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Based on the micro level data, this paper examined the spatial changes of Chinese manufacturing industries during 2002-2007. Liberalized and globalized industries are largely concentrated in the coastal region while low technology, resource-based and protected industries are widely dispersed in the inland regions. Some labor-intensive industries in the coastal region encountered congestion effects and are relocated to the central region. Statistical results indicate that industrial enterprises have significantly benefited from the geographical proximity of related enterprises. The agglomeration effects however differ across regions and sectors. The coastal region enjoys both localization and urbanization economies. The western region has no significant localization economies while the central region has no evidence of urbanization economies. The Capital Region enjoys urbanization economies to a certain degree. Both the Yangtze River Delta and the Pearl River Delta have the benefits of agglomeration. The further agglomeration in the PRD however would generate congestion effects. Although labor-intensive industries gain from agglomeration effects they are more likely to suffer from the congestion effects of related enterprises. The empirical findings indicate that agglomeration effects are not pervasive in transitional economies like China. Industrial agglomeration would contribute to productivity improvement only in a globalized and liberalized environment.