us to analyze the diversity of trajectories offirm relocation anddelocalization in the global, regional, and local context The empirical analysisapplies this framework to the apparel industry in the city of Ningbo Through ananalysis of several case studies, we show the articulation of global, regional, andlocal factors is coshapingfirm’s relocation processes and the extent to which thesefactors affectfirm’s spatial strategies is highly dependent on firm’s characteristic.The chapter also examines the opportunities for local suppliers generated byfirmrelocation

frame-Chapter 4 Global, Regional, and Local: New Firm Formation and SpatialRestructuring in China’s Apparel Industry

Using a large firm-level dataset on new firm formation, this chapter testifies ourfindings in Chap.3and demonstrates the articulation of global, regional, and localfactors is shaping the new firm formation pattern and industrial relocation ininteractional and collective ways We also anticipate that the ways in which and theextents to which these factors affectfirm location choice are highly determined byfirm-specific capability

Chapter 5 Turkishization of a Chinese Apparel Firm: Fast Fashion,Regionalization, and the Shift from Global Supplier to New End MarketsBased on recent debates on regional sourcing strategies, regionalized productionnetworks, and geographical proximity, we want to caution againstfixating blindly

on a dichotomy between low-cost, large-volume, non-replenishment-intensive, andnon-fashionable production for geographical remote suppliers and high-quality,sometimes small-batch, replenishment-intensive, fashionable, responsive, andflexible production for geographical proximate suppliers, by asking questions from

a different angle: Do low-cost suppliers need to, and if yes, can they, becomecompetitive in certain product categories that require high quality, responsiveness,flexibility, sometimes small-batch, fast replenishment, and fast fashion, while beinggeographically remote to core markets in the EU and US? This question is also ofcentral importance empirically, because a large number of low-cost suppliers inpartially industrialized countries that are geographically remote to core markets inthe North have been increasingly pressured by the rising labor cost and laborshortages We therefore seek to light up an upgrading path for developing countrysuppliers not gifted with proximity advantages, in particular, when they are nolonger able to maintain the low-cost production This chapter examines closely awell-known Chinese apparel firm, Seduno, looking for clues concerning theabove-mentioned arguments It pays attention to thefluidity, complexity, variety,contingency, and dynamism of the idea of geographical proximity, by documentingthe ways in which Seduno, as a low-cost supplier geographically remote to coremarkets in the North, has been transcending the confinement of geography, through

a diversified and complicated process of Turkishization

Part III: Spatial Articulation

Chapter6Institutional Embeddedness and Regional Adaptability and Rigidity

in a Chinese Apparel Cluster

In recent years, theflexibilities industrial clusters may offer to firms within themhave been questioned as interfirm linkages have, in some cases, locked-inpath-dependent practices and increased economic rigidities In this sense, thecanonical path dependence model has tended to overlook such trajectories of clusterevolution and has not paid as much attention to the ways in which actors can affectpath-dependent processes In this chapter, we build on this critique which haslargely been developed in evolutionary economic geography to explore how acluster becomes progressively locked-in and how the knowledge base of anindustry becomes homogenized resulting in a loss of innovative dynamism and aslowdown in the growth, or even stasis, of the cluster By focusing on a case studyfrom China, the chapter investigates some of the ways in which different kinds ofactors respond to external shocks, such as rising costs of labor, labor shortages,currency appreciation, and slackening global demand especially after the outbreak

of the 2008 financial crisis, and the ways in which the resulting processes arefraught with tensions and divergences

Chapter 7 Global and Local Governance, Industrial and GeographicalDynamics: A Tale of Two Clusters

This chapter closely examines two industrial clusters in China and compares thevarious adaptations these two clusters have undergone, as well as the mechanismsunderlying the industrial and geographical dynamics within these two clusters.Specifically, based on recent field investigation and in-depth interviews during

2011–2014 in Ningbo as well as in Yongkang, China, we examine two types oflocal governance, and pay attention to the articulation between‘governance withinglobal value chains’ and ‘governance within local clusters,’ and to how globalgovernance and local governance coshape the ways in which and the extents towhich localfirms participate in the global economy, producing diverse geographies

of production and generating diverse trajectories of regional development Thechapter concludes that local governance and global governance codeterminedomesticfirms upgrading sources, the strength of their local embeddedness, and theways in which they conduct spatial and organizational restructuring, such as factoryconsolidation, factory closure, industrial upgrading, and geographical relocation.Chapter8Going Green or Going Away: Environmental Regulation, EconomicGeography, and Firms’ Strategies in China’s Pollution-Intensive IndustriesThe high-growth, resource- and pollution-intensive industrialization model thatChina pursued has caused severe environmental pollution and deterioration, par-ticularly in a number of clusters in the coastal regions of east and southeast Chinawhere the reform and opening-up policies first started The lack of uptake ofenvironmental norms/values, as well as implementation deficit of environmentalregulations and policies, and the lack of institutional capacity have been com-pounding factors As environmental standards were raised by China’s centralgovernment, the enforcement of environmental regulation has been compromisedmore in inland China than in coastal regions, due to China’s ‘decentralized gov-ernance structure’ and regional disparity in terms of both economic developmentand environmental pollution This chapter therefore argues that rising environ-mental regulations, as well asfirm characteristics, regional hub effect, and politicalenvironment, has all been particularly important in forcing China’spollution-intensive enterprises to restructure their production, through innovation,upgrading, geographical relocation, outsourcing and plant closure, especially inChina’s coastal regions It contributes to recent studies by developing a heuristicanalytical framework that aims to be sensitive to the impacts of environmentalregulation, political environment, and regional hub effect over firm restructuring,but which does so by stressing these impacts are simultaneously inflected by thenature and attributes offirms The empirical analysis suggests a roughly invert ‘U’-shaped relationship betweenfirm relocation tendency and firm size (or firm capa-bility), resulting from complex interactions between political environment, regionalhub effect, and environmental regulation

Chapter9 Summary and Conclusion

The conclusion brings together the key arguments and returns to the three corequestions which inform the analysis In this chapter, we argue that after a period of

liberalization during which the direct role of the state in shaping industrial tional and organizational decisions was diminished in apparel firms, governmentstrategies are now playing an increasingly leading role in shaping industrial policy

loca-in labor-loca-intensive and low-value enterprises In addition, we call for a morenuanced reading of the changing global economic geographies in the apparelindustry (as well as in other labor-intensive industries) than is provided by dis-courses of ‘race to the bottom,’ and point out that debates on the geography ofglobal production network and global value chain restructuring should be analyzed

in ways that pay special attention to the forms of articulation between government,firm, and the wider historical, political, institutional, economic, and social context

in order to explain contemporary outcomes in the global economy, and global,regional, and local sourcing patterns

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Government

Chapter 2

Bring In, Go Up, Go West, Go Out:

Upgrading, Regionalization, and

Delocalization in China ’s Apparel

Production Networks

In recent years, a great deal of research in economic sociology, political economy,international studies, and economic geography has focused on the globalization,governance, and rapidly changing geographies of global commodity chains(GCCs), global value chains (GVCs), and global production networks (GPNs) (Bair

2009; Gereffi 1999b; Gereffi et al 2005; Henderson et al.2002; Smith 2012) Inthese attempts to account for the shifting patterns of manufacturing and work, therole of the state and its industrial and regional policies are seen to be playing anincreasingly important role in mediating the potentially destabilizing effects of whatGereffi and Mayer (2006) refer to as the ‘governance deficit’ In this process, areconsideration of the role of national industrial policies, trade policies, and laborregulations is emerging This is even more the case in China where, despite theapparent retreat of the state since its market-oriented reforms, the state has con-tinued to be an active participant not only in strategically critical industries such asthe manufacture of transport equipment, but also in the ‘most globalized’ andleast-protected industries such as apparel In this chapter, we focus on China’sapparel industry and argue that—after a period of liberalization, globalization, andmarketization—state policies, social pressures on low-wage manufacturing andchanging demands of different end markets are becoming important drivers ofindustrial upgrading in eastern China and crucial drivers of the relocation of lowvalue-added segments of the industry to other regions and countries

In this chapter, we focus on these industrial and regional dynamics, and thevarious adaptations the Chinese apparel industry is undergoing in regard to them.The chapter documents some of the ways in which different levels of government

Zhu, S and J Pickles 2014.“Bring in, Go up, Go West, Go Out: Upgrading, Regionalisationand Delocalisation in China’s Apparel Production Networks.” Journal of Contemporary Asia,

44 (1): 36–63 (full article reused with some minor modifications)

© Springer-Verlag GmbH Germany 2017

S Zhu et al., Geographical Dynamics and Firm Spatial Strategy in China,

Springer Geography, DOI 10.1007/978-3-662-53601-8_2

19

and different kinds offirms are attempting to deal with these limits and the dilemmasthey pose It does so by focusing specifically on spatial and organizational responsesincluding factory consolidation, plant closure, product, process, chain upgrading,and geographical relocation (Liao and Chan 2011; Yang 2012) We draw oninterviews withfirm managers, CSR officers, labor organizations, regional admin-istration and central government officials, and industry association officials, as well

as usedfirm-level data to assess spatial changes over time.1We seek to demonstratethat the model of inward investment, global sourcing, and export orientation isalready undergoing fundamental restructuring, producing new geographies of pro-duction and employment, with the consequent need to re-assess the policy impli-cations of China in global production networks Section2.2 contextualizes thedevelopment of China’s apparel industry in terms of a specific export-led model ofindustrialization (its spatial distribution, export, output value, employment, and thetemporal changes of these indicators), with a particular focus on the pressures thathave cut manufacturers’ profit margins and are now forcing the government andmanufacturers to implement new strategies to manage competitiveness and the socialcosts of growth Section2.3outlines the emerging limits of this model of indus-trialization Section2.4deals explicitly with three policies and enterprise responses

to these pressures: upgrading, westernization (or regionalization), and delocalization(or outsourcing) The chapter concludes with an analysis of the impacts of thesepolicy initiatives on apparel production networks and global value chains

in Global Apparel Value Chains

The integration of the Chinese apparel industry into global value chains deepenedgreatly after 1990 Between 1994 and 2010, despite declines in 1998 and 1999 as aresult of the Asian Financial Crisis, China increased its apparel exports from US

$24.3 billion to US$149.5 billion (Table2.1) In the 1990s, apparel exports weredriven largely by demand from US markets, but with entry into the WTO in 2001and the removal of quotas worldwide after 2004, Chinese apparel exports expanded

to all world markets

Between 1995 and 2008, China more than doubled its share of global apparelexports from 15.2 to 33.2%, and it experienced afivefold increase in the value of itsapparel exports, from US$24 billion to US$120 billion With expanded exports,dependence on specific markets was reduced (Gereffi and Frederick,2010) Thus,while China’s top ten export destinations accounted for 91.5% of China’s apparelexports in 1996, the top ten markets accounted for only 79.1% in 2008 In 1996,Japan alone accounted for 32.6% of China’s apparel exports and the US and theEU-15 accounted for another 22% (Hong Kong’s 26.4% of exports was largely for

1 The maps in the chapter are based on firm-level data derived from the annual China Industry Economy Statistical Yearbook.

Table 2.1 Export of apparel products (1994 –2010)

Year Exports (US$

million)

Import (US$

million)

% of total exports

% of total imports

Source National Bureau of Statistics of China (2011)

Data on exports of apparel products are calculated by adding up four categories of Textile and Apparel Articles: 1 Knitted or Crocheted Fabrics 2 Articles of Apparel and Clothing Accessories, Knitted or Crocheted 3 Articles of Apparel and Clothing Accessories, not Knitted or Crocheted.

4 Other Made Up Textile Articles; Sets; Worn Clothing And Worn Textile Articles; Rags Articles; Rags These four labor-intensive sectors have increased faster than other categories of Textile and Apparel Articles and represented 76% of China ’s export of Textile and Apparel Articles in 2010, compared to 71% in 1994

re-export) While by 2008 the EU-15 and the US had become the top two exportdestinations, they then accounted for less than 40% of total apparel exports andexports to Japan had dropped from 32.6 to 14.7%

As the structure of China’s industry changed and as producers shifted theircomparative advantages from low-wage labor and low-end technology to mediumtechnology and higher quality goods, the apparel share of total exports, particularlymanufacturing exports, continued to decline As a share of China’s total exports,apparel declined from 20.1% in 1994 to 9.5% in 2010, and the value of apparelimports (always relatively small) declined from 1.2 to 0.3%, but as an employmentgenerator apparel remained important, accounting for above 5% of employment ofall industrial sectors in 2009

The resulting geographies of apparel manufacture and employment were shapedincreasingly—at least until recently—by these shifts in global sourcing for exportmarkets Export production concentrated in eastern coastal regions, with primaryconcentrations in Shandong, Jiangsu, Zhejiang, and Guangdong provinces andsome outliers in regional centers such as those in central China along the YangtzeRiver (Fig.2.1) The three planning regions in Fig.2.2—Western, Central, and

Eastern—are China’s formal administrative planning regions We introduce themhere to provide a clearer picture of patterns of employment growth and changebeyond the provincial level and to provide a name locator for the specific regions,some of which are referred to in the following sections With regional concentrationand the emergence of industrial clusters and city regions devoted to specificproducts, the demand for labor rapidly out-stripped local labor market capacities.

As a result, manufacturers became increasingly dependent on expanded flows oflow-wage migrant workers from the countryside, particularly from inland regions.For many, this was a‘race-to-the-bottom’ with intensification of the labor pro-cess, low wages, poor labor and environmental standards, and weak enforcement ofnational and local laws (Appelbaum et al 2005) For others, China is simultane-ously engaged in a‘race to the top’, with some enterprises aggressively trying tomove up the value chain through investments in R&D, design, and advancedmanufacturing, and with an emphasis on domestic innovation This export boom—

officially referred to as the Bring-In policy—was predicated on low-wage assemblyproduction, but has quickly generated greater capacity, vertical and horizontalintegration, higher utilization rates, product specialization, increasing familiaritywith technology, and large learning-by-doing effects As a consequence, producershave been able to sustain internationally competitive prices while offering pro-gressively higher quality products in expanded economies of scope and scale

Fig 2.1 Spatial distribution of gross industrial output in garments and other fiber products by county Data Source Compiled by authors, using data from the china ’s annual survey of industrial firms in 2008

2.3 The Limits of Export-Led, Low-Wage

Industrialization

Since the early 2000s, factories in eastern China have increasingly confronteddifficulties generated by this export-led low-wage growth model The first dramatictransformation was driven by appreciation of China’s currency, inflation, increasedraw materials costs, lack of water and electricity as industrial capacity expanded,and increasing labor costs and labor shortages as local and migrant workers shiftedjobs away from the low wages and poor working conditions prevailing in theindustry Export-orientedfirms, in particular, found themselves squeezed betweenlow contract prices, rising input costs, and struggles of migrant workers for betterwages and working conditions, increasing numbers of whom have found it pro-gressively easier to shift jobs into other industries and occupations (Inagaki2006).According to the Ministry of Human Resources and Social Security of China, theaverage monthly salary for the country’s migrant workers reached 2049 Yuan

Fig 2.2 Chinese provinces and centrally administered municipalities (Note: AH Anhui, BJ Beijing, CQ Chongqing, FJ Fujian, GD Guangdong, GS Gansu, GZ Guizhou, GX Guangxi, HEB Hebei, HEN Henan, HLJ Heilongjiang, HN Hainan, HUB Hubei, HUN Hunan, JL Jilin, JS Jiangsu, JX Jiangxi, LN Liaoning, NMG Neimenggu (Inner Mongolia), NX Ningxia, QH Qinghai,

SC Sichuan, SD Shandong, SH Shanghai, SHX Shaanxi, SX Shanxi, TJ Tianjin, TW Taiwan, XJ Xinjiang, XZ Xizang (Tibet), YN Yunnan, ZJ Zhejiang)

($325) in 2011, up 21.2% from 2010.2Currency exchange rates were also importantwith—in the case of Zhejiang province for example—every 1% rise in the value ofthe RMB leading to 3.19, 2.27, and 6.18% declines in profit margins for cottontextiles, wool textiles, and apparel, respectively.3As a result, in 2008, two-thirds oftextile and apparel enterprises in six provinces (including Jiangsu, Zhejiang, andShandong) were operating with profit margins as low as 0.62%, and the profitmargins for the remaining enterprises was only 6–10%, with an average as low as3.9% for all textile and apparel enterprises.4

The second transformation was driven by policy changes which indirectlyincreased production costs Labor costs have been affected by the 2008/9 newLabor Contract Law (LCL) and by China’s Social Compliance 9000 for the Textile

& Apparel Industry (CSC9000T) These have extended labor rights, particularlyconcerning overtime, delayed wage payment and job security As onefirm manager

in Ningbo commented:

The new labor law did lead to a substantial increase of production costs, in particular for small firms which only do OEM production and work on low margins They had difficulties

in absorbing such costs as easily as firms doing OBM and ODM

(General Manager of Peace Bird, translated from Chinese)

At the same time, the apparel industry has been confronted by more mental regulations, particularly those based on the 2007 State CouncilComprehensive Work Plan of Saving Energy and Diminishing Pollution, whichincreased the expense of pollution control for producers

environ-Apparel manufacturers have also been hit hard by the third transition of thebusiness environment; global demand declined, especially after the outbreak of thefinancial crisis and the foreign trade disputes and anti-dumping suits China rankedfirst worldwide with 338 anti-dumping cases between 1995 and 2005 Of the 169anti-dumping cases concerning textile and apparel products between 1995 and

2007, 32 were against China, the highest number among all countries.5 Theseproblems, combined with upward pressure on wages, low labor productivity, andincreasing demands from customers for higher quality, faster runs, and expandedservices, have squeezed the coastal apparel producers who expanded in the 1990s

2 China Daily, February 29, 2012, ‘Chinese Migrant Workers’ Wages up 21% Last Year’ Retrieved on February 29, 2012 from: http://www.chinadaily.com.cn/china/2012-02/29/content_ 14724299.htm.

3 Global Textiles, December 1, 2004, ‘The Appreciation of RMB Has Generated Great Impacts on Textiles ’ Retrieved on August 21, 2011 from: http://www.tnc.com.cn/news/detail/4/3/d43224 html.

4 First Financial Daily, March 27, 2008, ‘60% Textile and Apparel Enterprises Operate with Profit Margin as Low as 0.62% ’ Retrieved on August 8, 2011 from: http://mnc.people.com.cn/GB/ 7049933.html.

5 Textile and Apparel Weekly, February 22, 2008, ‘Textile Industry: How to Deal with Anti-dumping Investigations? ’ Retrieved on August 21, 2011 from: http://www.cwta.org.cn/ news080222b.htm.

and early 2000s They now face much tighter margins on contracts, challenges inmanaging workforce recruitment, retention, development, and competition fromother lower cost coastal areas, central and western regions of China, and othercountries of Southeast and South Asia (interview, firm managers and industryassociation officials, Beijing and Ningbo, August 2012) As a result, export growthfor garments fell sharply to 1.8% year-on-year in thefirst three quarters of 2008,compared to 20.9% for 2007.

During the 1990s, apparel employment became increasingly concentrated incoastal regions (see Fig.2.3).6 Since the early 2000s, the pressures on coastalapparel manufacturers have forced drastic changes in firm behavior, leading toupgrading, expansion of operations to new products or centers or relocation to lowercost locations Guangdong has succeeded in keeping its dominant position withabout 12.8% of the market share in 1988 and 24.2% in 2007 Zhejiang nearly tripled

Fig 2.3 Temporal changes of distribution of employment in garments by province (Source Compiled by authors, using data from various annual issues of China industry economy statistical yearbook)

6 Longitudinal analysis of industrial employment in textiles and apparel has to take into account the administrative change between 1988 and 2007 when Chongqing was upgraded to a centrally administered municipality in 1997, adding an additional administrative region to the 30 spatial units that existed before 1997.

its share, from 6.7% in 1988 to 17.2% in 2007 Jiangsu significantly increased itsshare, from 11.2% in 1988 to 17.1% in 2007 and maintained one of the dominantpositions The apparel industry in Shanghai was thefirst to experience these pres-sures, with some firms investing in new forms of product, process, functional ormarket upgrading and others relocating production to regions with lower costs As aconsequence, apparel employment in Shanghai declined from 603,000 in 1998 to146,000 in 2007 As the 2007 map of employment shows, apparel employment hasalready started to shift westward to Henan and Jiangxi provinces.

China’s exceptional export performance in labor-intensive manufacturing ticularly apparel) has long been associated with the specific industrial organizationand spatial structure typified by these coastal zones The detailed division of laborand sectoral specialization in its apparel clusters and its supply chain cities (‘sockcities’ and ‘button cities’) produced locations that were efficient and dynamiccenters of expanded and intensified production in large part because of the ways inwhich the agglomeration economies of their locally and regionally embeddedinstitutions, thick labor markets and tacit knowledge and practices were able tofoster dynamic growth, innovation and economic competitiveness As apparelfirmsbegin to struggle with some of the diseconomies of scale once offered by theselocations, and increasingly experience competition for workers and upward pres-sure on wages, different organizational and spatial strategies have emerged withsome firms investing rapidly in various forms of industrial upgrading and labormarket development, while others are moving out of these clusters and seeking toagglomerate in new geographies The challenge facing the resulting delocalization

(par-of apparel production will be the extent to which new competitive advantagesemerge or can be built in these new spaces, and the extent to which‘thick ties’,embedded institutions and deep labor markets can be reproduced in the emerginggeographies of production Who is moving and who is staying, and to what extent isthe re-institutionalization of new productive spaces being driven byfirms and bygovernment policy?

in the Chinese Apparel Industry

While most studies of GVCs and GPNs have focused on the diversity of forms ofgovernance within the value chain, rather than on the role of state actions andgovernment policies, recent work on GVCs and production networks has stressed thesignificant role that state action plays in the international, national and sub-nationalformation, constitution and restructuring offirms in global production networks(Gereffi et al 2005) In this section, we analyze upgrading, regionalization, anddelocalization strategies in the context of national economic regulation and policies.The state, in particular, has played an important role through national economicregulation and policies in shaping patterns of industrial upgrading, regionalization,and delocalization (Coe et al.2008a; Dicken2007; Liu and Dicken2006)

GVC analysis defines ‘governance’ as the functional integration and tion of internationally dispersed activities (Gereffi1999b) and often argues that theaction and motivations of global buyers are the key causal forces in the organization

coordina-of global contracting systems (Gereffi 1999b; Schmitz and Knorringa 2000).While GVC analysis does not exclude the possibilities for local institutions to affectoutcomes, state policies and institutional context have been under-estimated(Gereffi et al 2005) Bair (2009) has argued that in such analyses institutionalcontext was too often added later and still remains the least developed dimension ofvalue chain analyses Most recently, Adrian Smith (2012) has called for a muchfuller engagement within GVC analysis with state theory and the role of institu-tional actors and regulations Because globalization destabilized the governance ofnation state and local institutions through its footloose sourcing practices, anincreasing proportion of work for the global market took place in locations wheregovernance capacities were weak, if developed at all (Mayer and Pickles2010) As

a result, the absence of public and private regulation—the global ‘governance

deficit’—has been the focus of much subsequent political, economic, andnon-governmental analyses and interventions (Gereffi and Mayer 2006) GPNanalysis has been more explicit in its attention to the importance of institutionalcontext and the whole range of factors that contribute to shaping global productionand focuses on moving away from the firm- and chain-centered claims of GVCwork, but even here the state is theorized in a limited sense as a single institutionalensemble wielding uneven forms of power over global production networks (Coe

et al.2004; Dicken and Henderson2003; Henderson et al 2002)

It is increasingly acknowledged that developing economies need to embed vate initiatives in a framework of public action that encourages industrial restruc-turing, diversification, and technological dynamism beyond what privategovernance would generate on their own (Bair and Dussel Peters 2006; DusselPeters 2008) This recognition is now particularly widely perceived in thosecountries where market-oriented reforms were taken the farthest, and the disap-pointment about the outcomes caused by market failures is correspondingly thegreatest In China, the social consequences of low-value, low-wage export pro-duction have become increasingly serious, forcing the central government andregional administrations to become more active in regulating the trajectories andgeographies of change in the industry

pri-After a period of liberalization during which the direct role of the state in shapingindustrial locational and organizational decisions was diminished in apparelfirms,government strategies are now playing an increasingly leading role in shapingindustrial policy in labor-intensive and low-value enterprises, pushing andencouraging them to relocate from the higher-cost eastern regions to release spaceand resources for higher-value apparel and other industries while simultaneouslyencouraging economic development in less-developed inland locations, particularly

in areas from which migrant workers have been drawn Thus, in addition to China’scontinued commitment to encouraging inward investment (Bring In policy), theseadjustments have given rise to three broad additional state policies: upgrading (Go

Up policy), regionalization or westernization (Go West policy), and delocalization2.4 Upgrading, Regionalization, and Delocalization in the Chinese … 27

(Go Out policy) The Go Up policy refers to Chinese manufacturers that are beingencouraged to upgrade production and working conditions in situ with the goal ofbranding Chinese goods for national and increasingly for international markets The

Go West policy refers to low-wage assembly industries that are being encouragedthrough subsidies, contracts, and infrastructural development to relocate to orexpand in new lower-cost and less-developed locations inside China (mainly, butnot limited to, Western and Central provinces), often regions from which migrantworkers have traditionally been drawn The Go Out policy refers to low-wageassembly work that is being encouraged to outsource to low-cost producing centersoutside China, particularly under the auspices of emerging, large-scale Chinesemanufacturers and network organizers

The business environment and government policy to support upgrading,regionalization, and delocalization have emerged as major drivers of industrialupgrading, regionalization, and delocalization in many traditional manufacturingand export hubs for apparel products, particularly in the coastal region.Manufacturers have responded in four ways (Fig.2.4).7In the subsequent sections,

we describe each in turn

Go Up

Go West

Go Out

Environmental Upgrading Social Upgrading Industrial Upgrading Geographically

Organisationally High Road Low Road

Within Province

To Inland China From PRD to YRD Stratified Pseudo Total

Others

Plant Closure Wait-and-see

Fig 2.4 Restructuring strategies adopted by the export-oriented apparel firms Source Compiled

by authors

7 Go West here refers to one general tendency to expand or relocate from the Pearl River Delta (PRD), Yangtze River Delta (YRD), and Shandong Province to other lower cost regions, including intra-provincial shifting of production (e.g., to the outskirts of Guangdong and west across the Pearl River) This policy also covers the sub-contracting and outsourcing of production to the informal sector and SMEs in less-developed areas inside China as firms attempt to lower their costs Also within what we refer to as Go West the speci fic locational patterns of individual firms

2.4.1 Go Up: Policies Initiatives on Industrial Upgrading

One of the key drivers of the complex regional production network dynamics is therole of industrial and value chain upgrading Upgrading involves producers’capability‘to make better products, to make products more efficiently, or to moveinto more skilled activities’ (Kaplinsky 2000; Pietrobelli and Rabellotti 2006: 1;Porter1990) It is an increasingly central element in shaping new geographies ofproduction, as economic actors (countries,firms, workers, and regional economies)shed low-value activities, and the social and economic problems they can generate,

in favor of higher-value activities (Bair2005; Gereffi2005; Humphrey and Schmitz

2002; Ponte2002)

Industrial upgrading is central to the state’s central planning mechanism InChina’s Eleventh Five-Year Plan, the upgrading and optimization of industrialstructure ranks second among the main goals of economic development from 2006

to 2010, aiming at increasing industrial competitiveness through expanded R&D,Fig 2.5 Economic regions in China Source Compiled by authors

(Footnote 7 continued)

may, of course, be more complex Besides these general trends, there are also reasons for factories

in PRD to move to YRD or Jiangxi (Go North), while some factories prefer to relocate within or near to their existing locations.

2.4 Upgrading, Regionalization, and Delocalization in the Chinese … 29

branding, and expansion of tertiary industries, accelerating development of hightech industries, improving efficiency in energy use, encouraging independentinnovation, and supporting advanced technical education Between 2000 and 2005,the proportion of expenditure on R&D to the total GDP increased from 0.9 to 1.3%.According to the Eleventh Five-Year Plan, more than 100 national engineeringlaboratories were to be built between 2006 and 2010 Education and skill trainingfor labor are being promoted at both national and local levels Many local gov-ernments also offer free training for migrant workers, such as the‘Sunshine Project:Training for Labor Transferred from Rural Areas’ (The State Council of the PRC

In order to variously support and compel apparel firms to upgrade, theAdjustment and Revitalization Plan of Textile and Apparel Industry, released by theState Council in 2009, identified several adjustment and revitalization tasks for thetextile and apparel industry in 2009–11 These tasks included an increase in theexport tax rebate rate from 14 to 15%, support for expansion of domestic con-sumption, new investments in autonomous innovation and independent branddevelopment, support for key enterprises and consolidation in the small- and

Fig 2.6 Priority relocation destinations of the processing industry identi fied by the ministry of commerce (2007 and 2008) Note The third batch issued in 2010 is not shown on this map Source Compiled by authors, using data from (Li & Fung Research Centre 2008)

medium-sized enterprise sector (SME), recapitalization schemes to replace outdatedequipment, optimization of the regional structure of production to promote indus-trial upgrading in the eastern coastal areas and enhanced credit and otherfinancialsupport for SMEs The Plan placed particular emphasis on building a strong textileand apparel industry to survive thefinancial crisis and shifts in global demand.

As a result, in recent years, apparel enterprises have rapidly been adopting newtechnologies and experimenting with product development, environmentallyfriendly methods, focusing more on brand building and product design, andexploring international markets for higher value products and domestic markets tostabilize production runs (Mayer and Pickles 2009) One such company is theHongdou Group In 1980s, Hongdou began hiring engineers and technicians, andinvesting in new technology and product innovation In 1993, it made the decision

to extend its production capacity and industrial chain, producing suits, shirts, andother apparel products of much higher quality and value In 1995, Hongdou alsoadopted a strategy of chain upgrading by annexing capital intensive motorcycle andtire manufacturing enterprises, as well as investing 90 million Yuan in the phar-maceutical industry Meanwhile, with growing skilled labor shortages, Hongdou

Fig 2.7 Industrial transfer demonstration zone of the Wanjiang River Urban Belt Source Anhui Provincial development and reform commission reproduced from China.org.cn, March 14, 2011 ((http://www.china.org.cn/china/anhui_media_tour/2011-03/14/content_22135889.htm)

2.4 Upgrading, Regionalization, and Delocalization in the Chinese … 31