Abstract: With the rising of wages and energy prices, China’s manufacturing industry is losing its competitiveness once gained from its cost advantages. This paper makes an analysis of the data of China’s 30 manufacturing industries from 2001 to 2010 by constructing a KLEM translog cost function model containing the neutral and biased technological progresses on the basis of the framework of the factor substitution. The results are as follows. Firstly, all the factors present a substitutive relation in general, except that the relationship between labor and energy complementation and the relationship between energy and intermediates are uncertain. Secondly, technical progresses from different sources have different effects on cost savings. Thirdly, there does exist technical bias in China’s manufacturing industry, among which R&D is more inclined to technical progresses of capital-enhancement mode and capital-biased mode, whereas FDI is more inclined to technical progresses of energy or labor-enhanced mode and energy or labor-biased mode.

Key words: biased technological progress; factor substitution; manufacturing industry costs; KLEM; translog cost function