Analysis Of Urban Industry Churning And Its Determinants In China

China’s decreasing economic growth rate has attracted much attention in recent years. An important reason is that the labor-intensive manufacturing in China is facing severe challenges. On one hand, the weak economy in the United States and Europe reduces the external demand in export market in China after the financial crisis in 2008. On the other hand, with gradual disappearance of demographic dividend, a large degree of labor costs rise, resulting in the transfer of labor-intensive manufacturing to Indonesia, the Philippines, Vietnam and other countries. Industrial restructuring will be an important way to sustained economic growth in China. Using the excess churning index established by Duranton (2007), this paper examines the speed of industrial restructuring and its determinants in prefecture-level city in China. Data shows that the average speed of industrial restructuring for each city in China is higher than that in the United States and Europe in sample period. Regional statistical results show that the industrial restructuring in eastern area is faster than that in central and western area. Furthermore, this paper also divides the sample into several subsamples by the population growth and finds that the industrial restructuring in cities of low population growth is fiercer than that in city’s high-growth cities. The regression results show that foreign direct investment significantly accelerates industrial restructuring, while state-owned capital is a significant impediment. Cities of higher initial average age of enterprises experienced faster industrial restructuring in the subsequent years. This paper also examines the impact of urban initial industry characteristics. We find that a larger initial share of agricultural sectors has a positive effect on subsequent industrial restructuring in central and western area while a large share of science and technology service industry promoted the industrial restructuring in eastern area, indicating that the internal mechanism of industrial restructuring differs among cities in various areas.