Abstract
Interregional inequality remains a persistent and pressing global challenge, yet scholarly attention has predominantly focused on its spatial configurations, underlying drivers, and socio-economic consequences, with comparatively limited emphasis on viable institutional solutions. This paper examines the Mountain–Sea Collaboration (MSC) model in Zhejiang Province, China, as an experimental institutional arrangement aimed at mitigating interregional disparities. Drawing on in-depth interviews with key stakeholders involved in the MSC initiative, the study traces the evolution of collaborative mechanisms between the paired cities of Hangzhou and Quzhou. The analysis reveals that the effectiveness of the MSC model is underpinned by multi-scalar coordination and institutional innovation, facilitated by a form of local state entrepreneurialism operating within a hierarchical governance context. These factors collectively enable the efficient reallocation of resources across regional boundaries. The findings suggest the need for new approaches in addition to conventional, static perspectives to interregional collaboration, advocating instead for flexible, multi-scalar institutional configurations that promote resource-sharing between economically asymmetric regions. The paper concludes by considering the broader applicability of this “China experience” for policymakers in other national contexts.
Keywords
Introduction
The widening regional inequalities have long concerned geographers, economists, and regional scientists (Beenstock and Felsenstein, 2008; Jian et al., 1996; Krugman, 1999; Massey et al., 2003; Puga, 1999; Wei, 1999, 2015; Wei and Ye, 2004). In Western societies, these concerns have intensified in the recent years, particularly following the rise of populism in least developed regions (Dijkstra et al., 2020; Iammarino et al., 2019; McCann, 2020; Rodríguez-Pose, 2012, 2018). The increasing discontent in “places that don’t matter” underscores the urgency of addressing development disparities between prosperous and poor regions.
While this issue has been widely studied in both industrialized and developing economies, much existing research has focused on mapping the geography of inequality, identifying causal effects, and estimating inequality consequences, with comparatively less emphasis on addressing it through inter-jurisdictional institutional innovation and multi-scalar coordination. Yet such cross-jurisdictional and multi-scalar efforts are crucial, as the production of spatial inequalities is deeply embedded in scalar restructuring—contested processes through which power and resources are unevenly distributed across both administrative and spatial levels (Jones et al., 2017). Addressing regional inequality therefore requires the coordinated involvement not only of local governments but also of actors across different administrative levels, including upper and lower tiers of government, as well as non-governmental agencies. Economic geographic research has traditionally highlighted the role of historically evolved industrial structures and path dependence in regional development (Boschma and Frenken, 2006). Increasingly, however, scholars argue for a comprehensive, systemic approach involving coordination among multiple actors—particularly businesses and governments—at various levels (Bathelt et al., 2024; Martin et al., 2022; McCann, 2024) and across different time horizons, including past, present, and future (Gong, 2024; Grillitsch and Sotarauta, 2020). To date, however, no conceptual or empirical model fully addresses this need for an integrated, multi-scalar approach to interregional economic inequality.
To address these gaps, we examine the Mountain–Sea Collaboration (MSC) model in Zhejiang, China, exploring its evolution, practices, and mechanisms for tackling interregional inequality through involving both developed and lagging regions. Launched in 2002, the MSC model aims to foster cooperation between developed “Sea regions” and less-developed “Mountain regions” on a mutually agreed basis. This spatially integrated model, promoted by the Zhejiang provincial government, requires close coordination between developed and lagging regions and represents a novel institutional design. After two decades of development, the MSC model is proving effective in reducing regional disparities and has been designated as the sole demonstration zone for common prosperity in China. We believe that this innovative approach has significance beyond the Chinese context, offering valuable insights for other countries confronting widening interregional inequality. Therefore, its underlying mechanisms and as well as potential strengths and limitations merit thorough investigation.
The paper proceeds as follows: in “Interregional economic inequality and policy remedies: An overview” section, an overview on the extant work on interregional economic inequality is provided. We argue that while there is a substantial body of theoretical and empirical research on the phenomenon of interregional inequality, very little research has addressed solutions from an inter-jurisdictional institutional perspective, especially outside of China. Closely related to this, the leverage of extra-regional forces for boosting development in lagging regions and thus reducing interregional inequality is also largely overlooked. To address these gaps, “Addressing interregional inequality with Chinese characteristics? Interregional targeted assistance program and the MSC model” section introduces China’s endeavor in this aspect under the country’s vision for achieving Common Prosperity by mid-century. The MSC model in Zhejiang province, which acts as an institutional demonstration to reduce interregional inequality, will be introduced. After that, in “MSC implementation in Zhejiang: Quzhou-Hangzhou collaboration as a case” section, the 20-year Hangzhou–Quzhou collaboration in the MSC context will be examined through analyzing the evolution of Hangzhou–Quzhou partnership. “Discussion” section then conceptualizes the experiences and mechanisms behind the MSC model, and critically discusses the limitations and general implications of the MSC model for reducing interregional inequality in a broader context. The final “Conclusion” section concludes.
Interregional economic inequality and policy remedies: An overview
The spatial dimension of inequality—particularly interregional inequality—has long been a subject of scholarly interest, dating back to the debates of development theorists like Myrdal and Williamson in the 1950s and 1960s (Liao and Wei, 2016). As theories of local and regional economic development have evolved—from neoclassical and neo-Marxist frameworks to more recent political economy, evolutionary, and institutional approaches—scholars continue to debate the nature, causes, and consequences of spatial inequality (Cantwell and Zaman, 2024; Connor et al., 2024; Erfurth, 2024; He et al., 2017; Wei, 2002). Recent discussions have increasingly focused on how inequality affects well-being, attitudes, and political behavior in lagging regions (Dijkstra et al., 2020; Henn and Hannemann, 2024; Pike et al., 2016; Rodríguez-Pose, 2018; Rodríguez-Pose et al., 2024). The uneven effects and recoveries from successive polycrizes—such as the global financial crisis and the COVID-19 pandemic—have further intensified attention to spatial inequality and regional disparities (Bathelt et al., 2024; Iammarino et al., 2019; Leyshon, 2021; Storper, 2018; Wei, 2015). In this context, rising interregional inequality has emerged as a critical concern for governments worldwide.
In the UK, for example, the 2019 “Levelling Up” agenda seeks to address entrenched core-periphery divides, marking the most significant spatial policy shift in over 80 years (Martin et al., 2022; UK Government, 2022). In the EU, the 2021–2027 Cohesion Policy allocates €392 billion to reduce economic, social, and territorial disparities and promote balanced development (European Commission, 2020). In China, the “Common Prosperity” agenda has reignited debate on more equitable regional development (Dunford, 2022).
Policy responses to interregional inequality have varied, shaped by different theoretical orientations that often emphasize either efficiency or equity (Iammarino et al., 2019). While this binary distinction risks oversimplifying real-world complexities (Martin et al., 2022), it provides a useful entry point for understanding divergent governmental approaches. Efficiency-driven policies, grounded in neoclassical growth theory, prioritize agglomeration, assuming concentrated economic activity enhances overall output. These spatially-blind approaches emphasize labor mobility and knowledge spillovers to promote convergence (Iammarino et al., 2019). In practice, however, they often exacerbate disparities, offering little support to declining regions beyond temporary compensatory measures that encourage out-migration and deepen marginalization (Pike et al., 2017). In contrast, equity-focused policies emphasize place-based interventions aimed at territorial justice. Informed by New Economic Geography (Krugman, 1992) and endogenous growth theory (Aghion et al., 1998), they assume that less-developed regions can catch up with appropriate support. Yet, strong market dynamics often counteract these efforts—labor outflows persist, and innovation rarely diffuses effectively. As a result, these policies frequently function more as social assistance than as viable economic development strategies, especially when out-migration perpetuates social exclusion. These debates underscore the difficulty of designing spatial policies that balance efficiency and equity across diverse regional contexts. In response, Iammarino et al. (2019) propose a “place-sensitive distributed development policy” that seeks to enhance development across all regions. Rejecting zero-sum competition and rigid convergence models, this approach emphasizes tailoring strategies to each region’s specific needs and capacities.
While such approaches rightly foreground endogenous capabilities, they often neglect the importance of collaboration and extra-regional linkages. Interregional connections are vital for economic upgrading in lagging areas, as they enable the flow of knowledge and resources (Aghion et al., 1998; Binz et al., 2016; He et al., 2023; Trippl et al., 2018). These connections can enhance local capabilities and reduce inequality over time (Gong et al., 2024), but their success hinges on institutional quality within the recipient region (Rodríguez-Pose, 2013). This presents a challenge, as lagging regions often suffer from weaker institutional frameworks, which can impede effective use of external resources.
As we will show in the following sections, building institutional capacity through interregional partnerships is a central feature of the Mountain–Sea Collaboration (MSC) program. Understanding the mechanisms through which such partnerships are established and maintained is therefore a key theoretical and empirical focus of our study.
Addressing interregional inequality with Chinese characteristics? Interregional targeted assistance program and the MSC model
While China’s economic growth over recent decades has been substantial, it has also exacerbated urban–rural and regional disparities (Li, 2023). In response, the Chinese government has implemented various initiatives—such as the Western Development Strategy, the Rise of Central China, and the Revitalization of the Northeast—aimed at reducing inequality across the country. Alongside conventional interregional assistance measures, including fiscal transfers, infrastructure investment, educational and technological support, and industrial relocation, China has introduced a distinctive series of Interregional Targeted Assistance Programs (ITAPs; Wang, 2022). These programs, guided and overseen by the central government, pair economically advanced provinces with less-developed regions to provide financial, industrial, and human capital support in order to stimulate economic growth through resource redistribution at the national level. Globally recognized, this approach reflects a unique feature of China’s development model (Yu et al., 2025).
Importantly, the implementation of these programs often relies on local state entrepreneurialism, where local governments actively leverage policy flexibility and strategic initiative to attract investment and guide economic development (Wu, 2018). This concept highlights the proactive role of lower-level authorities in shaping regional growth, beyond mere compliance with higher-level directives. It represents a hybrid governance model that both operates within and transcends the traditional hierarchical administrative system by breaking the spatial constraints of resource allocation and the conventional top-down command-and-control model (Xie and Liang, 2025). Early ITAPs were mainly one-way economic assistance and completely government-led (Pan et al., 2025). After a long period of policy experimentations, China’s counterpart policies have experienced the evolution from one-way assistance to two-sided cooperation for mutual benefits (Xu, 2023). Interregional cooperative relations are established through both government guidance and market principles, and the paired regions are inspired to cooperate with each other based on complementary advantages (Zhang, 2021).
At the subnational level, similar institutional experimentations have also been explored in reducing, for example, intra-provincial inequality. A recent example is the Mountain–Sea Collaboration (MSC) model. As a specialized form of peer government support, the MSC model is led by provincial governments, with active participation from municipal and county-level authorities. It is closely aligned with the national goal of fostering common prosperity and emphasizes balanced regional development within provinces. First launched in Fujian and later expanded in Zhejiang Province, the MSC model is marked by tighter interactions between paired cities than nation-level ITAPs due to their geographical, institutional, and cultural proximities. Moreover, as one of China’s most developed provinces, Zhejiang exhibits relatively smaller disparities in economic and institutional capabilities between its paired cities compared to those commonly observed in inter-provincial ITAPs linking coastal and western regions. This enables more effective and meaningful interregional collaboration.
In Zhejiang, intra-provincial inequality has been a persistent challenge. For instance, between 1978 and 2000, the GDP per capita ratio of the province’s wealthiest to least developed areas grew from 2.5 to 3.5 (Ying, 2022). Among Zhejiang’s 90 county-level units, 26 are classified as less-developed mountainous areas. In this context, Zhejiang launched the MSC project in 2002, aiming for coordinated regional development. Here, “Mountain” refers to the 26 mountainous, less developed counties, while “Sea” signifies the more prosperous regions. To promote the MSC project, the provincial government acted as a matchmaker, assigning partner cities to support each less-developed area at both prefecture and county levels. For instance, the more developed cities of Hangzhou and Shaoxing were tasked with supporting Quzhou, while Ningbo, Huzhou, and Jiaxing partnered with Lishui. At the county level, each of the 26 mountainous counties was assigned at least one partner, with many having two or three. Figure 1 shows the location of Zhejiang province and our case study areas (Hangzhou and Quzhou).
Location and administrative divide in Zhejiang.
After more than two decades, Zhejiang has emerged as one of China’s most successful provinces in addressing interregional inequality, setting a model for others to follow. By 2023, the added value of above-scale industrial enterprises in the 26 previously lagging counties reached 184.9 billion yuan, with a growth rate of 7.4%, surpassing the provincial average of 6% (Zheng, 2024). According to official statistics from Zhejiang, the ratio of regional GDP per capita between the highest- and lowest-income areas narrowed from 3.92 in 2001 to 2.30 in 2023 (see Figure 2). Likewise, the per capita GDP ratio between Hangzhou and Quzhou declined from 3.46 to 1.74 over the same period. As a result, Zhejiang has been designated by the central government as the sole provincial-level demonstration zone for common prosperity. Although the MSC project may not be the only mechanism contributing to the convergence between these cities, it has undoubtedly played a significant role in reducing regional disparities.
Changes in per capita GDP and regional inequality in Zhejiang Province (2001–2023).
MSC implementation in Zhejiang: Quzhou-Hangzhou collaboration as a case
Given the complexity of MSC—which encompasses nearly 60 city pairs at both county and prefecture levels and includes diverse forms of collaboration, such as industrial development, joint infrastructure projects, and distribution of educational and medical resources—this research focuses specifically on economic development, particularly the industrial collaboration between Quzhou (the “Mountain”) and Hangzhou (the “Sea”). Hangzhou, the capital city with the highest GDP per capita, was paired with Quzhou by the provincial government at the prefecture level.
To analyze the mechanisms and stakeholder dynamics within the MSC project, we conducted 30 in-depth interviews in Hangzhou and Quzhou between July 2023 and January 2024. Most interviews were face-to-face, with one conducted online and two by telephone. The research began with a key official at the Zhejiang Provincial Development and Reform Commission, whose extensive experience—spanning over two decades—provided both a comprehensive overview and detailed insights into the MSC program. From this starting point, we employed a snowball sampling strategy to identify and interview additional MSC-related stakeholders. This included officials in both Hangzhou and Quzhou, allowing us to explore city-level motivations and practices in depth. Through referrals and continued outreach, we expanded our sample to include dispatched cadres from Hangzhou to Quzhou, who serve as intermediaries—or brokers—between the Mountain and the Sea, as well as firm managers and experts involved in the MSC initiative (see Table 1). Many of these actors were identified using an internal list compiled by the Hangzhou Bureau of Counterpart Support and Regional Cooperation (not publicly available). In addition to interviews, field visits were conducted to observe various forms of industrial collaboration in situ. The interviews were structured around three core themes: (1) participants’ experiences with and understandings of the MSC project, (2) MSC-related actions and practices, and (3) interpretations and evaluations of the project’s underlying rationale.
Basic information of the interviewees.
In addition to this first-hand data collection, a government internal report on Hangzhou’s MSC work for the last two decades was a valuable source of data and information. We also gathered information from MSC-related policy documents, media reports, and newspaper articles. Data and information collected from these different sources were triangulated, compared, intensively interpreted, and discussed by the authors to produce robust results. Over the last two decades, the MSC has been going through three phases of development, with the latter two phases adding together instead of replacing one another. The rest of this section will introduce each phase in detail, while the next section will provide an overall assessment of the MSC model in Hanghzou–Quzhou’s two-decade partnership.
Phase 1: Initial industrial transfer from Hangzhou to Quzhou without formal incentives (2002–mid 2006)
The first phase of the MSC was characterized by industrial transfers and fiscal payments from Hangzhou to Quzhou. In April 2002, the provincial government released the document “Opinions on Implementing the Mountain-Sea Collaboration Project to Accelerate the Development of Underdeveloped Areas within the Province,” which clearly specified the partnership between Hangzhou and Quzhou. Following this, the chief officials from both cities began mutual visits and signed strategic cooperation agreements. The key objective was to encourage Hangzhou’s manufacturing firms to relocate to Quzhou through official lobbying and government-provided subsidies and incentives. As one of our interviewees posited, in the Chinese context: Businesses are not solely concerned with money; they also value government endorsement. When businesses from Hangzhou invested in Quzhou, it wasn’t just their decision—it was encouraged by the Hangzhou municipal government. So, when they faced issues requiring coordination, they turned to us [Hangzhou Bureau of Counterpart Support and Regional Cooperation], and we helped resolve their problems. . . . in China, government incentives can truly “use a little to leverage a lot” (siliang bo qianjin 四两拨千斤). (Government official 3)
While it is true that firms in China often navigate a complex web of political and economic considerations, Hangzhou’s enterprises were not solely driven by government interests. Business factors, such as the availability of complementary supply chains in less-developed regions and favorable logistics conditions, played a key role in their relocation decisions. Quzhou, as a manufacturing center in southwest Zhejiang and as a transport hub connecting neighboring provinces, was an attractive option for Hangzhou-based manufacturers. Another driving factor was the need for land by such expanding firms. Businesses looking to expand their production capacities sought more space rather than an innovation-driven environment, and thus relocating to less-developed regions with lower costs was a natural decision. However, these firms were not exclusively focused on Quzhou—they could also consider other regions in central and western China where production costs were even lower. In such cases, government lobbying and persuasion played a critical role (Government official 3).
Although both Hangzhou and Quzhou had to accept the political mandate to collaborate, how this should be implemented was up to the two cities. Following provincial government guidelines, the two cities agreed on transferring industrial projects and resources from Hangzhou to Quzhou. At this early phase, the transferred industries were mainly labor-intensive and lower value-added industries such as paper-making and textile industry, which contributed to environmental pollution. At the same time, due to the lack of well-defined spatial planning for these enterprises, the utilization of industrial space was inefficient. Furthermore, no clear mechanism was established to ensure a mutually beneficial outcome (Government official 3). While the first phase did see some industrial relocation, the collaboration remained limited in scale, with both cities viewing the partnership primarily as a political mandate, lacking strong incentives, or mechanisms to promote genuinely beneficial outcomes for both parties.
Phase 2: Mutually beneficial collaboration based on resource complementarity and the exploration of joint industrial park (since mid-2006)
A radical shift occurred by the start of the second phase, as the paired governments identified complementary resources, creating strong incentives for their collaboration. For Hangzhou, its primary interest lay in alleviating spatial and resource constraints (especially land availability and environmental constraints) while maintaining economic momentum. Quzhou, by contrast, aimed to attract external investment, industries, and policy attention to drive local development and improve its integration into the regional economy. In July 2006, the two cities signed the “Agreement on Joint Construction of the Hangzhou-Quzhou Mountain-Sea Cooperation Demonstration Project.” Under this agreement, during the 11th Five-Year Plan period, Quzhou would develop and maintain 160,000 mu (approximately 107 km2) of farmland on behalf of Hangzhou. The reason of how this could happen will be explained in the next paragraphs. In return, Hangzhou committed to increasing industrial cooperation with Quzhou, aiming to ensure that investments from Hangzhou enterprises in Quzhou would reach 10 billion yuan. This agreement marked the beginning of the MSC’s second phase—one of mutual-benefit and win-win collaboration based on two-way resource flow.
This intensified collaboration was possible, primarily because Hangzhou recognized the potential for resource exchange with Quzhou. As the provincial capital, Hangzhou possessed an abundance of industrial projects and financial resources but faced a shortage of land quotas 1 needed for further development. Conversely, Quzhou, a less-developed city with ample land resources, was in critical need of industrial projects and financial capital due to its remote location and financial challenges. This dynamic created a foundation of resource complementarity, where each city could leverage the other’s strengths to meet its own needs.
An officer from Hangzhou recalled how the potential of such resource complementarity was released through bottom-up institutional innovation.
At that time, we had just begun industrial transfers to Quzhou and found they had abundant land resources and land quotas. So, we proposed the idea of purchasing land quotas from them. This was unprecedented, not only in the province but nationwide. So, we [Hangzhou and Quzhou governments] jointly submitted a report to the provincial government asking for permission. The Provincial Department of Land and Resources
2
granted us this exception in consideration of the MSC project. They allowed Hangzhou’s basic farmland to be relocated, replanted, and rebuilt by Quzhou. And in return, Quzhou sold us the land quotas at market price and also required our industrial transfer with a significant investment amount. (Government official 3)
This bottom-up institutional breakthrough was clearly one of the milestones that enable strategic collaboration between the two cities. As mentioned by the same officer, during the 11th, 12th, and even 13th Five-Year Plan periods, “Quzhou provided us with 200,000 mu (approximately 133 km2) of land quotas every five years in exchange for 10 billion RMB in funding” (Government official 3). For Hangzhou, the land quota transferred from Quzhou enabled high-quality economic development in the capital city.
The entire Chengxi Sci-Tech Innovation District in Hangzhou, known as the Future Sci-Tech City, was built largely thanks to Quzhou’s provision of land quotas. This is a prime example of the integration and rational allocation of resources between the two partner cities. (Government official 1)
For Quzhou, industrial projects brought by its partners from Hangzhou also contributed significantly to local economic development.
Back then, we established an industrial park to attract a large number of enterprises from Hangzhou and Ningbo, another partner of us. They also provided construction funds. This collaborative model based on resource complementarity, which was developed in practice by Hangzhou, Ningbo and ourselves, was later recognized by the provincial government and promoted across the province [namely, MSC industrial parks]. (Government official 4)
In 2012 and 2013, nine provincial-level MSC industrial parks were established across the province, among which the Kecheng-Yuhang MSC Industrial Park was jointly established by Quzhou and Hangzhou. The industrial park is located in the core area of Quzhou’s Green Industry Cluster Zone, with a planned total area of 6.42 km2. Cadres exchange plays an important role in the development of MSC industrial parks.
The director of the park management committee was required to be sent from the developed region, bringing valuable experience, practices, and good investment and management concepts to the new area. They also served as local standing committee members. It was quite a close collaboration at that time, and our Hangzhou partner even contributed one billion yuan in registered capital to support the project and attract investment. (Government official 2)
At this stage, by channeling industrial projects and capital, Quzhou has significantly strengthened its manufacturing capacity, becoming a critical manufacturing base in Southwest Zhejiang. Hangzhou, meanwhile, has further enhanced its headquarters economy and high-tech industrial development by obtaining land quotas from Quzhou.
Phase 3: Reverse enclaves from Quzhou to Hangzhou (since 2012)
As the collaboration enters this third phase, the relationship between Hangzhou and Quzhou has become increasingly intricate. Over decades of industrial development, Quzhou has established a relatively comprehensive industrial structure and experienced rapid growth. Consequently, the industries that Quzhou now seeks to cultivate or attract can no longer be achieved through the industrial gradient transfer from Hangzhou. Moreover, after years of trading land quotas in exchange for industrial projects with wealthier partner cities, Quzhou’s available land quotas have become increasingly scarce. As a result, Quzhou is growing more reluctant to trade its land (Government officials 3 & 5). Under these circumstances, a new form of industrial collaboration has emerged: the reverse enclaves.
Supported by provincial government incentives, reverse enclaves were designed to maintain partner cities’ commitment to collaboration by offering new spatial and institutional solutions. A reverse enclave refers to a dedicated area within Hangzhou that Quzhou establishes to leverage its resources. Unlike the first two phases—where inter-city collaboration primarily took place in Quzhou—this third phase introduces Hangzhou as an additional platform through reverse enclaves set up by the Quzhou government. Under the MSC framework, there are two types of reverse enclaves between Hangzhou and Quzhou: sci-tech enclaves and industrial enclaves. Sci-tech enclaves focus on research, development, and innovation projects, allowing Quzhou to tap into Hangzhou’s technological and educational strengths. Industrial enclaves, in contrast, enable Quzhou’s industries to operate within Hangzhou, benefiting from its infrastructure, market access, and talent pool.
MSC Sci-tech reverse enclaves
The first form of the reverse enclave initiative involves Quzhou-based enterprises leveraging sci-tech and innovation-related resources in Hangzhou since 2012. By setting up these enclaves in Hangzhou, Quzhou firms can adopt a model where R&D takes place in Hangzhou while production occurs in Quzhou. Sci-tech enclaves have relatively low land requirements—some may consist of just a single building, or even just one floor of a building—making them easier to establish compared to industrial enclaves. Quzhou has created four Sci-tech enclaves in Hangzhou, including one at the prefecture level (Quzhou Haichuang Park) and three at the district or county level.
In August 2012, Hangzhou and Quzhou jointly launched Quzhou Haichuang Park, the province’s first Sci-tech reverse enclave. Unlike industrial enclaves, the investment promotion, operations, and management of Sci-tech enclaves are entirely handled by Quzhou. The primary goal is to attract high-quality enterprises to Quzhou. Even if these companies do not physically relocate, they still consider establishing a positive relationship with the Quzhou government to be beneficial. Moreover, the enclave serves as a window for Quzhou to attract businesses in Hangzhou and eventually channel them back to Quzhou. However, a manager of the enclave’s operation and management company expresses her concern.
Chengxi Sci-Tech Corridor, where we are located, is focused on technology-driven enterprises that are unlikely to have production lines to move to Quzhou. Many tech companies here are small, often founded by overseas returnees seeking local funding to grow. Expecting them to immediately relocate production to Quzhou is not very realistic. (Enterprise representative 4)
For Hangzhou, the unique nature of these enclaves has led to a relatively high vacancy rate in designated office spaces, as too few projects meet the criteria required for these enclaves. As noted by a government source: In prime areas like Hangzhou’s Future Sci-Tech City, where tax revenue per acre typically reaches billions, the presence of enclaves such as Quzhou Haichuang Park has actually lowered the city’s average tax revenue per acre due to the relatively high vacancy rate. (Government official 3)
This illustrates a potential challenge for Hangzhou, as the specialized nature of the sci-tech enclaves limits the types of projects that qualify, impacting the city’s revenue expectations in high-value areas, and thus may influence the promotion of individual officials.
MSC industrial reverse enclaves
To better advance the development of reverse enclaves, in 2022, the provincial government issued a policy document, “Notice on Issuing Several Policy Measures to Strengthen the Guarantee of Natural Resource Elements and Support Economic Stability” with the objective to strengthen paired-city collaborations. This policy encourages the 26 mountainous counties to establish “industrial enclaves” in Sea regions, providing each of these enclaves with a 1 km2 construction land quota and reducing the permanent basic farmland protection tasks of the sea regions by 0.5 km2. 3 This setup means that for every reverse industrial enclave built in Hangzhou, it gains an additional 1 km2 land quota directly for local industrial development adhering to enclave operating rules and 0.5 km2 that can be adjusted to a newly added quota of construction land provided it complies with local land use planning and policy requirements. This policy revitalizes Hangzhou’s land resources while enabling Quzhou to leverage Hangzhou’s strength in capital, market, and talent more effectively.
Quzhou’s industrial enclaves in Hangzhou are located within Hangzhou’s national-level economic development zones, where approximately 2 km2 of land has been designated for joint development. Quzhou and Hangzhou work together to attract investment to this area, with an agreed investment ratio, and share tax revenue according to a pre-determined proportion. Since these enclaves are situated in a national-level economic development zone, the industries attracted must align with the existing industrial planning of that zone, meaning Quzhou has little say in the selection of industries for its enclaves in Hangzhou. Two industrial enclaves have been established: the Qiantang-Longyou (Q-L) enclave and the Linping-Kecheng (L-K) enclave.
In the L-K enclave, the Linping district of Hangzhou is responsible for attracting investment, as this is something the Hangzhou Linping Economic and Technological Development Zone (ETDZ) would typically handle, regardless of the MSC. However, Quzhou seems to lack enthusiasm for developing these industrial enclaves, not only because the national ETDZ already has its own team for investment promotion and operations, leaving not much room for Quzhou to participate, but also because the land for industrial enclave is not ready for use yet and requires a large amount of construct capital from both sides. One cadre dispatched from Quzhou to Hangzhou reveals: Of the 1,500 mu of land allocated for our enclave, only about 100 mu has projects underway, with only three projects in total. The remaining is yet to be developed. I believe that without infrastructure investment of 5 to 8 billion yuan, it will be difficult to make it operational. So far, we’ve jointly established a company, contributing several millions in registered capital. Hangzhou then returns 8% of the funds to us annually, which essentially serves as financial assistance. (Dispatched Cadre Q → H 4)
Unlike the second phase, during which both partners viewed the collaboration as mutually beneficial, this sense of harmony now appears to be diminishing. From Quzhou’s perspective, the central issue lies in balancing long-term goals with short-term considerations.
If developed regions provide mature plots with good projects, it could genuinely help the less developed region. However, in the current situation, where we lack funds but are still expected to contribute financially, it becomes more of a burden. . . . The collaboration seems advantageous for us, as we invest 49% while they invest 51%, and we get 60% of the profits, while they get 40%. But in reality, the park’s revenue and tax returns take 10 to 20 years to materialize. We’re investing money, but the rewards are slow to come, and the developed region still holds control. (Dispatched Cadre Q → H 4)
Similar issues have arisen in the Q-L industrial enclave, with an even more challenging situation. According to reports, the planned area of this enclave is approximately 1.04 million m2, with two industrial projects currently in place and a total planned investment of 355 million yuan (Dai, 2023). However, most of the land is agricultural and not ready for industrial development, let alone generating revenue.
Provincial policymakers intended for lagging regions to establish reversed enclaves in developed areas to access knowledge networks and human capital. However, Hangzhou now finds that, beyond managing investment promotion, operations, and enclave administration, it must also return 8% of registered capital to Quzhou annually. This has created a sense that Hangzhou is not benefiting sufficiently from the arrangement. As the collaboration lacks a clear sense of mutual benefit—at least in the short term—neither side feels it is truly gaining. We summarize the Hangzhou–Quzhou collaborative forms, interest alignment, and outcomes across three phases in Table 2.
Hangzhou–Quzhou collaborative forms and outcomes across three phases.
Discussion
Underlying mechanisms of the MSC model
Figure 3 summarizes the key elements and underlying mechanisms behind the MSC. Overall, it is important to note that multi-scalar coordination and institutional innovation driven by local state entrepreneurialism under hierarchy play a key role in the reduced inequality between the two cities. At the provincial level, hierarchical but flexible policy mandates set the overarching framework for regional cooperation. Within this framework, local governments actively leverage their entrepreneurial capacity to initiate, adapt, and implement cross-regional projects tailored to local conditions and external environment. Both vertical and horizontal coordination enables institutional innovation for more efficient resource exchange, which together contribute to narrowing development gaps and deliver greater outcomes for agents involved.
Underlying mechanisms of the MSC model.
First, vertical interactions between top-level design from provincial government and bottom-up institutional exploration from prefecture-level governments are the foundation of institutional innovation to facilitate cross-regional resources exchange and co-sharing. The MSC operates under a hierarchical governance structure, where provincial and upper authorities play a decisive role in initiating, legitimizing, and steering the cooperation agenda, among which the cadre exchange system has been particularly effective. Promising cadres from Hangzhou are assigned to temporary roles in Quzhou for 2–3 years, and vice versa. These cadres act as knowledge brokers: those from Hangzhou bring advanced policy knowledge, administrative models, management experience, and strategic insights to Quzhou, which serve as institutional resources in less developed regions while cadres from Quzhou gain firsthand exposure to Hangzhou’s development practices, enhancing their own capabilities. Cadres from both regions play a crucial role in not only identifying complementary resources and facilitating resource exchange, but also fostering institutional alignment and deepening mutual understanding across the two local governments.
Within the strategic framework established by the provincial government, local authorities are granted a certain degree of autonomy to explore interregional collaboration hoping for a win-win outcome. That is, the vertical interactions are embedded within the hierarchical administrative system while maintaining governance flexibility (Xie and Liang, 2025). Local exploration of allowing Mountain regions to trade land quotas for industrial and financial resources helped dismantle barriers to resource flow, advancing beyond the one-way contributions of the initial stage and establishing essential institutional support for collaboration. While this represents a bottom-up institutional innovation, it was the flexibility within the provincial government’s top-level design that enabled these grassroots initiatives to evolve into formal policy. In this sense, the MSC can be viewed as a provincial-level institutional experiment that combines a centralized articulation of program objectives with extensive localized implementation trials (Heilmann, 2008). It exemplifies “experimentation under the shadow of hierarchy,” wherein local policymakers exercise relative autonomy in pursuing context-specific solutions, while remaining subject to ad hoc oversight and interventions from higher-level authorities (Heilmann et al., 2013).
Second, horizontal consensus grounded in local state entrepreneurialism is essential for jointly grassroots initiatives and exploration. The agreement between Hangzhou and Quzhou governments regarding MSC as mutual beneficial arrangement rather than one-way support contributes to later land quota exchanges. A shared consensus on industrial relocation among governmental and industrial actors creates a win-win situation whereby enterprises relocate to more advantageous locations for profit maximization, the Quzhou government attracts industrial projects to stimulate economic growth, and the Hangzhou government land resources to pursue higher-value industrial development. Importantly, this local experimentation is not entirely imposed by the provincial government but largely driven by local state entrepreneurialism (Wu, 2018). Both Hangzhou and Quzhou governments proactively mobilize market instruments (e.g. trading land for industry relocation, establishing development corporation to invest and operate reverse enclaves) to achieve non-market objectives such as more balanced regional development as well as advancing the career trajectories of individual officials. The relocation of industrial actors is not driven by top-down administrative mandates; instead, local states facilitate such shifts through market-oriented mechanisms—such as industrial gradient transfer—rather than through direct bureaucratic intervention (Wu, 2020). Therefore, the MSC can be regarded as a policy experimentation highlighting multi-scalar coordination through local state entrepreneurialism.
Lastly, the flexibility or dynamic capability embedded in the vertical and horizontal coordination among multiple agencies enables the MSC model to adjust collaborative strategies and forms in response to evolving internal and external conditions. Over the past two decades, inter-city collaboration between Hangzhou and Quzhou has evolved significantly. It began with straightforward industrial relocation and fiscal transfers in the first phase, progressed to the co-construction of industrial parks in Quzhou during the second phase, and has more recently given rise to reverse enclaves established by Quzhou within Hangzhou. The dynamic capacity of local governments to develop new models of collaboration through resource complementarity has helped mitigate the risks associated with waning complementarity between Hangzhou and Quzhou. Such flexibility was also observable at the provincial level: when Quzhou’s land resources became limited, the provincial government strategically reinforced resource complementarity between Hangzhou and Quzhou by allocating an additional 1.5 km2 of land quota to Hangzhou, of which 1 km2 is designated for Quzhou’s reverse enclaves. Such dynamic adjustment incentivized both cities to integrate, build, and reconfigure internal and external resources for sustained collaboration.
Critical appraisal of the MSC model
While the MSC has facilitated interregional collaboration, institutional challenges persist in addressing inequality through such initiatives. A key difficulty lies in aligning stakeholders’ diverse expectations and perceptions of gain and loss. Analyzing the three stages of collaboration between Hangzhou and Quzhou, the second stage proved relatively effective in fostering endogenous growth in underdeveloped areas. In contrast, the third stage primarily reallocates GDP: the same industrial land generates greater economic value in Hangzhou than in Quzhou, with dividends shared according to a fixed ratio. Although this arrangement increases Quzhou’s GDP on paper, it contributes little to enhancing its economic capacity or resource utilization. Moreover, dissatisfaction is growing in both cities, potentially undermining their willingness to continue the collaboration and stifling bottom-up innovation.
This leads to a second concern: Quzhou’s establishment of reverse enclaves within Hangzhou—intended to sustain collaboration by leveraging Hangzhou’s superior resources—raises important questions. While these enclaves grant Quzhou access to land, talent, and markets otherwise unavailable, whether they meaningfully strengthen Quzhou’s endogenous development warrants scrutiny. Embedding projects in Hangzhou’s institutional and spatial environment risks concentrating economic value in the host city, with limited spillovers to Quzhou in terms of employment, tax revenue, or innovation capacity (Zhang et al., 2023). This strategy may also reinforce dependency by aligning Quzhou’s growth trajectory with Hangzhou’s policy priorities and development cycles. Furthermore, questions arise about the long-term viability of such arrangements: how can governance, identity, and accountability be maintained when projects span jurisdictions? Without clear institutional safeguards, there is a risk of fragmentation, administrative confusion, and resource competition rather than genuine synergy (Peng and Ding, 2020).
Beyond these horizontal tensions among stakeholders, institutional frictions also emerge between provincial strategies and local implementation logics. While the provincial government plays a leading role in setting top-level objectives and promoting regional coordination, policies often face adaptation or resistance at the local level, as illustrated by the enclave model in the third stage. The lack of robust cross-regional mechanisms—such as shared governance platforms—hampers administrative efficiency (Hu and Geng, 2024). Although political pressure and performance metrics are used to enforce collaboration, incentive structures for local governments remain underdeveloped. This highlights the limits of hierarchical governance and underscores the need for effective vertical coordination. When provincial directives are well-aligned with local realities, they can support collaboration; when they are not, they place added burdens on local actors who must nonetheless implement them.
Finally, institutional design must better align the short- and long-term interests of participating actors in the MSC model. Some of these tensions relate to how officials are evaluated in China. Given that local cadres typically serve 5-year terms, their performance is assessed using short-term indicators—particularly GDP growth, infrastructure development, and investment attraction. To satisfy higher-level expectations, local officials often prioritize quick gains over long-term, sustainable strategies. This helps explain the limited enthusiasm among Quzhou cadres for developing reverse industrial enclaves. For MSC to function more effectively, the provincial government must move beyond conventional assessment metrics and adopt new evaluation frameworks. More broadly, reconciling stakeholder interests across varying temporal horizons is an emerging institutional challenge that must be actively addressed to better manage regional disparities in the future.
To what extent can MSC model inform interregional inequality policies within and beyond China?
The MSC model offers a valuable perspective on leveraging interregional linkages to address inequality, complementing policy debates on efficiency versus equity discussed by Iammarino et al. (2019). Rather than viewing efficiency and equity as opposing forces, the MSC model integrates both, fostering mutual growth through resource complementarity without disadvantaging more developed regions. Our case demonstrates that multi-scalar coordination and institutional innovations promoting interregional resource flow driven by local state entrepreneurialism are essential to achieving both efficiency and equity.
The original aim of the MSC model is to counteract the market-driven concentration of resources in more developed regions through innovative administrative interventions, enabling lagging regions to benefit more from spillover effects. Over the past two decades, Hangzhou and Quzhou have achieved significant progress through inter-jurisdictional resource exchanges supported by institutional innovations, despite the existence of challenges. Mechanisms like cadre exchanges and the joint construction of industrial parks have strengthened Quzhou’s capacity for learning, resource expansion, and anchoring, contributing to a narrowing of the development gap with Hangzhou. However, it should be noted that elements contributing to the MSC’s success in China may not be directly transferable to other contexts, due to distinct political and economic frameworks. For example, the cadre exchange system—in which officials are temporarily relocated to different regions for 1–2 years—is likely unique to China.
Nonetheless, we argue that, from an institutional perspective, there are several transferable lessons from the MSC model that may benefit policymakers in other countries in addressing interregional inequality beyond the prevailing endogenously-focused approach. Below we focus on three of them.
First of all, our study highlights the critical role of leveraging extra-regional linkages in addressing interregional inequality. Traditionally, the evolutionary approach in economic geography has emphasized endogenous capabilities and path dependency in regional development. This focus on internal capacity and historical legacy has led to policies aimed at related diversification within regions (e.g. Smart Specialization). Such an approach, however, has widened interregional inequality, as lagging regions inherently face greater challenges in achieving both related and unrelated diversification compared to their more developed counterparts (Marques and Morgan, 2021; Pinheiro et al., 2022, 2025). Addressing interregional inequality, therefore, necessitates extra-regional linkages and knowledge transfer (Boschma, 2017; Miguelez and Moreno, 2018; Qiao et al., 2024; Trippl et al., 2018). The MSC model considers the potential for resource spillovers between paired developed and less-developed regions. Such external linkages are often rooted in resource complementarity between collaborating regions. This aligns with Balland and Boschma’s (2021) argument that the key is not merely establishing connections with other regions, but connecting with regions that offer complementary capabilities or resources. Meanwhile, while not all countries have the cadre exchange system in place, where extra-regional officials bring their own institutional know-how, experiences, expertise, and networks to the new place, the core principle of interregional knowledge transfer and experience sharing holds universal relevance. The EU, for instance, could draw inspiration from the cadre exchange system by further developing initiatives such as its Public Administration Cooperation Exchange launched in 2023. Building on this scheme, the EU could design short-term exchange programs for public officials or experts between regions. Such programs would allow officials to gain firsthand insights into the challenges and opportunities in other regions, thereby enhancing their capacity to implement innovative solutions tailored to diverse regional needs. In this way, the EU could strengthen a framework for dynamic, cross-regional learning that supports the development of institutional capabilities and promotes balanced growth across the Union.
Secondly, a key lesson that the other countries can learn from the MSC model is the dynamic capabilities in identifying obstacles in practice and resolving them through institutional innovation. For instance, issues surrounding how top-level planning can stimulate and guide the spatial redistribution of resources via institutional incentives are relevant both in China and internationally. Lagging regions worldwide require institutional safeguards to activate, utilize, and retain resources directed from external sources to enable effective transformation and upgrading (Trippl et al., 2018). Therefore, the concrete formats for top-level design and bottom-up institutional breakthrough are context-contingent, and so are the combinations and structures of different elements as shown in Figure 3. In the Chinese context, the emphasis on local state entrepreneurialism and the leverage of market instruments is highlighted due to the strong, multifaceted role of the state in all spheres of the economic life, making it essential to address institutional barriers before resources can flow freely between regions. In contrast, while liberal market economies have long sought to foster interregional collaboration through, for instance, spatial planning and regional policy frameworks documented in Brenner’s (2004) New State Spaces and compared with China’s regionalism by Li and Wu (2018), further efforts may focus on enhancing the strategic coordination capacity of the state and creating institutional environments that support more adaptive and experimental forms of collaboration. For the EU and similar regions, this could mean developing policies that balance top-down initiatives with local adaptations, encouraging institutional innovations that allow lagging regions to capture and leverage incoming resources effectively.
Finally, we argue that an adaptive and agile institutional environment and multi-scalar coordination are essential for addressing interregional inequality. Since industries co-evolve with both formal and informal local institutions, regions should strive to shape their institutional environments to support the application of new technologies and complementary resources (Gong and Hassink, 2019). The ability to engage in institutional learning and development is especially crucial for lagging regions, which must adjust local institutions to align complementary resources with existing assets, fostering local development. Rodríguez-Pose (2013) highlights that weak institutions and poor-quality governance pose major obstacles to regional progress. Conversely, high-quality governance with a capacity for institutional learning and adaptability provides strong support for sustaining productive interregional collaborations. Adaptive bureaucracies can leverage their influence to redistribute resources and jurisdictional control across regions through cross-boundary initiatives, such as enclave industrial parks. This “reterritorialization” creates new opportunities for resource distribution at the local level (Zhang et al., 2025). More importantly, cross-boundary, multi-scalar political coordination among different stakeholders is a critical factor. Our study further suggests that the interaction, negotiation, and coordination among governments and related agencies at different scales, particularly in exploring resource exchanges, provide substantial institutional support for interregional collaboration.
Conclusion
Although interregional inequality has become a global concern and sparked discussions over its spatial pattern, causes, and consequences, little research has focused on viable institutional solutions. By closely examining the practice of Hangzhou–Quzhou collaboration under MSC model, we find the interregional collaboration between Hangzhou and Quzhou has evolved through three distinct phases, each characterized by varying dynamics and levels of mutual benefit. Central to the success of a long-term collaboration is the multi-scalar coordination and institutional innovations through local state entrepreneurialism, involving multiple agents at different scales.
We argue that addressing interregional inequality requires a shift from traditional approaches that emphasize either market-driven efficiency or redistributive equity, to an innovative approach that allows a flexible, adaptable, and innovative institutional exploration by multi-scalar agents to break down the institutional barriers and ensure spatial flows of complementary resources between more- and less-developed regions. By facilitating resource flows and fostering sustainable partnerships between developed and underdeveloped regions, the MSC model demonstrates the potential of coordinated efforts to reduce inequality and achieve balanced regional development. This model, with its emphasis on mutual benefit and long-term collaboration, provides valuable lessons for policymakers worldwide, emphasizing that addressing interregional inequality demands not only economic interventions but also innovative governance to guide, encourage, and maintain strong interregional collaboration.
Nevertheless, the MSC model also faces several challenges. The horizontal conflicts among stakeholders and the vertical tensions between provincial strategic direction and local practical interests highlight the need for more adaptive and innovative governance arrangements. Enhancing institutional integration, clarifying benefit-cost sharing mechanisms, and embedding stronger incentives at the local level are essential for shifting MSC from a politically driven mandate to a sustainable, co-constructed development strategy.
Our research can intrigue other countries and regions to conduct context-contingent institutional innovation in addressing interregional inequality. Agendas such as how can cross-regional knowledge transfer systems that are adapted to local institutional environments be established to foster interregional knowledge sharing, how can lagging regions leverage reverse enclaves to benefit local development, what institutional arrangement and safeguards are effective in ensuring sustainable resource exchange between paired cities, and what factors support adaptive and agile institutional environments in lagging regions, and what kind of social problems arisen from the MSC model, such as the well-being of land-loss farmers etc., warrants in-depth discussion and research.
Footnotes
Funding
The authors received no financial support for the research, authorship, and/or publication of this article.
Declaration of conflicting interests
The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.