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ANN ARBOR, Michigan — Regional disparities are a common feature of low- and middle-income countries, where such gaps are estimated to be twice as large as those in advanced economies. China is no exception. In 2022, developed provinces in the southern coastal regions, such as Fujian and Zhejiang, had per capita gross domestic product (GDP) more than three times higher than inland and northern provinces like Gansu and Heilongjiang.
Regional income inequality in China poses significant challenges to development and poverty alleviation. Socially, inland provinces also have higher illiteracy rates and infant mortality rates than their coastal counterparts. Meanwhile, the Chinese government has made continuous efforts in public policy in response to the issue. The Borgen Project spoke with Professor Peng Liang, an economics professor at China’s National Academy of Governance and a former development officer in Guizhou, one of China’s inland, less developed provinces.
Regional Inequality in China
A myriad of factors cause China’s regional inequality, with geography playing a significant role. As Liang explained, the country’s eastern and western regions are divided by the renowned “Hu Line,” which stretches from Heihe in the northeast to Tengchong in the south. This line separates the densely populated, geographically favorable eastern region, home to 94% of the population, from the sparsely populated, geographically disadvantaged western region.
In general, China’s western region has less favorable natural conditions for agricultural production, including high elevation and severe climate. The rugged physical conditions also make trade, infrastructure and industrial development more costly. In addition, the geographical distance of inland regions limits access to exports and international markets. Yet, geographical differences between inland and coastal provinces only explain a part of the story behind regional inequality in China. Policy variables in the country, including globalization and capital investments, are equally significant drivers of inequality between provinces.
Economic Reforms
China’s economic reform in the ’80s marked the opening of the country’s domestic economy to the global market, granting comparative advantage to the coastal provinces. From 1999 to 2005, the central government directed 52.94% of its capital investment to the coastal region, while the west and central regions each received 25.42% and 21.65%. At the time, the famous quote by Deng Xiaoping that China had to “Make some get rich first” marked the principle of development. The coastal, eastern region benefited most directly from the opening of the economy. It was the region that could “get rich first.”
Besides the effect of international trade and marketization, Liang also pointed out a different perspective on the cause of regional economic inequality: The perspective of environmental sustainability. Liang stressed that the natural environment in China’s inland regions is more fragile, referring to issues such as desertification: “We don’t dare to do with the kind of [industrial]development that is so large-scale. Well, because sometimes when [natural]things are broken, perhaps you can’t go back.” Liang further mentioned President Xi’s slogan that “Lucid waters and lush mountains are invaluable assets,” explaining that the eastern region had slower development partly due to the concern for their natural assets, which also laid the foundation for economic growth in the rest of the country.
Responding to Inequality in China
Regional inequality has an association with social injustice, as Liang puts it, places people on different “starting lines.” For instance, scholars have found that child multidimensional poverty is significantly more severe in inland, western provinces in the country. However, regional inequality means more than injustice or unfairness; it also means slower national economic growth in the long term. Drawing from 31 provincial data, researchers found evidence that financial disparity and economic disparity between provinces have a negative effect on national economic growth. Thus, responses to regional inequality are crucial in China’s monetary policy. Liang believes that the Chinese government has three major strategies to reduce regional inequality in the long term: education, infrastructure development and industrial development.
Education
Liang argues that education is the most important mechanism for reducing regional disparities. Specifically, according to Liang, the college entrance score cut-off for less developed provinces means that students from inland provinces face, on average, lower pressure in competition for college. In addition, interprovincial transfers from eastern provinces to western provinces are usually channeled to educational resources. Liang stressed that there are two paths that education can take to reduce inequality: First, the training of a skilled, talented labor force increases productivity and often lifts families out of poverty. Second, the spread of ideas has a cascading effect on other aspects of development, such as attention to health and changes in investment or saving behaviors.
Infrastructure Development
Referring to his personal experience working as a development officer in Guizhou, Liang reflected on the importance of infrastructure development in western provinces. After a railway train was built between Guizhou and Guangzhou, an eastern province with the largest population in China, tourism in the city prospered immediately. Also, internet infrastructure allowed the rise of e-commerce and live streaming, which allowed local products, services and traditions to find larger markets outside the province. For instance, with the internet, the regional basketball tournaments that Guizhou villages held have become viral on the Chinese internet, attracting media attention to the local community and tourists.
Industrial Development
Last, Liang mentioned the role of strategic industrial development and relocation of businesses to the eastern provinces. For instance, manufacturing industries have begun relocation to eastern regions in the last decade as eastern provinces transitioned into de-industrialization. The growth in interprovincial trade and the exports from western provinces to eastern provinces has contributed significantly to economic development. Liang also used the big data industry in Guizhou as an example. The typical karst land formations and cool weather in Guizhou, which once hindered development, made it ideal for big data development as the cool air reduces IDC energy consumption. The growth potentials of such new, developing industries are significant drivers of regional equality.
Concluding Thoughts
When asked to comment on the effects of government policies on inequality in China, Liang believed the Chinese government’s policies played an important role in driving development and reducing inequality. Suppose we zoom out and compare today’s regional inequality with other periods in modern history. In that case, said Liang, the economy is performing significantly better. However, the challenge to balance sustainability and economic development will be an ongoing dilemma in western provinces and institutional reform regarding regional development might become necessary in the near future.
– Wangruoxi Liang
Wangruoxi is based in Ann Arbor, MI, USA and focuses on Business and New Markets for The Borgen Project.
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