Does outward manufacturing relocation harm or benefit industrial chain security? Evidence from China

Against the backdrop of global industrial chain restructuring and rising geopolitical risks, this paper examines how outward manufacturing relocation is associated with industrial chain security (ICS) and its underlying transmission channels. Using panel data for 14 Chinese manufacturing sub-sectors over 2007–2022 and a two-way fixed-effects framework, we find that outward manufacturing relocation is significantly and positively associated with ICS overall, with notable sectoral and regional heterogeneity. The association operates through two potential channels: promoting autonomous innovation and accelerating digital transformation. Disaggregated analysis shows that relocation is associated with improved chain stability, control, and competitiveness, by performing stabilizing, strengthening, and controlling functions, with no evidence of ‘chain-gap’ risks. These findings carry important policy implications for guiding orderly manufacturing relocation while safeguarding industrial and supply chain security.