Restructuring Industrial Districts, Scaling Up Regional Development: A Study of the Wenzhou Model, China

Abstract

The Wenzhou Municipality in Zhejiang Province is spearheading China’s marketization and development of private enterprises. Its successful development trajectory, centered on family-owned small businesses embedded in thick local institutions, resembles Marshallian industrial districts (MIDs). However, with China’s changing institutional environment and intensifying competition, Wenzhou has been facing challenges. Since the late 1980s, Wenzhou has gone through two major rounds of restructuring (from family enterprises to shareholding cooperatives to shareholding enterprises), that have included four major types of strategic response: institutional change, technological upgrading, industrial diversification, and spatial restructuring. Firms in Wenzhou have gone through localization and delocalization, and locational choices reflect the dual destinations of globalizing cities and interior cities. The formation of new firms and clusters has been accompanied by mergers, acquisitions, and the emergence of multiregional enterprises (MREs), some of which have relocated their headquarters and specialized functions to metropolitan areas, especially Shanghai and Hangzhou. More recently, Wenzhou’s growth has slowed, leading some to question the sustainability of the Wenzhou model. We argue that Wenzhou’s development is in danger of regional lock-ins - relational, intergenerational, and structural. Wenzhou’s experience challenges the orthodox concept of MIDs and calls for “scaling up” regional development.

Keywords: Marshallian industrial district, regional lock-in, the Wenzhou model, China

JEL Classification: O100, O140, O180