Rebalancing Act

China is making progress in addressing regional economic imbalances By Lan Xinzhen

Rebalancing Act

China is making progress in addressing regional economic imbalances By Lan Xinzhen

According to China’s provincial economic data for 2011, central and western regions outpaced the east coast in GDP growth last year. Ever since the reform and opening-up drive was initiated in the late 1970s, the east coast regions have enjoyed torrid growth momentum thanks to favorable government policies and geographic advantages. In striking contrast, the central and western regions lagged behind, and the regional gap widened gradually. In response, the Chinese Government has spared no effort to bridge the divide. It seems that those government measures are already taking effect.

Western boom

East coast provinces still dominated top spots on the ranking of provincial GDP, but their growth rate has been dipping below that of western regions. In 2011, the biggest provincial economy was south Guangdong Province with a GDP of 5.3 trillion yuan ($837.3 billion). Sichuan Province topped western regions with a GDP of 2.1 trillion yuan ($331.8 billion). Economic growth rates of Guangdong, Jiangsu and Zhejiang provinces stood at 10 percent, 11 percent and 9 percent, respectively. The growth rates of most western provinces exceeded 10 percent. Chongqing Municipality, in particular, grew a robust 16.4 percent last year, making it the fastest growing provincial economy in the country.

Fan Hengshan, Director of the Department of Regional Economics under the National Development and Reform Commission, said China kick-started a series of national programs in the late 1990s to stimulate the development of central and western regions, as well as the old industrial bases in the northeast. “Especially in the past few years, the government has handed out generous policy incentives and mapped out a string of regional development blueprints, which brought remarkable benefits to the less wealthy regions,” he said.

“China is making obvious improvements in balanced regional economic development,”said Fan. “In the past, the eastern regions took the lead in growth momentum, leaving central and western regions far behind. But since 2007, the western regions have outgrown the eastern areas, and the trend has become even more pronounced.”

“This is a vital change,” he added.“Accelerating economic growth is only the first step for the central and western regions before they can make substantial improvements in fiscal strength, per-capita income and public services.”

Fan pointed out that vibrant growth of western regions has provided the country with many new growth points. “The traditional pillar areas, such as the Yangtze River Delta, the Pearl River Delta and the Bohai Rim, have regained steam. Most importantly, emerging economic regions are strengthening, including the Chengdu-Chongqing Economic Zone, the Beibu Bay Economic Zone in the Guangxi Zhuang Autonomous Region and the Wanjiang River Urban Belt in Anhui Province.”

“Those new growth engines have injected fresh life into the economy and helped the country better overcome the negative impact of the global financial crisis,” said Fan.

“Nevertheless, the central and western regions still have a long way to go before surpassing eastern regions in overall economic scale,” said Fan. “Moreover, the central and western economies are largely driven by buoyant investment, and consumption has yet to play a bigger role.”

In 2011, fixed asset investments of eastern regions totaled 14.45 trillion yuan ($2.3 trillion), an increase of 21.3 percent year on year, 1.5 percentage points lower than last year. The growth rates of Beijing and Guangdong, in particular, decreased 8.6 and 6.8 percentage points, respectively.

Meanwhile, consumption became a strong force in shoring up eastern economies. Retail sales of all the 11 eastern provincial economies witnessed year-on-year increases. Obviously, the efforts of eastern regions to rebalance their economies are bearing fruit.

GDP is not everything

Last year, the GDP of most Chinese provinces reached the level of middle-income countries. The per-capita GDP of Shanghai, Beijing and Hangzhou exceeded 80,000 yuan ($12,638), which was close to the level of wealthy nations according to standards set by the World Bank in 2010.

Mei Xinyu, an associate research fellow with the Chinese Academy of International Trade and Economic Cooperation at the Ministry of Commerce, said it is necessary to take a rational approach to the GDP figures.“Per-capita GDP is not equal to per-capita wealth,” he said.

For example, the per-capita disposal income of Beijing residents was 32,900 yuan ($5,197) in 2011, about one third of the capital city’s per-capita GDP. But its consumer price index, a barometer of inflation went up 5.6 percent. Housing prices in the city averaged at least 13,000 yuan ($2,054) per square meter. In other words, the annual income of a local resident is lower than the price of a living space of 3 square meters. That means China still lags far behind developed nations in terms of residents’ livelihoods.

Moreover, provincial per-capita GDP data are usually affected by population figures. If the mobile population and the permanent population who are not registered as local residents are factored in, the per-capita GDP would shrink.

Road ahead

The Chinese economy has been slowing down in the past two years, and that trend may continue this year. As a result, worries abound that the policies of regional economic balance could be impacted.

Zhang Xiang, Executive Vice President of the China Center for International Economic Exchanges, downplayed the worries, saying that the Central Government has attached priority importance to regional economic development in the 12th Five-year Plan (2011-15).

“But the challenge is how to make full use of the advantages of various regions and sustain the growth momentum,” said Zhang.

Since the late 1990s the country has launched national campaigns to develop the western and central regions, as well as the northeast industrial bases. In recent years, thecountry has established many new development zones, including the Tianjin Binhai New Area and the Fujian Economic Zone on the west bank of the Taiwan Straits.

Top 10 Provinces in Terms of GDP in 2011

“Those programs have a common focus—to accelerate economic development by making full use of unique geographic resources and traditionally advantageous industries,” he said.

Zhang added that many regions have established economic zones, encouraged by favorable policies of the Central Government.“That is a correct and necessary measure to prop up regional economies. But those regions should explore their development models with local characteristics, and also drive up the growth of neighboring areas,” said Zhang.“That is the only way to ensure the sustainable dynamism of regional economies.”

But one emerging problem is that some regions took protectionist measures to protect local enterprises. “The right altitude is to open up local markets and encourage healthy competition,” he said.

The coastal cities have established a successful development model characterized by open economies. The central, western and northeastern regions should learn from their experiences and embark on a sustainable path of regional economic development.

The northeastern regions have the best opportunities among all economic regions of China, said Zhang.

They enjoy geographic advantages to develop open economies due to their proximity to Russia and the Pacific Ocean.

Russia’s entry into the World Trade Organization will help draw 93 percent of the global trade into this organization. Meanwhile, China, Japan and South Korea are going to initiate talks to build a free trade zone. “All this will bring about structural changes in east Asia’s international markets,” he said.

“That presents a good opportunity for the growth of China’s northeastern regions, and this should be a major bright spot on the landscape of the country’s balanced regional economic development,” he added.