Exercise 3. Q1: Which sector has received an increased attention in China recently?

Q1: Which sector has received an increased attention in China recently?

(c) agriculture

Q2: According to the article, the price of agricultural products has risen substantially. What mechanism is behind this change in agricultural prices?

(b) The increasing industrial production requires more land in order to expand industrial activity. As industries expand to new territories, arable land are extricated from agricultural production. This process, however, along with the increasing number of population, makes agricultural products more expensive.

Q3: How do increased prices in the agricultural sector affect migration (from the rural territories to manufacturing centres)?

(c) instead of moving to the cities (industries), would-be rural migrants prefer to stay at home

Q4: What consequences does the slowing down of the migration of rural workers have for the industrial centres in the capitalistic province of Guangdong?

(d) labour shortage, which in turn causes an upward pressure on industrial wages.

Q5: How have entrepreneurs responded to the labour shortage in the most developed Southern part of China? (b) they have moved to places where labour, land and energy are available in a (much) greater abundance

Q6: The Chinese example has shown that businesses move from the relatively expensive places to the relatively cheaper places (where production factors such as land, energy and labour are less expensive). Is this relocation of businesses in line with the neoclassical economic theory?

(a) Yes, it is, since the movement of businesses can be rationalised by the theory of factor endowment.

Q7: According to the theory of factor endowment, what is the natural direction of movement of capital?

(b) from the relatively capital abundant regions to the relatively capital poor regions

Q8: We have just seen that capital moves from the capital rich to the capital poor regions. Why is this the case?

(a) Because the marginal product of capital is higher in a relatively capital poor region than in a capital rich region. In turn, the price of capital is higher in the latter than in the former.

Q9: How do we call the phenomenon when “companies are not migrating to a new industrial centre or cluster, [r]ather, they are spreading in a variety of directions”?

(c) centrifugal forces

Q10: What are the synonyms for “centrifugal”?

(d) diffusion or decentralising

Q11: How do we call the opposite forces in which case a concentration occurs?

(b) centripetal forces

Q12: According to new economic geography, “every government engages in deliberate efforts to erect barriers or provide inducements that will make either the centripetal or the centrifugal forces work toward their own advantage” (p. 121). Is this true in the case of China as well?

(d) President Hu Jintao and Premier Wen Jiabao are interested in a broad-based and well-balanced growth; therefore they support a northward migration of Chinese business activities.

Q13: Based on the article, is the lowering of transportation costs a determining factor in the relocation of business activities in China?

(a) Certainly, it is, as it has also been shown by the theory of new economic geography.

Q14: What are the effects of transportation costs on Chinese export?

(c) Chinese producers try to locate their plants near to the export markets.

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