Social Sciences in China (Chinese Edition)

No. 11, 2024

“Going South” or “Going West”—Enterprise Location Choices under External Shocks

(Abstract)

Li Fanghua and Wang Liyuan

Faced with the accelerated restructuring of global industrial and supply chains, understanding how enterprises adjust their spatial layouts under external shocks is critical for China’s efforts to guide industrial relocation to strategic hinterlands and strengthen industrial and supply chain resilience and security. This study develops a theoretical framework of enterprise intertemporal location decisions, using the 2018 USChina trade frictions as a quasi-natural experiment, and micro-level data from listed companies for empirical analysis. Findings confirm that rising unilateral trade costs drive both the outward relocation (“going south”) and domestic hinterland relocation (“going west”) of Chinese enterprises, though the scale and duration of the latter’s impact are significantly greater. Key determinants of spatial layout include enterprises’ discount rates, expectations, reliance on US imports, and dependence on USbound exports. In terms of long-term operational performance, the “going west” strategy proves more advantageous than “going south” in mitigating external shocks.