SOEs need to look at the bigger picture

Not all plant relocations are advisable, as they may adversely affect employees and communities. Although in some cases the effects will be temporary and can be internalized by the market over time, this is not the case when a single enterprise is the major economic engine of a city.

The relocation of dominant plants has been accelerating over the past decade. For example Foxconn, the electronics manufacturer, has laid off 73 percent of its 400,000 employees in southern China, as it has relocated more than 70 percent of its plants to northern China. Dongfeng Motor Corp, a State-controlled automobile manufacturer in Shiyan, Hubei province, along with more than 200 motor-related ancillary businesses in the city, which together contributed more than 60 percent of Shiyan's GDP, relocated to Wuhan, another city in Hubei province, where they have better access to advanced personnel resources and commercial opportunities. With the economic transformation taking place across China the relocation of industry is likely to accelerate in the coming years.

Until now, the problems caused by the relocation of dominant plants have been largely neglected, as the adverse effects of dominant plant relocations are generally regarded as an inevitable result of the adoption of a market economy and the freedom to relocate plants promotes social efficiency. But this is highly misleading, not only because it miscalculates the social efficiency in the case of dominant plant relocations, but also because it ignores China's domestic situation and the possibility of alternative policies that can mitigate or prevent the devastating effects on local communities caused by the relocation of dominant plants.