A welfare economics analysis of China's industrial layout restructuring

Wu, Fuxiang; Yue, Cai A icle A wel a e economics analysis o China's indus ial layou es uc u ing China Poli ical Economy (CPE) P o ided in Coope a ion wi h: School o Economics, Nanjing Uni e si y Sugges ed Ci a ion: Wu, Fuxiang; Yue, Cai (2018) : A wel a e economics analysis o China's indus ial layou es uc u ing, China Poli ical Economy (CPE), ISSN 2516-1652, Eme ald, Leeds, Vol. 1, Iss. 2, pp. 263-283, h ps://doi.o g/10.1108/CPE-10-2018-018 This Ve sion is a ailable a : h ps://hdl.handle.ne /10419/319389 S anda d-Nu zungsbedingungen: Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen Zwecken und zum P i a geb auch gespeiche und kopie we den. Sie dü en die Dokumen e nich ü ö en liche ode komme zielle Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich machen, e eiben ode ande wei ig nu zen. 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I he documen s ha e been made a ailable unde an Open Con en Licence (especially C ea i e Commons Licences), you may exe cise u he usage igh s as speci ied in he indica ed licence. h ps://c ea i ecommons.o g/licenses/by/4.0/ A wel a e economics analysis o China’s indus ial layou es uc u ing Wu Fuxiang and Cai Yue School o Economics, Nanjing Uni e si y, Nanjing, China Abs ac Pu pose –A p esen , China’s indus ial spa ial layou aces he p edicamen o o e -agglome a ion o Eas e n China indus ies and he nea disin eg a ion o indus ial s uc u e in he cen al and wes e n egions. The pape aims o discuss his issue. Design/me hodology/app oach –Based on he pe spec i e o di e en ia ed in e - egional labo mobili y, his pape cons uc ed a model amewo k o quad a ic sub-u ili y quasi-linea p e e ence u ili y unc ion, and conduc ed model deduc ion and nume ical simula ion on causal ac o s o his spa ial imbalance along he wo dimensions o indi idual and egional wel a e. Findings –The s udy inds ha in he long un, indus ial spa ial layou imposes a ce ain h eshold limi on he po olio p opo ion o di e en ia ed labo . The dilemma o China’s indus ial spa ial layou is a ibu able o he de ia ion o he ma ke ’s op imal agglome a ion om he social op imal agglome a ion, and o he dis unc ion o Eas e n China’s ole as an in e media y be ween he global and he domes ic alue chain. O iginali y/ alue –To esol e his p edicamen o indus ial layou , he uni a y wel a e compensa ion based on iscal ans e paymen has o be swi ched o a mo e comp ehensi e app oach gi ing conside a ion o indus ial ebalancing. Keywo ds Indus ial layou , Indus ial ebalancing, Di e en ia ed labou , Wel a e compensa ion Pape ype Resea ch pape 1. In oduc ion Since he e o m and opening up, China’s domes ic and in e na ional ma ke -o ien ed indus ies ha e, in a iably, aglome a ed p ima ily in he eas e n coas al a eas, whe e he indus ial de elopmen is, in a sense, p ima ily achie ed wi h he assis ance o a mass o immig an s om he cen al and wes e n egions. Howe e , he huge in lux o young and middle-aged labo e s wi h ela i ely highe skills in he Midwes in o he eas e n coas al a eas has gi en ise o, on he one hand, he phenomenon o “le -behind elde ly, women and child en,”which is unique o Midwes China a he p esen s age; on he o he hand, behind he eil o p ospe i y, he long- e m agg ega ion o a la ge numbe o mig an wo ke s wi h ela i ely low labo skills in he eas e n coas al a eas. The abo e phenomena may be ela ed ei he o China’s speci ic opog aphy and land o ms[1] o o he s ong a ac ion o he u ban “con i iali y e ec ”in he eas e n coas al a eas[2]. A p esen , due o he excessi e agglome a ion o popula ion and indus ies, he eas e n coas al a eas no only ca y huge p essu es on esou ces and he en i onmen , bu a e also aced wi h he u bulen changes in he si ua ion a ound he wes e n Paci ic, which a e no conduci e o China’s de elopmen . A la ge numbe o high-quali y esou ces and elemen s a e mainly concen a ed in he eas e n co e a ea whe e he mode n indus ial sec o is highly agg ega ed. The adi ional China Poli ical Economy Vol. 1 No. 2, 2018 pp. 263-283 Eme ald Publishing Limi ed 2516-1652 DOI 10.1108/CPE-10-2018-018 Recei ed 28 Sep embe 2018 Accep ed 28 Sep embe 2018 The cu en issue and ull ex a chi e o his jou nal is a ailable on Eme ald Insigh a : www.eme aldinsigh .com/2516-1652.h m © Public Finance Resea ch. Published in China Poli ical Economy. Published by Eme ald Publishing Limi ed. This a icle is published unde he C ea i e Commons A ibu ion (CC BY 4.0) licence. Anyone may ep oduce, dis ibu e, ansla e and c ea e de i a i e wo ks o his a icle ( o bo h comme cial and non-comme cial pu poses), subjec o ull a ibu ion o he o iginal publica ion and au ho s. The ull e ms o his licence may be seen a h p://c ea i ecommons.o g/licences/by/4.0/legalcode. O iginally published in Simpli ied Chinese in Public Finance Resea ch. 263 Wel a e economics analysis indus ial sec o can only passi ely choose o mig a e o he pe iphe y, esul ing in he headqua e s o la ge en e p ises being clus e ed in he co e a ea, lea ing only manu ac u ing ac o ies in he pe iphe y, hus o ming a spa ial sepa a ion be ween he headqua e s economy and he ac o y economy. Since he co po a e ope a ing income and ax accoun ing mainly occu in he co e a ea o he headqua e s, he inance and axa ion in headqua e s a ea a e ela i ely un ai ela i e o he ac o y a ea. The e o e, he imbalance o indus ial spa ial layou will ine i ably lead o un ai in e - egional wel a e[3]. The cause o he pe sis ence o his kind o a chi ec u e ha sepa a es he headqua e s space om he ac o y space lies in ha : i s , i enjoys he p e e en ial o eign in es men policy ha China has long encou aged o a ac o eign in es men and p ocessing ade. Second, i has he ad an age o con inuously eaping cheap labo and esou ces in he cen al and wes e n egions. The imbalance o indus ial dis ibu ion, mani es ed in he o e -agglome a ion in eas e n egion and he nea disin eg a ion o indus ial s uc u e in he cen al and wes e n egions, is s ill con inuing, esul ing in he dual di e en ia ion o indi idual wel a e and egional wel a e. The academic communi y is also e y conce ned abou such p oblems, and pu o wa d he policy p oposi ion o indus ial ans e , bu i is s ill limi ed o he cogni i e and quali a i e analysis s age o he phenomenon, and he go e nmen ’s solu ion o his p oblem elies mainly on ans e paymen . Ha ing expe ienced he “g owing pains (p oblems inciden al o g owing up)”such as he sha p decline in cul i a ed land, en i onmen al pollu ion, ene gy dilemma, and ising cos s, and he “ es ic ion pains”in a ious aspec s, in o de o alle ia e he p edicamen o o e -concen a ion o indus ial layou , some p o inces in he eas e n coas al a eas endea o o “ aca e cage o change bi d Tu ning cages o bi ds,”namely, o ans e some adi ional indus ies o he cen al and wes e n egions h ough he “double ans e ”app oach: indus ial ans e and labo ans e . Howe e , his ans e is, o he Midwes , mos ly passi e accep ance. Be o e he ide o immig a ion o he eas e n coas al a eas in he cen al and wes e n egions is e ec i ely alle ia ed, he dilemma o China’s indus ial spa ial layou will con inue, and he spa ial misma ch and inconsis ency in e ms o alen s and indus ies will con inue. Judging om he implemen a ion e ec , he cen al go e nmen ’s ans e paymen by means o “blood ( iscal) ans usion”is no only di icul o compensa e o he huge demand gap o ans e paymen s in he cen al and wes e n egions, bu also unsus ainable. The me hod o indus ial ans e o aca ing-cage- o -bi d- ype is me ely based on he indus ial layou o de eloped egions, wi hou conside ing he ac ual si ua ion and willingness o unde de eloped egions, hus lacking a comp ehensi e iew o indus ial linkages. F om he pe spec i e o wel a e economics, he imbalance o indus ial layou is mainly due o he la ge de ia ion be ween he ma ke ’s op imal agglome a ion and he social op imal agglome a ion. The so-called ma ke op imal agglome a ion e e s o he equilib ium esul o he indus ial spa ial layou unde long- e m s abili y unde he ee ope a ion o he ma ke ; and he social op imal agglome a ion e e s o he indus ial spa ial dis ibu ion s a e co esponding o he maximiza ion o social wel a e. Then, gi en he imbalance o indus ial spa ial layou and he esul ing inequi y o in e - egional wel a e un ai , how should hey be coo dina ed? Will excessi e agglome a ion o indus ies in he co e a ea b ing new ine iciencies, and should i be p omo ed o limi ed? Which a eas can bene i om agglome a ion, which a eas a e damaged om i , and can he bene icia y be able o and equi ed o compensa e o he male icia y? Can he ee ope a ion o he ma ke o m he op imal agglome a ion scale? I hese p oblems canno be gi en heo e ical solu ions, hey will a ec no only he majo decisions o he indus ial spa ial layou , bu also he smoo h ealiza ion o he s a egic goals o egional coo dina ed de elopmen . Based on he pe spec i e o wel a e economics o in e - egional mobili y o di e en ia ed labo , his pape s udies he dilemma and ebalancing o China’s indus ial spa ial layou . The esea ch in his pape also s ems om he ollowing conce ns: since he e o m and opening up, many o eign-in es ed OEM en e p ises in he eas e n egion ha e in eg a ed 264 CPE 1,2 in o he manu ac u ing labo -di ision sys em domina ed by mul ina ional co po a ions h ough p ocessing ade a he expense o egional imbalances. On he one hand, mos o he p o i s eaped by mul ina ional co po a ions ha e lowed back o hei home coun ies, and e en he p o i s o local en e p ises ha ha e con ac ed o eign OEM ha e lowed o e seas h ough disguised channels. On he o he hand, ega ding he global alue chain and he domes ic alue chain, he eas e n egion has no played a good ole as a “con e e ” in in oducing, diges ing and abso bing o eign ad anced echnology, and has no ul illed i s unc ion as an in e media y ha ans e s indus ies o he cen al and wes e n egions. On he con a y, i has become a con eyo bel o siphoning he cheap esou ces and elemen s o he Midwes and hen anspo ing weal h and alen s incessan ly o e seas. The s uc u e o he es o he pape is as ollows: he second pa , based on he ele an heo e ical li e a u e, p oposes he b eak h ough poin o he esea ch; he hi d pa cons uc s he heo e ical model o analyze he p opo ional cons ain o he di e en ia ed labo in he indus ial layou ; he ou h pa in oduces ade cos , scale economies e ec and deg ee o di e en ia ion, and based on he in e pe sonal and in e - egional wo-dimensional ision, analyzes he dilemma o China’s indus ial spa ial layou ; he i h pa , based on he pe spec i e o ma ke op imum and social op imum de ia ion, analyzes he p inciple and mechanism o uni a y ans e paymen shi ing o indus ial in e en ion and indus ial ebalancing; he las pa cons i u es he esea ch conclusion and policy e ela ion. 2. Li e a u e e iew Resea ches on he imbalance o indus ial spa ial layou and egional indus ial ans e a e no uncommon. The ep esen a i e esea ch esul s p ima ily encompass: Lu (2002) analysis o he Changing ends and en i onmen al a ia ions o indus ial s uc u e in he wes e n egion and coun e -measu es; in es iga ions by Guo e al. (1994) on he economic de elopmen o he six cen al p o inces; Fan (2004) analysis o ma ke in eg a ion, egional specializa ion and he end o indus ial agglome a ion; analysis made by Cai e al. (2009). on China’sFlying Geese Model o indus ial upg ading. Lu (2002) belie es ha al hough he p ocess o indus ial s uc u al change in he wes e n egion has accele a ed signi ican ly since he 1990s, he le el o specializa ion has also inc eased, bu he indus ial compe i i e ad an age is s ill weak, he o e all quali y o indus ial s uc u e is gene ally low, and he gap ela i e o he eas e n egion con inues o widen. He also belie es ha , judging om he ex e nal easons, wi h he deepening o e o m and opening up, elemen s wi h s ong liquidi y such as capi al and alen s ha e apidly lowed o a eas wi h high e u ns, and he indus ial layou has unde gone majo es uc u ing wi h ma ke e iciency as he o ien a ion. These causes ha e accele a ed, in e ec , he g adual disin eg a ion o he indus ial s uc u e o he wes e n sel - con ained sys em. Guo e al. (1994) ha e, om he pe spec i e o China’s p oduc i i y dis ibu ion and indus ial s uc u al linkages, ad oca ed ha each egion should p oceed om he local ac ual si ua ion and seek he bes goals conduci e o na ional p oduc i i y and o e all de elopmen . Fan (2004) ound ha China’s indus ial layou has unde gone undamen al changes since he e o m, and mos o he indus ies ha e mo ed o he eas e n coas al a eas. Howe e , a his s age, i is s ill in a si ua ion o high agglome a ion o indus y and low specializa ion o he egion. The o e all le el o in eg a ion o he domes ic ma ke is s ill low, and lags behind ha o he ex e nal ma ke , ende ing he manu ac u ing indus y wi h excessi e agglome a ion in he eas e n coas al a eas unable o ans e o he cen al egion. This has led o an e e widening egional gap. F om he pe spec i e o indus ial secu i y, Cai e al. (2009) belie e ha he impac o he inancial c isis on China is ela ed o he s uc u al p oblems o a ious egions, indus ies and e en i ms hemsel es. Unde c isis condi ions, ou da ed g ow h pa e ns, indus ial s uc u es and echnology choices we e he i s o be a ec ed. The key o ge ing o e he 265 Wel a e economics analysis c isis and achie ing sus ained economic g ow h is o eshape he egional de elopmen model. Unde he backg ound o he inancial c isis and he assump ion o big coun ies, his pape ex ends he in e p e a ion and p edic ion ange o he Flying Geese Model, and empi ically demons a es he cha ac e is ics o he changes in manu ac u ing g ow h and p oduc i i y g ow h in China since he u n o he cen u y, which is p ima ily mani es ed in ha coas al a eas ha e as e a es o inc ease in o al ac o p oduc i i y and con ibu ion a es. Th ough he e-deploymen o indus ies in he Eas , Wes and Cen al China egions, namely, he indus ial upg ading and ans e o coas al a eas and he indus ial OEM unde aking o he cen al and wes e n egions, i is possible o eclaim he labo - ich compa a i e ad an ages in he cen al and wes e n egions while main aining labo - in ensi e indus ies in China. In addi ion, he esea ches o Pan and Li (2007), as well as Wu and Zhu (2008), e c., a e also ep esen a i e. These s udies a e all based on he pe spec i e o inpu indus y o quan i a i e analysis o he spillo e e ec s and eedback e ec s o indus ial linkages be ween di e en egions o China. Based on he wo- egion inpu -ou pu model, Pan Wenqing and Li Zinai concluded ha he spillo e e ec s o China’s coas al economic de elopmen on inland a eas a e no ob ious, and e en less han he spillo e e ec s o inland a eas on coas al a eas. Wu Fuxiang and Zhu Lei ex ended he wo- egion inpu -ou pu model, and measu ed he o wa d and backwa d linkages o he mul iplie e ec , in e - egional spillo e and eedback e ec in China’s eas e n, cen al and wes e n egions. I is ound ha he spillo e e ec o he eas e n egion on he cen al and wes e n egions is less signi ican han ha o he la e on he o me , and he cen al egion has no played a nexus ole in he egional economy, his has la gely limi ed he ole-play o egional coo dina ion. The e o e, o achie e indus ial coo dina ion and in e - egional wel a e compensa ion in he h ee majo egions o eas e n, cen al and wes e n China, i is necessa y o accele a e indus ial ans e and expand he e iciency o in e - egional public knowledge spillo e s. Wi h di e en ia ed opinions, he abo e-men ioned esea ches a e no only conce ned wi h he isk o he g adual disin eg a ion o he indus ial s uc u e o he sel -con ained sys em in he wes e n egion unde he in e na ional backg ound o e o m and opening up, bu also emphasizes ha in iew o he excessi e concen a ion o manu ac u ing in he eas e n coas al a eas, i is impossible o ans e indus ies o he cen al egion. As a esul , he egional gap has been widening, and i is called o o p oceed om he goal o op imal p oduc i i y and comp ehensi e de elopmen o China, o p omo e he compa a i e ad an age o eclaiming he labo o ce in he cen al and wes e n egions, and o main ain labo -in ensi e indus ies in China. The ocus o p e ious esea ch and analysis is mainly limi ed o a uni a y dimension, o he egional indus y dimension, o he labo dimension, o analyze he in e - egional indus ial ans e and indus ial linkage issues. In ac , i we can s a om he wo dimensions o indus y and labo simul aneously o pe o m quan i a i e analysis o he egional and labo wel a e s a us in he wake o he in e - egional imbalance o indus ial spa ial layou , i may be o mo e heo e ical signi icance and p ac ical alue o imp o ing egional economic analysis me hods. To a ce ain ex en , he in oduc ion o wel a e economics analysis me hods in o egional issues may be an impo an heo e ical issue ha endea o s o inno a e China’s egional economics esea ch me hods, and i is also an impo an p ac ical issue ha deside a es o be esol ed in he coo dina ed de elopmen o China’s egional economy. This pape b eaks h ough he limi a ions o a uni a y pe spec i e. F om he wo dimensions o indi idual wel a e and egional wel a e, on he one hand, i compensa es o he sho comings o p e ious academic esea ches; on he o he hand, i e eals he p inciple and mechanism, he objec i e condi ions and possible pa hs o he ebalancing o China’s indus ial spa ial layou . I e lec s no only he inno a ion in he esea ch me hods o China’s egional economic p oblems, bu also he inno a ion in he esea ch pe spec i e. 266 CPE 1,2 The di e en ia ed labo o ce e e ed o in his pape is mainly di ided in o wo ca ego ies: skilled labo and unskilled labo . The Tu ing analysis me hod used in his pape e e s o, simply pu , he g aphical illus a ion o he me hod o in ui ion wi h spa ial isualiza ion o he simula ion esul s h ough nume ical simula ion. In addi ion, he logical s a ing poin o he analysis o wel a e economics in his pape is he wel a e economic heo em[4]. The amewo k o modeling ollows he analy ical amewo k o linea model o spa ial economics. Th ough he wel a e ma ix o in e pe sonal and in e - egional dimensions, he analysis seeks o ind he equilib ium poin be ween social op imum and ma ke op imum o indus ial spa ial layou ela i e o in e - egional income edis ibu ion, o highligh he wo pe spec i es o equi y and e iciency in wel a e analysis. We conduc ed wel a e analysis in he o de o “equi y i s , e iciency second.”The so-called equi y pe spec i e e e s o he compa ison o wel a e in di e en agglome a ion s a es; he so-called e iciency pe spec i e e e s o he compa ison be ween he ma ke op imum and social op imum e ec s unde di e en ade cos s. The o me co esponds o ans e paymen , and he la e co esponds o he indus ial balance[5]. In his pape , he p oposal o wel a e compensa ion mechanism unde di e en agglome a ion s a es is mainly based on he compa ison o he abo e wo pe spec i es. In con as o he heo e ical sys em o Wes e n wel a e economics, i he compensa ion measu es used in he pas a e mainly ans e paymen s, which mainly add esses he p oblem o in e - egional inequali y, hen he ac ual si ua ion in China should be based, u he mo e, on e iciency, namely, conside ing he coo dina ion o egional wel a e by ebalancing he in e - egional indus ial loca ion. The design o he wel a e compensa ion mechanism om an equi y pe spec i e p ima ily ies o e eal whe he he bene icia ies unde he change o indus ial loca ions can compensa e he male icia ies, he amoun o compensa ion, and how he na u e and in ensi y o economic a iables can a ec hem. The co esponding compensa o y de ice is, p incipally, he po en ial ans e paymen based on he Ka ldo Hicks P inciple[6]. F om he e iciency pe spec i e o wel a e compensa ion mechanism, esea che s ied o examine wha kind o indus ial layou adjus men be ween speci ic ade cos zones can imp o e ma ke e iciency and balance equi y, whe he he bene i en i y can compensa e he damaged en i y, and whe he he agglome a ion o med unde ma ke condi ions is op imally consis en wi h social s anda ds. I he objec i es a e inconsis en , is he agglome a ion excessi e o insu icien ? Especially when he ma ke is ound o be o e -agg ega ed, he de ices o compensa ion based on indus ial ans e and ebalancing o indus ial loca ion will no only imp o e he o e all wel a e le el o he economy, bu also educe he in e - egional wel a e di e ences. Cha lo e al. (2006) en a i ely ga e h ee di e en e alua ion me hods o compa e he equi emen s o indus ial agglome a ion o dispe sion o wo wel a e compensa ion de ices[7]. Acco ding o Cha lo e al. (2006), he po en ial ans e paymen me hod o he i s wel a e compensa ion mechanism may be he only way o compensa e o he loss o he unde de eloped a eas due o insu icien agglome a ion. Howe e , as a as China’s ac ual si ua ion is conce ned, such condi ions a e no cu en ly a ailable. The e a e also many ope a ional di icul ies in e ms o he second compensa ion mechanism o balancing indus ial loca ions wi h a ocus on indus ial ans e . The main eason is ha al hough he ini ial popula ion size o he Eas e n China is much la ge han ha o he cen al and wes e n egions, h ough he e ec i e in e en ion o he go e nmen ’s indus ial policies, he p omo ion o p oduc ion ac o s om he eas e n egion o he cen al and wes e n egions, and hus he p omo ion o indus ial ans e , may achie e he wo-way ad ancemen o egional equi y and wel a e. Howe e , unde he exis ing iscal decen aliza ion model, local di e en ia ion makes i impossible o he cen al go e nmen o adop a “onesize i sall”app oach o his kind o decen aliza ion and compensa ion. The imbalance o in e - egional indus ial de elopmen will almos 267 Wel a e economics analysis ce ainly s eng hen he new co e-pe iphe al s uc u e, which will undoub edly di ec ly a ec he cen al go e nmen ’s policy o decen aliza ion and incen i es o locali ies. The nex analysis in his pape is mainly based on he ade-o be ween he abo e-men ioned in e - egional equi y and e iciency. Based on he model o O a iano e al. (2002) and O a iano and Thisse (2002), new model a iables a e in oduced and a model amewo k o quasi-linea p e e ence u ili y unc ion including quad a ic sub-u ili y is cons uc ed, which ocuses on he second wel a e compensa ion pa h o examine he ebalancing o social op imali y and ma ke op imali y o he indus ial spa ial layou . 3. The p opo ional cons ain o di e en ia ed labo in he indus ial layou This sec ion i s p oposes he basic amewo k o he model, and hen conduc s long- e m equilib ium analysis o e eal he equi emen s o he indus ial spa ial layou o he op imal combina ion a io o skilled labo and unskilled labo . 3.1 The basic amewo k o he model The idea o his model is o i s se he consume ’s u ili y unc ion, he ini ial ac o endowmen and he p oduc ion unc ion o he en e p ise, o assume, wi hou losing gene ali y, ha he e is only one p oduc in he economic sys em, and he manu ac u e uses only one ac o (labo ). Then, based on u ili y and p o i maximiza ion, he commodi y demand, ac o supply, commodi y supply and ac o demand a e sol ed sepa a ely. Finally, based on he simul aneous clea ing condi ions o he commodi y and ac o ma ke , he gene al equilib ium’s p ice a io, dis ibu ion a io and wel a e unc ion ma ix a e sol ed. Assume ha he economic sys em con ains wo egions, wo sec o s, and wo ypes o labo . The a eas consis o Region A (co e a ea) and Region B (pe iphe al a ea) wi h co e-pe iphe al s uc u e; he sec o s a e, espec i ely, he adi ional sec o “a” cha ac e ized by cons an e u ns o scale and pe ec compe i ion, and mode n sec o “m”cha ac e ized by inc easing e u ns o scale, i.e., monopolis ic compe i ion. The wo ypes o labo a e skilled labo (n¼L S ) and he unskilled labo (n¼L U ), he skilled labo is only employed in he mode n sec o “m,”wi h highe in e - egional mobili y, and he unskilled labo is mainly employed in he adi ional sec o “a,”wi h lowe in e - egional mobili y. The spa ial dis ibu ion o skilled labo in he model is an endogenous a iable, and he in e - egional mobili y is mainly de e mined by he di e ence in in e - egional eal labo a es. The ou pu o indus ial p oduc s in he mode n sec o o Region A and Region B is, espec i ely, n A and n B , and he o al amoun o indus ial p oduc s in he economy is n¼n A +n B . Acco ding o he assump ion o monopolis ic compe i ion and inc easing e u ns o scale, each manu ac u e p oduces only one di e en ia ed p oduc , and he o al numbe o mode n sec o manu ac u e s in bo h egions is also n. The o al numbe o labo e s in he economy is L¼L U +L S . The unskilled labo is ini ially dis ibu ed symme ically in he wo egions (L U /2). The skill labo o ce has p opo ion o θin Region A, n¼θL S ; and a p opo ion o (1−θ) in Region B, n¼(1−θ)L S . I is assumed ha each manu ac u e needs o use uni s o skilled labo when p oducing di e en ia ed indus ial p oduc s. The nominal wage o he skilled labo o ce in Region A is w A , and he nominal wage o Region B is w B , hen he e is n¼L S / . I is also assumed he e ha he ma ginal cos o he manu ac u e is a m , and ha a uni indus ial p oduc has a linea in e - egional anspo a ion cos o τ. Simila o he cons uc ion me hod o he model o O a iano e al., he pe sonal p e e ence o he au ho is also gi en by he quasi-linea p e e ence con aining he quad a ic sub-u ili y. Di e en om he O a iano ex , his pape in oduced he ma ginal cos a iable o indus ial p oduc ion, added he Tu ing analysis o nume ical simula ion, cons uc ed he in e pe sonal and in e - egional wo-dimensional wel a e unc ion ma ix, and based on he e iciency and equi y p inciple, analyzed he in e - egional and 268 CPE 1,2 in e pe sonal wel a e in mul iple equilib iums o indus ial spa ial layou . The u ili y unc ions o he wo- egion consume s cons uc ed in his pape a e: U¼aZn 0 cidibd 2Zn 0 c2 idid 2Zn 0 cidi  2 þCa;a40;b4d40;(1) whe e c i is he consump ion o di e en ia ed indus ial p oduc s by he consume s in he mode n sec o , and C a is he consump ion o adi ional p oduc s by all consume s in he egion. α ep esen s consume s’p e e ence o di e en ia ed indus ial p oduc s and δ e lec s he subs i u abili y o di e en ia ed p oduc s. βWδis he condi ion o he quasi-linea p e e ence quad a ic sub-u ili y unc ion o sa is y he con exi y. βWδalso deno es ha when consume s ace he physical cons ain s o di e en ia ed indus ial p oduc s, o a gi en β alue, he la ge he δ alue, he s onge he subs i u abili y be ween p oduc s. Assuming ha sa ings, ini ial p o i sha ing and ans e paymen s a e no conside ed, he consume ’s income is all used o pu chasing expenses, ha is, o mee economic cons ain s o Rn 0picidiþCa¼w, whe e p i deno es he p ice o he i h indus y p oduc , he p ice o he adi ional sec o p oduc is se o 1. The i s -o de condi ion is ob ained acco ding o physical and economic cons ain s, and he demand unc ion o he di e en ia ed p oduc can be ob ained: ci¼abþcnðÞpiþcP;(2) whe e a¼α/( β+(n−1)δ), b¼(a/α), c¼δ/((β−δ)[β+(n−1)δ]) . The composi e p ice index o he p oduc is P¼Rn 0pidi. I he nominal p ice le els o he Regions A and B a e, espec i ely, indica ed by P A and P B , hen he e is PA¼Rn 0pidi ¼nApAA þnBpBA,PB¼Rn 0pidi ¼ nBpBB þnApAB. He e, p s is he p ice ( ,s¼A,B) o he p oduc made in Region and sold in Region s. In he Wal asian equilib ium sys em, he consume o he p oduc is also he supplie o he p oduc ion ac o , so he quan i y o he consume (L U +L S ) can de i e he supply o p oduc s in he co esponding a ea (A and B): MA¼1 2LUþyLS;MB¼1 2LUþ1yðÞLS: Fi s , sol e he p o i maximiza ion condi ions o manu ac u e s loca ed in Regions A and B. Take Region A as an example, and B is simila : Max pA¼pAA þpAB w A(3) whe e π AA ¼(p AA −a m )[a−(b+cn)p AA +cP A ]M A ,π AB ¼(p AB −a m −τ)[a−(b+cn)p AB +cP B ]M B . π AA and π AB a e, espec i ely, he ope a ing p o i when manu ac u e s in Region A a e equalized in wo ma ke s. Pu suan o he i s -o de condi ion o p o i maximiza ion, we sol e he pa ial de i a i e o π A and π B ela i e o he co esponding p ice, and ob ain: pAA ¼2aþambþcnðÞ ½ þc nB 22bþcnðÞ;pBA ¼pAA þ 2; pBB ¼2aþambþcnðÞ ½ þc nA 22bþcnðÞ;pAB ¼pBB þ 2:(4) I is no di icul o see om Equa ions (3) and (4) ha in he linea model, he manu ac u e implemen s p icing including anspo a ion cos s and ela ed o spa ial dis ibu ion. The condi ion o p oduc ade is ha he sales p ice o he manu ac u e in any egion su ices o co e i s anspo a ion cos s o ano he coun e pa egion. Assuming he linea 269 Wel a e economics analysis anspo a ion cos pe uni o p oduc is τ, he condi ion can be w i en as: pAAam 40)pAA 4amþ 2) o2aambðÞ 2bþcnA pBAam 40)pAA 4amþ 2) o2aambðÞ 2bþcnB9 = ; ( o ade ¼2aambðÞ 2bþcn :(5) T ade can only happen when τoτ ade is me . As o τ ade , he e is τ ade ¼2(a−a m b)/(2b+cn) W0, ha is, he ma ginal cos o he en e p ise needs o be wi hin he ollowing ange: 0oa m oa/b. This condi ion can be u he elaxed o τomin (2(a−a m b)/(2b+c n A)), (2(a−a m b))/(2b+cn A )). In ac , when he in e - egional p oduc ade cos is posi i e, i he e is no inc easing e u ns o scale (i.e. ¼0), o p oduc s show homogenei y (c¼∞), he in e - egional p oduc ade will ha dly occu , because Equa ion (5) does no hold a he momen . O he wise, bo h egions ei he p oduce di e en ia ed indus ial p oduc s, o each is sel -con ained o sel -sa is ied. The ollowing is an analysis o he impac o ma ke size and di e en ia ion on p oduc low. Since c¼δ/((β−δ)[β+(n−1)δ]), he e is dc/dδ¼β 2 +(n−1)δ 2 /((β−δ) 2 [β+(n−1)δ]) 2 W0. The la ge he δ, he s onge he p oduc subs i u abili y, he e o e he la ge he c, he s onge he p oduc homogenei y is. The smalle he c, he g ea e he deg ee o di e en ia ion. By sepa a ely sol ing he i s -o de pa ial de i a i e o τ ade ela i e o and c, we ob ain he exp ession dτ ade /d ¼2(a−a m b)cL S /(2b +cL S ) 2 W0, dτ ade /dc ¼−2(a−a m b) L S /(2b +cL S ) 2 o0. Acco ding o he solu ion esul , he ollowing p oposi ion can be ob ained: P1. In he in e - egional low model o di e en ia ed labo , he e is a c i ical poin whe e he symme ic spa ial dis ibu ion is b oken, which di ides he agglome a ion and di usion o he indus ial layou . A he same ime, ade cos s also ha e s ic h eshold limi s on ma ke size and p oduc di e en ia ion, wi h bo h he ade cos s a e nega i ely co ela ed wi hin he c i ical alue ange. Fu he , he p o i o he manu ac u e in Region A in he equilib ium s a e can be ob ained, and he case o Region B is simila : pn A¼pn AA þpn AB w A¼bþcnðÞpAAam ðÞ 2MAþpABam ðÞ 2MB   w A:(6) 3.2 P opo ional cons ain s on ac o s I is assumed ha he p o i o he manu ac u e will e en ually be con e ed in o he nominal g oss income o he consume , and each manu ac u e hi es uni s o skilled labo , hen we ge he nominal wage le el W o Region A, and he si ua ion o Region B is simila : wA¼pn AA þpn AB  = ¼bþcnðÞpAAam ðÞ 2MAþpABam ðÞ 2MB  = :(7) Wi hou he loss o gene ali y, assume ha he nominal wage le el o he unskilled labo o ce is 1. Since he consume su plus is he a ea be ween he demand cu e and he ma ke p ice cu e in he long- e m equilib ium, he consume su plus o he Regions A and B can be calcula ed in Equa ion (4) o equilib ium p ice, o de i e: CAyðÞ¼ a2LS 2b aypAA þ1yðÞpBA ½ nþbþcn 2yp2 AA þ1yðÞp2 BA  nc 2ypAA þ1yðÞpBA ½ 2n2;(8) CByðÞ¼ a2LS 2b a1yðÞpBB þypAB ½ nþbþcn 21yðÞp2 BB þyp2 AB  nc 21yðÞpBB þypAB ½ 2n2:(9) Subs i u ing he equilib ium p ice Equa ion (4) and he wage Equa ion (7) in o Equa ion (1), he indi ec u ili y unc ion o he labo o ce can be ob ained. O cou se, his 270 CPE 1,2 compensa ion is no less han ha in he dispe sed s a e (WB U), namely, a e compensa ion, a leas _ WB UcðÞ¼WB Uis me . Thus he e is: 1 2UCBþ1  p1 2 ^ CBþ1þc  ;wi h solu ion cX2 91am ðÞ 5 48 2:(19) Second, acco ding o he p inciple o wel a e compensa ion, a e paying compensa ion in he agglome a ion s a e, he pe sonal u ili y le el o all esiden s in Region A should be a leas no lowe han ha in he dispe sed s a e. Tha is: ^ VA SXVA S ^ VA UXVA U 8 < : ;simpli ied as p4 91am ðÞ 53 144 2 p2 91am ðÞ 17 144 2 (:(20) Again, he ans e paymen shall ensu e ha he o al income and expendi u e o he wo egions a e equal, hus: c1 2LU  ¼ L Sþ1 2LU  ;simpli ied as c¼3 :(21) Finally, he ans e paymen scheme (c, ) mus mee he clea ing condi ions a e agglome a ion, which is e lec ed in Equa ion (3). Consis en wi h he o egoing, he ma ginal cos is se o h ee alues, espec i ely, a m ¼0.2, a m ¼0.5 and a m ¼0.8. Combined wi h Equa ions (19)–(21), he Tu ing analysis co esponding o he ans e paymen scheme (c, ) can be gi en as shown in Figu e 3. Figu e 3 e lec s he co e- o-pe iphe al ans e paymen scheme a dispe sion o agglome a ion ansi ion. The shaded pa s in (a), (c) and (e) o he igu e indica e he pe capi a paymen o be ob ained in he pe iphe y, and he shaded pa s in (b), (d) and ( ) indica e he pe capi a paymen o be paid by he co e a ea. Gi en he ma ginal cos a m , he ade cos ange is τoτ ade ¼(2/3)(1−a m ). The e ical ed line in Figu e 3 ep esen s he uppe bound o he ade cos ange, i.e., τ ade . An obse a ion o Figu e 3 leads o he ollowing p oposi ion: P5. In he in e - egional mobili y model o di e en ia ed labo , he indus ial dis ibu ion shi s om dispe sion o agglome a ion, objec i ely equi ing he co e a ea o suppo he pe iphe y wi h co esponding wel a e compensa ion, he in ensi y o which ises wi h he inc ease o in e - egional ade cos s, and alls wi h he decline o he ma ginal manu ac u ing cos s. The p oposi ion e eals ha he size o in e - egional ans e paymen s depends mainly on he wel a e losses and mobili y willingness o he pe iphe al unskilled labo o ce when he egional economic sys em shi s om dispe sion o agglome a ion. On he one hand, ising Dispe sion equilib ium Skilled labo (S) Unskilled labo (U) Region A WA S¼1=2  LSCAþwA ½ WA U¼1=2  LUCAþ1 ½ Region B WB S¼1=2  LSCBþwB ½ WB U¼1=2LUCBþ1 ½ Agglome a ion equilib ium Skilled labo (S) Unskilled labo (U) Region A _ WA S¼LS½CAþwA_ WA U¼1=2  LUCAþ1 ½ Region B _ WB S¼0_ WB U¼1=2  LUCBþ1 ½ No e: The wel a e unc ion ma ix o his able is calcula ed on he basis o Table I Table II. Wel a e ma ix o wo ypes o labo in agglome a ion and dispe sion equilib ium 277 Wel a e economics analysis ade cos s ha e o ced i ms in he pe iphe al a eas o bea highe impo p ices o indus ial p oduc s, esul ing in g ea e wel a e losses, and o cing he co e a eas o p o ide mo e wel a e compensa ion. On he o he hand, he inc ease in ma ginal cos has led o he comp ession o he space o ans e paymen s. The pe iphe al skilled labo o ce, a ac ed by he “con i iali y e ec ”in he co e a ea, will choose o lock o he e a he expense o la ge-scale immig a ion, esul ing in excessi e agglome a ion and c owding. 5.2 Indus ial balancing om he pe spec i e o e iciency Di e en om he ans e paymen compensa ion me hod om he equi y pe spec i e, he in e - egional wel a e compensa ion can also be ealized by balancing he indus ial loca ions ac oss egions, ha is, h ough indus ial ans e and indus ial in e en ion. The undamen al eason o i s implemen a ion lies in he de ia ion o he ma ke ’sop imal agglome a ion ela i e o ha o he socie y. The e a e wo po en ial ine iciencies in he egional economic sys em when he ma ke is ee o ope a e[10]. I he social wel a e le els o he wo egions a e agg ega ed, he o e all wel a e can be “op imal.”A he same ime, as an economic planne , i he cen al go e nmen can o ce he manu ac u e s in he egion o p ice acco ding o he ma ginal cos s, he economic sys em can hus achie e he “sub-op imal” si ua ion. Unde such ci cums ances, he cen al go e nmen has su icien in o ma ion and adjus s he egional indus ial layou acco ding o he o e all op imal agglome a ion le el o he whole socie y. No only can he ma ke e iciency be g ea ly imp o ed, bu also he egional gap can be na owed. Compa ed wi h he po en ial ans e paymen , he me hod o balancing he egional indus ial loca ion ia global wel a e analysis wi h u ili a ian s anda ds may also achie e he pu pose o balancing equi y and e iciency and ealizing in e - egional wel a e compensa ion h ough comple ely di e en compensa ion me hods. In o de o gi e a u ili a ian social wel a e unc ion, he wo egional social wel a e unc ions a e summed up o: WyðÞ¼ 1 2LUCAyðÞþ1 ½ þyLSCAyðÞþwAyðÞ ½ þ1 2LUCByðÞþ1 ½ þ1yðÞLSCByðÞþwByðÞ ½ :(22) 0.35 C C C 0.3 0.25 0.2 0.15 0.1 0.05 0 0 0.1 0.2 0.3 0.4 0.5 0.6 0 0.1 0.2 0.3 0.4 0.5 0.6 0 0.05 0.1 0.15 0.2 0.25 0.3 0.10.050 0.10.050 0.3 0.250.2 0.150.1 0.05 0 0.35 0.12 0.1 0.08 0.06 0.04 0.02 0 0.02 0.015 0.01 0.005 0 0.02 0.015 0.01 0.005 0 0 0.02 0.04 0.06 0.08 0.1 0.12 0.3 0.25 0.2 0.15 0.1 0.05 0     No es: (a) Pe iphe al needs (am=0.2); (b) co e a ea g an s (am= 0.2); (c) pe iphe al needs (am=0.5); (d) co e a ea g an s (am=0.5); (e) pe iphe al needs (am=0.8); ( ) co e a ea g an s (am=0.8) (a) (b) (c) (d) ( ) (g) Figu e 3. G aphic illus a ion o he pe capi a paymen le el (c, ) he pe iphe al a ea needs (c) and he co e a ea g an s ( ) 278 CPE 1,2 Since he manu ac u e is p icing acco ding o he ma ginal cos , he e is p0 AA ¼p0 BB ¼am, p0 AB ¼p0 BA ¼amþ , ha is, he di e ence be ween he p o i s o he manu ac u e s in he egion is ze o, and he di e ence in he nominal wage o he labo is also ze o, w A (θ) −w B (θ)¼0 and i holds o all θ. The modi ied Equa ion (22) o mula can sol e he egional indus ial dis ibu ion s a e a he social op imal agglome a ion: W¼1am ðÞ 2þ2y22y1 2  1am ðÞ þ2y2þ2yþ1 4  2þ1 ¼2 0  yy1ðÞþcons an ; 0¼1am:(22) Combined wi h he ac ual labo a e di e ence o Equa ion (13), he indus ial dis ibu ion unde he op imal ma ke condi ion can be ob ained: oAoB¼16 9 n  y1 2  ; n¼5 41am ðÞ:(12) Fi s , we examine he impac o ade cos s on social op imal and ma ke op imal indus y dis ibu ion. Since he ade cos s in Equa ions (22) and (12) ha e wo c i ical alues: τ 0 ¼1 −a m and τ*¼5/4(1−a m ), o each gi en ma ginal cos a m , he ade cos pa ame e s can be selec ed in h ee ep esen a i e in e als o nume ical simula ion. We migh as well se a m ¼0.2, hen τ 0 ¼0.8, τ*¼1. Taking h ee ep esen a i e ade cos pa ame e s, he Tu ing analysis o nume ical simula ion is as shown in Figu e 4. Obse ing Figu e 4 and combining he cha ac e is ics o long- e m equilib ium, i is no di icul o ind ou : when he deg ee o egional in eg a ion is low, social op imali y and ma ke op imali y a e consis en when he indus y is highly dispe sed (co esponding o θ¼0.5); when he deg ee o egional in eg a ion is a a highe le el, social op imali y s ill a o s dispe sion in indus ies, while ma ke op imiza ion equi es a spa ial dis ibu ion o agglome a ion; when he egional in eg a ion is e y high, social op imali y and ma ke op imali y in a iably end o o m in co e a eas an indus ial dis ibu ion o comple e agglome a ion, whe e he ma ke op imali y and social op imali y a e inhe en ly consis en . A p esen , China is in he second s age o he abo e h ee si ua ions, ha is, he s age o low ade cos and high deg ee o egional in eg a ion, co esponding o he ma ke op imal agglome a ion is highe han he social op imal agglome a ion. This means ha he “laisse - ai e”o spon aneous ole o ma ke o ces would incu excessi e agglome a ion o indus ies. The eason is ha al hough he deg ee o egional in eg a ion in China is g adually inc easing, he cu en ma ke is no ye ully ma u e. As e lec ed in Figu es 3 and 4, he paymen o compensa ion in he pe iphe al a eas is much highe han ha he co e a ea is willing o pay. The impac o ma ginal cos a m on o e all social wel a e is also in line wi h expec a ions. Fo example, he pa ial de i a i e o Equa ion (22) on he ma ginal cos a m and he 0.6 W WW 0.4 0.2 A–B A–B A–B 0 – 0.2 – 0.4 0 0.2 0.4 0.6 0.8 1 0 0.2 0.4 0.6 0.8 1 0 0.2 0.4 0.6 0.8 1 0.6 1 0.8 0.4 0.2 0 –0.2 –0.4 0.6 0.5 0.4 0.3 0.2 0.1 0 –0.1   No es: (a) =0.2<0< ade; (b) 0<=0.9< ade; (c) 0< ade <=1.2 (a) (b) (c) Figu e 4. In e - egional wel a e compensa ion pa h unde balanced indus ial loca ion models 279 Wel a e economics analysis combina ion o cons ain s de i e (∂W/∂a m )¼−2[(1−a m )+(θ 2 −θ−(1/4))τ]o−2(θ 2 −θ−(5/4)) τo0, deno ing ha h ough he means o economies o scale o echnological p og ess, and educing he ma ginal cos , he o e all wel a e o he whole socie y can be escala ed. I is wo h no ing ha he wo h esholds (c i ical alues) τ 0 ¼1−a m and τ*¼5/4(1−a m ) o ade cos s ha e sub le links wi h ma ginal cos s. The inc ease o ma ginal cos a m makes bo h h esholds dec ease, and he ma ke op imal and social op imal ideal s a e in he ully agglome a ed s a e will be mo e di icul o achie e, because he ange o alues accompanying ade cos s τis comp essed, and he equi emen s o τa e mo e demanding. Con e sely, lowe ma ginal cos s will elax he ange o ade cos s. Unde ideal condi ions, he e is a ade-o in e ac ion be ween hese wo cos s. 5.3 Ex ended discussion o indus ial layou In he model amewo k o his pape , he ini ial assump ion is ha he a io o he numbe o skilled labo o unskilled labo is 1:1. Howe e , acco ding o he a io equi emen o Equa ion (14), in he composi ion o he wo ypes o labo , he p opo ion o skilled labo o he o al labo o ce canno exceed 0.25. This means ha in a egional economic s uc u e wi h a co e-pe iphe al s uc u e, he numbe o skilled labo is much less han ha o unskilled labo . Now suppose ha he a io o he skilled labo o he unskilled labo is λ:1 (0oλo1), hen he inc ease o λmeans ha he p opo ion o skilled labo in he economic sys em ises. O cou se, o China in a ansi ion pe iod, among he many ac o s ha measu e he o e all economic de elopmen d i en by indus ializa ion and u baniza ion, he p opo ion o skilled labo as a ep esen a i e o high- ech and high-le el labo is undoub edly an impo an ac o wi h a c ucial impac on he o e all wel a e o he whole socie y. Assume ha he o e all wel a e o socie y can be w i en in he o m o W¼λ⋅W S +W U . Acco ding o he conclusions o Equa ions (15) and (16), W S is a pa abola wi h an opening upwa d ela i e o θ, and W U is a pa abola wi h an opening downwa d ela i e o θ. Howe e , he inal opening di ec ion o Wmainly depends on he size o λ. When λis la ge , i ep esen s a de eloped egional economic s uc u e, which is domina ed by W S wi h an open side up pa abola o W; when λis smalle , i ep esen s an unde de eloped egional economic s uc u e domina ed by W U and wi h an open-side-down pa abola o W. The Tu ing analysis esul s o Wa e shown in Figu e 5. A close look a Figu e 5 e eals ha when he p opo ion o skilled labo in he economic sys em is high, he indus ial dis ibu ion in he agglome a ed s a e can op imize he o e all wel a e o he socie y; and when he p opo ion o skilled labo in he economic sys em is low, he sca e ed indus ial dis ibu ion is mo e conduci e o he imp o emen o he o e all wel a e le el o he socie y. 6. Conclusions and e ela ions Based on he pe spec i e o di e en ia ed labo in e - egional mobili y, his pape cons uc s a model amewo k consis ing o quasi-linea p e e ence unc ions o quad a ic sub-u ili y, and heo e ically analyzes he ebalance o China’s indus ial spa ial layou . 1.225 WWWW 1.22 1.215 1.21 1.205 1.2 0 0.2 0.4 0.6 0.8 1 0 1.084 1.0845 1.085 1.0855 1.086 1.0865 0.2 0.4 0.6 0.8 1 0 1.0721 1.0722 1.0722 1.0723 1.0723 0.2 0.4 0.6 0.8 1 0 1.0709 1.0709 1.071 1.071 1.071 1.071 0.2 0.4 0.6 0.8 1 =1 = 0.1 = 0.01 = 0.001  Figu e 5. To al social wel a e o skilled labo a di e en scales 280 CPE 1,2 The main conclusions a e as ollows: i s , in he long- e m s a e, he indus ial spa ial layou has a ce ain h eshold limi on he po olio p opo ion o he di e en ia ed labo o ce. The dilemma o China’s indus ial spa ial layou s ems om he de ia ion o ma ke ’s op imal agglome a ion om social op imal agglome a ion, and om he dis unc ion o Eas e n China’s ole as an in e media y be ween he global and he domes ic alue chain. Second, a his s age, because he ma ke ’s op imal agglome a ion is always highe han he social op imal agglome a ion, i is objec i ely de e mined ha he imbalance o indus ial spa ial dis ibu ion in China will pe sis in he long un. Thi d, he sus ainabili y o high-end indus ial agglome a ion in he co e egion needs o be up-kep by he con inuous supply o skilled labo in he pe iphe al egions. A he same ime, i is necessa y o ha e as gua an ee a wel a e compensa ion mechanism ma ching social op imum wi h ma ke op imum. The enligh enmen signi icance o his pape is ha , i s , in o de o undamen ally alle ia e he imbalanced dilemma o China’s indus ial spa ial layou and he phenomenon o egional le -behind due o long- e m mig a ion o he cen al and wes e n labo o ce, i is necessa y o ealize a ansi ion om a uni a y egional ans e paymen s a egy o indus y eloca ion and indus y ebalancing s a egy. Second, unde open condi ions, he conno a ion and s anda ds o egional equi y a e dynamically changing, and he co esponding wel a e compensa ion measu es should also be adap ed o local condi ions. Fo example, in e es g oups in he co e a eas o en ha e he s onge loo and o e decisions, now ha hey do no expec o ob ain mo e in e - egional ans e paymen s; hey a e na u ally eluc an o assume mo e compensa ion obliga ions. The e o e, copying he heo y o Wes e n economics does no help sol e he p ac ical p oblems in China. An ob ious example is ha he Wes e n s anda d wel a e economics heo y gene ally belie es ha he mos e ec i e way o compensa e o in e - egional wel a e unde ma ke condi ions is ans e paymen s, bu o he ac ual si ua ion in China, he condi ions o doing so a e no me . On he con a y, compa ed wi h he compensa ion de ices o po en ial ans e paymen , hose de ices balancing he egional indus ial loca ion ia global wel a e analysis wi h u ili a ian p inciple may be an e ec i e means o achie e he op imal wel a e compensa ion o he whole socie y in China. To his end, he cen al go e nmen as an economic planne needs o scien i ically balance he indus ial loca ion, and consciously plan new indus ies and p ojec s in he pe iphe al a eas h ough indus ial ans e , indus ial in e en ion and indus ial suppo . In he egional coun e pa suppo and assis ance ac ion plan, in iew o he long- e m siphoning o he skilled labo o ce in he pe iphe al a eas by he co e a eas, i is necessa y o escala e he sys em cons ain s o block he “allee cou e e”o abno mal back low o indus y, capi al and labo o he co e a eas. Thi d, he b eak h ough in he p edicamen o egional indus ial spa ial layou mus no only ha e an open ision, bu also s i e o achie e a easonable balance and ade-o be ween equi y and e iciency. Fi s , based on he openness o he economic sys em, i is necessa y o undamen ally change he adi ional p ac ice o main aining he pa icipa ion o ound y OEM en e p ises in he in e na ional di ision o labo sys em by means o cheap ene gy and ac o subsidies; second, i is necessa y o undamen ally e e se he wel a e inequi y as a consequence o he de ia ion o ma ke op imali y om socie y op imali y in indus ial spa ial layou . The spa ial ma ching p owess o alen s and indus y shall be imp o ed by bee ing up he s a egic in es men on labo alen s in gene al. Acknowledgmen s This pape cons i u es a Majo P ojec o he Na ional Social Science Fund: “Resea ch on he New S a egic Region o Suppo ing China’s Economic G ow h in he Fu u e”(App o al No. 14ZDA024), and a Majo P ojec o he Minis y o Educa ion’s Humani ies and Social Sciences Key Resea ch Base: “Resea ch on he Coo dina ed De elopmen o Building a Comp ehensi e Well-o Socie y in he Yang ze Ri e Del a”(App o al No. 16JJD790023), 281 Wel a e economics analysis and he phased achie emen o “Regional Economic Coo dina ion and U ban-Ru al De elopmen In eg a ion”sub-p ojec o he “Coo dina ed Inno a ion Cen e o Socialis Economic Cons uc ion wi h Chinese Cha ac e is ics.” No es 1. As ea ly as 1935, Chinese geog aphe Hu Huanyong p oposed he amous “Hu’s line (Heihe-Tengchong Line),”which e eals ha on he land map o China, he 45-deg ee diagonal line no h om Heilongjiang Heihe Ri e (Henan) and sou h o Yunnan Tengchong di ides he p opo ion o land a ea in China in o 64 pe cen in he no hwes and 36 pe cen in he sou heas , wi h a co esponding popula ion a ion o 4 and 96 pe cen , espec i ely. This pa e n o asymme ic dis ibu ion o popula ion has no changed e en when Hu s udied he opic again in 1987. See Hu (1935). 2. The so-called “bi h e ec ”deno es ha he mo e people he e a e, he g ea e he po en ial o social in e ac ion. Howe e , he 2009 Wo ld De elopmen Repo epea edly men ioned in e ms o he esea ch on China’s immig a ion, g ow h and wel a e ha he sou heas coas o China is no only a ga he ing place o la ge popula ion mig a ion, bu also an agglome a ion a ea wi h high po e y a e in China. Fo example, in he ea ly days o e o m and opening up in 1980, he popula ion o Shenzhen was only abou 30,000. In 1988, i soa ed up o 800,000, and in 2000, o 7m. See The Wo ld Bank (2009). 3. Acco ding o he u ili a ian p inciple o social wel a e unc ion heo y, he ideal s a e is he maximiza ion o o al social wel a e, and he co e ca ego ies a e Pa e o’s“op imali y”and Ma shall’s“consume su plus.”The p emise o ai global op imali y is o a ionally dis ibu e wel a e among egions, he necessa y condi ion is economic e iciency, and he su icien condi ion is easonable dis ibu ion. 4. The i s heo em o wel a e economics s a es ha compe i i e equilib ium has Pa e o e iciency. The second heo em emphasizes ha o sa is y he compe i i e equilib ium, app op ia e wel a e compensa ion mus be applied o speci ic g oups. The hi d heo em, namely, he A ow’s heo em, pu po s ha he e is no A ow social wel a e unc ion ha sa is ies simul aneously he uni e sali y, Pa e o compa ibili y, independence, and Non-Dic o ship. Howe e , Mo i’s heo em s a es ha he “A ow’s impossibili y heo em”only applies o he collec i e selec ion ule such as in o ing, i s essence is he de ec o he new wel a e economics de i ed om he o dinal u ili y. The use o he ca dinal u ili y can de i e he ele an in o ma ion o compa ison o in e pe sonal u ili y. This a icle uses his as a s a ing poin . 5. A he heo e ical le el, he cu en esea ch on such issues is mainly ep esen ed by Cha lo e al. (2006). 6. This is a ans e paymen in he sense o ob aining po en ial Pa e o imp o emen s. 7. The i s cons i u es he Pa e o imp o emen s anda d and conside s ha he e is no si ua ion in which ce ain g oup wel a e is be e wi hou making any g oup wel a e wo se. The second cons i u es he u ili a ian wel a e unc ion s anda d, which conside s he ideal s a e is o maximize he o al social wel a e; he hi d cons i u es he Rawlsian wel a e unc ion s anda d, which belie es ha he le el o social wel a e depends mainly on he wel a e le el o he g oup wi h he lowes u ili y in socie y. Two de ices a e ans e paymen s and indus ial ans e s. 8. O cou se, i we conside he in luence o es ic ions on popula ion mobili y such as household egis a ion, we may main ain a symme ic s uc u e o sca e ed dis ibu ion. 9. The so-called “Ma shall Pecunia y ex e nali y”is essen ially Ma shall’s p inciple o ex e nal economy, which mainly includes he localiza ion and u baniza ion e ec s b ough by he knowledge spillo e , labo union and ac o sha ing o he clus e o SMEs. 10. Fi s , whils he p ice index in he co e egion declined, and he p ice index in he pe iphe al egion ose, which b ough nega i e ex e nali ies o he pe iphe al esiden s. 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(2002), “Agglome a ion and ade e isi ed”,In e na ional Economic Re iew, Vol. 43 No. 2, pp. 409-436. Pan, W. and Li, Z. (2007), “Feedback and spillo e e ec s be ween coas al and non-coas al egions o China”,Economic Resea ch Jou nal, Vol. 42 No. 5, pp. 68-77. Sci o sky, T. (1941), “A no e on wel a e p oposi ions in economics”,Re iew o Economic S udies, Vol. 9 No. 1, pp. 77-88. The Wo ld Bank (2009), Wo ld de elopmen epo 2009: Reshaping Economic Geog aphy, The Wo ld Bank, Washing on, DC, pp. 224-245. Co esponding au ho Wu Fuxiang can be con ac ed a : [email p o ec ed] Fo ins uc ions on how o o de ep in s o his a icle, please isi ou websi e: www.eme aldg ouppublishing.com/licensing/ ep in s.h m O con ac us o u he de ails: [email p o ec ed] 283 Wel a e economics analysis