Can China Fill Its Own Shoes? China-Europe Express Railway and Export Manufacturing Reallocation from Coast to Inland Regions

The steady decline of China’s comparative advantage in cheap labor manufacturing raises the question of which country(s) will replace China to be the next manufacturing export powerhouse. We provide empirical support that China might end up replacing itself through manufacturing reallocation from its coast to inland regions. A new rail freight service connects inland Chinese cities with the European Union, incentivizing manufacturers to leave the coastal cities with high wage and take advantage of the inland cheaper labor while maintaining export convenience to Europe. Inland agglomeration economies, steady wages, and self-sufficient subsidizing policies persistently attract coastal manufacturing capital.