Journalof ContemporaryChina (2002) Vol.11, No. 30, 109– 124 Multiscalean dMultimechanismsof Regional Inequality in China: implicationsfor regional policy YEHUADENNISWEI*

Researchon regional inequality in China has generated controversial Ž ndings.This paper revealsthat the trend for the last four and a halfdecades shows no clear divergent, convergent,or inverted-Upatterns. I arguethat regional inequality in China is sensitiveto geographicalscale and in uenced by multiple mechanisms, and that the global and domesticcontexts for China’ s regionaldevelopment have changed dramatically. In particu- lar,China’ s tripletransitions— decentralization, marketization, and globalization— have fundamentallychanged the mechanisms underlying regional development. Changes require newthinking on regional development strategies in China, which should emphasize developingnon-state sectors, fully utilizing human resources, enhancing geographical targeting,and reforming urban and regional planning institutions.

Introduction Regionald evelopment,especially regionalinequality, is animportant area of academic enquiryand government policy. However, scholars havelong d isagreed overthe trendsandund erlyingforces ofregional inequality, and d ebatedover regionalpolicy. 1 Morerecently, scholars haveexamined the effects ofinstitutional change,globalization, agglomeration, and technology on regional d evelopment. 2 Empirical evidencealso tends to bemixed .While regionalinequality has declined in some countries,it has persisted oreven increased in others.Rapid ly changing globaland d omestic conditions havefurther intensiŽ ed the debate onregional inequality andpolicy. Scholars havealso heatedlyd ebatedwhether regional inequality declined in

*YehuaDennis Wei is anassistant professorof Geography and Urban Studies at theUniversity of Wisconsin–Milwaukee (UWM), Wisconsin. I wishto acknowledge the Ž nancialsupport of the Graduate School Research Committee andJoint Center forInternational Studies at UWM.An earlier versionof thepaper was presented at theWorkshop on East Asia, Universityof Chicago,November 1998. I wouldlike to thank the workshop participants (especially Dali Yang,William Parish, and Dale Johnson),the anonymous referees, andSuisheng Zhao for comments. 1.See G.Myrdal, EconomicTheory and Under-developed Regions (London:Gerald Duckworth,1957); G. H.Borts andJ. L.Stein, EconomicGrowth in a Free Market (New York:Columbia University Press, 1964);J. G.Williamson, ‘Regionalinequality and the process ofnationaldevelopment’ , EconomicDevelopment and Cultural Change 13(2), (1965),pp. 3– 83; J. Friedmann, RegionalDevelopment Policy (Boston:MIT Press, 1966);W. Alonso,‘ Fivebell shapes indevelopment’ , Papers,Regional Science Association 45,(1980), pp. 5– 16. 2.See, forexample, P. Krugman, Geographyand Trade (Cambridge:MIT Press, 1991);R. J.Barroand X. Sala-I-Martin, EconomicGrowth (New York:McGraw-Hill, 1995);R. Lee andJ. Wills,eds, Geographiesof Economies (New York:Arnold, 1997).

1067-0564print; 1469-9400 online/ 02/300109-16 Ó 2002Taylor & FrancisLtd DOI: 10.1080/10670560120091165 YEHUA DENNIS WEI

formersocialist countries,and more recently, whether regional inequality has widenedsince economicreforms. 3 Theyare widely concernedthat economic reforms mayhave intensiŽ ed income and regional inequalities. This concernhas hadtremendous impact in these countries,as it highlights the battle overd evelop- ment paths andpower struggles amongd ecision-makers. Regionalinequality is an issue that reformers andhard -liners oftenuse to justify their political agendas. Itis anissue that is intertwined with economicgrowth, social stability, ethnic relations, andpolitical unity.Regional inequality is also related to broaddebates overequity andefŽ ciency, the state andthe market,the globaland the local, andthe rich and the poor. Inthis paper,I examinechanging patterns andmechanisms ofregionalinequality andd iscuss futureregional policy in China.I Žrst provideanoverview of China’s changingd evelopmentpolicies andpatterns ofregionalinequality. This is followed byan analysis ofthe changingd omestic andglobal contexts ofChina’ s regional development.Finally, Idiscuss the implications ofthese changesto China’s regionalpolicy.

China’s developmentpath and regional inequality: anoverview Regionalinequality has beenan important issue inChina since the establishment ofthe People’s Republicof China (PRC) in 1949,due largely to its role in the debates overthe natureof socialism, central controland local autonomy,and resourceallocation amongregions. In uenced by Marx’ s socialist ideologyand egalitarian ideas, Mao,d uringthe First Five-YearPlan (FYP)period (1953– 57), attempted to developthe interior region.Regional allocation ofresources has since becomean important part ofChina’ s national planning.Scholars generallyagree that some effort was madeto d evelopeconomically lagging regions, but they disagree overthe extent andconsequence of the effects. 4 Ihaveargued that regional inequality in fact persisted duringMao’ s era,due largely to historical legacy, unevengeographic distribution ofresources, the emphasis onind ustrialization and national defense,d ecentralization andpolicy changes, and political andsocial unrest.5 TheseŽ ndingscontrast sharplywith the socialist ideologyof equality,and challengeprevious views whichtend to over-simplythe complexmechanisms underlyingregional d evelopmentin China.

3.See, forexample, I. S.Koropeckyj,‘ Equalizationof regional development in Socialistcountries’ , Economic Developmentand Cultural Change 21(1),(1972), pp. 68– 86; R. J.Fuchsand G. J.Demko,‘ Geographicinequality undersocialism’ , Annalsof theAssociation of AmericanGeographers 69(2),(1979), pp. 304– 318; G. L.Ozornoy, ‘Someissues ofregional inequality in the USSR under Gorbachev’ , RegionalStudies 25(5),(1991), pp. 381– 393. 4.There are manystudies on regional inequality under Mao, see N.R.Lardy, EconomicGrowth and Distribution in China (Cambridge:Cambridge University Press, 1978);S. Paine,‘ Spatialaspects ofChinesedevelopment’, Journal ofDevelopmentStudies 17(2),(1981), pp. 132–195; T. Cannon,‘ Regions:spatial inequality and regional policy’ , in T.Cannonand A. Jenkins,eds, TheGeography of Contemporary China (New York:Routledge, 1990), pp. 28– 60; T.P.Lyons,‘ Interprovincialdisparities in China’ , EconomicDevelopment and Cultural Change 39(3),(1991), pp.471– 506; Y. H.Wei andL. J.C.Ma,‘ Changingpatterns of spatial inequality in China’ , ThirdWorld Planning Review 18(2),(1996), pp. 177– 191. 5.Y. H.Wei,‘ Regionalinequality of industrial output in China, 1952 to 1990’ , GeograŽska Annaler B80(1), (1998),pp. 1– 15; Y. H.D.Wei, RegionalDevelopment in China: States, Globalization, and Inequality (London: Routledge,2000).

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Since the launchof reforms in the late 1970s,the central governmenthas encouragedsome regionsto ‘get rich Žrst’and has emphasizedcoastal develop- ment,arguing that concentrationand specialization are requiredfor rapi dgrowth andthe diffusion frommore developed regions would stimulate the prosperityof the wholecountry. 6 China’s developmentpolicies duringthe 1980sand early 1990s,such as the opend oorpolicy and the coastal developmentstrategy, favored andd ecentralized mored ecision-makingpower to some coastal areas. Twodecad es ofreforms havebrought d ramatic growthand change in China. However,China’ s reformprocess was markedby tensions betweencentral and local governments,between plans andmarkets, andbetween the domestic and international political economies.Reforms havealso beentroubled by problemsof corruption,dysfunctional state-owned enterprises (SOEs),rising incomeinequality, regionalcon icts, andenvironmental degrad ation.Regional con icts prompted manyto consider regionalinequality the rootof China’ s regionalproblems and an important issue ofgovernment policy. The Ninth FYP (1996–2000) perceives polarization as aserious threat toChina’ s prosperity,stability andunity, and places reducingregional inequality as atoppolicy priority. China’ s FYPs havenever givensuch a highpriority toregional inequality as the NinthFYP does. 7 Scholars onceagain d isagree overwhether regional inequality has intensiŽed and whatforces havecontributed to the changeof regional inequality inpost-Mao China.8 Someresearchers maintain that economicreforms havestimulated the growthof coastal provincesand intensiŽ ed regional inequality, while others arguethat regionalinequality has actually declined since the initiation of economicreforms, mainly dueto diffusion,interregional resourcetransfer, and rural industrialization. Thed ebate is also intense inChinese literature. 9 Fourmajor Žndings canbe summarized regardingregional inequality in China. First, regionalinequality is sensitive togeographical scale, andmultiscale seems an important feature ofregional inequality inChina. One major reasonfor the controversial Žndings ofregional inequality is becauseof d ifferent geographical scales ofobservation and measurement. Interregional inequality across China’s

6.State Council, Zhonghuarenmin gongheguo guomin jingji he shehuifazhan diqigewunian jihua 1986– 1990 [The SeventhFive-Year Planfor National Economic and Social Developments inthe People’ s Republicof China 1986–1990](Beijing:People’ s Press, 1986). 7. Y. M. Wang et al., eds, Zhongguoquyu jingji zhengce yanjiu [AStudyof China’ s RegionalEconomic Policy ] (Beijing:China Planning Press, 1998). 8.There alsoexist many studies on regional inequality in post-Mao China, see Lyons,‘ Interprovincialdisparities inChina’ ; C.C.Fan,‘ Of beltsand ladders: state policyand uneven regional development in post-Mao China’ , Annals oftheAssociation of AmericanGeographers 85,(1995), pp. 421–449; X. B.Zhao,‘ Spatialdisparities and economic developmentin China,1953– 92’ , Developmentand Change 27,(1996), pp. 131– 163; Wei andMa, ‘ Changingpatterns ofspatialinequality in China’; D.L.Yang, BeyondBeijing (London:Routledge, 1997); J. Chenand B. M.Fleisher, ‘Regionalincome inequality and economic growth in China’ , Journalof Comparative Economics 22, (1996), pp.141– 164; T. L.Jian,J. D.Sachs andA. M.Warner,‘ Trendsin regional inequality in China’ , ChinaEconomic Review 7(1),(1996), pp. 1– 21; S. G.Wangand A. G.Hu, ThePolitical Economy of Uneven Development:The Case of China (New York:M.E. Sharpe, 1999); Y. H.D.Wei,‘ Regionalinequality in China’ , Progressin Human Geography 23(1),(1999), pp. 48– 58. 9.H. K.Wei,‘ Thechange of regional income inequality in China’ , Jingjiyanjiu [EconomicResearch ] 4, (1992), pp.61– 65, 55; K. Z.Yang, Maixiangkongjian yitihua [Towardsan IntegratedSpace ](Chengdu:Sichuan People’ s Press, 1993);D. D.Luand V. Sit,eds, Reporton China’s RegionalDevelopment, 1997 [1997zhongguo quyu fazhan baogao](Beijing:Commercial Affairs Press, 1997).

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eastern, central, andwestern regionsd iffers frominterprovincial inequality.More speciŽcally, interregional incomeinequality rose duringboth Mao’ s era andthe reformperiod; interprovincial inequality,however, rose under Maobut d eclined duringthe reformperiod .Most theories ofregionalinequality are basedon ahighly simpliŽed and conceptualized core– periphery structure. Inempirical studies, scholars tendto measure regionalinequality byusing ad ministrative units, which are the basis forstatistics andgovernment policy. This feature ofmeasurement is inherentin regional inequality, but has notbeen carefully treated byscholars. In addition, different indicators andindexes of measurement canalso lead to different Ž ndings. Second,nosingle factor explains the changeof regional inequality. Theoretical models,whether in neoclassical orneo-Marxist perspectives, oftenhave strict assumptions, especially the free mobility ofcapital overspace. 10 AsIwill elaborate in the nextsection, Chinain the reformperiod has experiencedprofound changes. While the role ofthe state is still important,the controland capacity ofthe central state havebeen d eclining.Meanwhile, as aconsequenceof globalrestructuring and China’s economicreforms that emphasize decentralization, marketization, and globalization (opend oorpolicy), localities andglobal investors haveemerged as important agents shapinguneven regional development in China.Therefore, foreign investors, the nation-state, andlocal forces all inuence the process ofregional development.Favorable state policy,concentration of foreigninvestment, andlocal factor endowmentshave contributed to the morerapi dgrowthof coastal provinces, leadingto the rise ofinterregional inequality.Meanwhile, trad itional industrial bases, includingLiaoning and to some extent the three centrally administrated municipalities (Shanghai,Beijing andTianjin), record edslower economicgrowth, especially duringthe 1980s.As aresult, interprovincial inequality declinedd uring the reformperiod .Thenotion of multimechanism captures the fundamental features ofthe Chinese transitional economy,and better explains the complexityof regional inequality in China. 11 Therefore,an investigation ofthe changingpolitical econ- omy,d omestic andglobal contexts, and geography is necessary fora fuller understandingof regional inequality. Third,regional inequality inChina over the last Žved ecades has notchanged consistently, andshows no clear divergent,convergent, or inverted -Upatterns. Correspondingto changingscales ofobservation and changing underlying mecha- nisms ofregional inequality overtime andspace, patterns ofregional inequality also change,rather thansimply followlinear orcyclical paths.This irregularity is also consistent with empirical Žndings basedon manyother countries andregions. While theories ofregional inequality tendto depict the patterns ofchange as convergent,divergent or cyclical patterns, the empirics ofregional inequality, whetherbased on developedor developingcountries, tend to showmixed patterns. Moreover,the short-term changeof regional inequality, rather thanthe long-term change,is oftenmore important togovernment policy and interregional relations. Fourth,within aprovince,regional inequality also differs with geographical

10.Borts and Stein, EconomicGrowth in a Free Market ;Williamson,‘ Regionalinequality and the process of nationaldevelopment’ ; N.Smith, Uneven Development (New York:Basil Blackwell,1984). 11.Wei andMa, ‘ Changingpatterns of spatialinequality in China’ ; Wei,‘ Regionalinequality in China’ .

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scale. Forexample, while usinga coefŽcient ofvariation ofper capita gross value ofind ustrial andagricultural output,Rozelle Žndsthat rural intercountyinequality in Jiangsu increased between1984 and 1989, but Fan, based on all county-level units, showsthat intercountyinequality declined between1982 and 1990. 12 Such difference is clearly related tod ifferent scales ofobservation, i.e. rural counties (counties andcounty-level cities) versus all county-levelunits (counties,county- level cities, andcity districts). Infact, as Figure1 shows,overall intercounty inequality (basedon all county-levelunits) indeeddeclined during the post-Mao period,while rural intercountyinequality andinterregional inequality across south- ern,central, andnorthern Jiangsu increased.Thesepatterns ofregional inequality in Jiangsu clearly pointto the importanceof geographic scale in the measurement ofregional inequality. A furtheranalysis reveals that the decline ofintercounty inequality is verymuch related to the declining status ofcentral cities whichwere favoredby Mao’ s industrialization policybut have been growing slower than counties in Sunan.Moreover, the morerapid growth of Sunan’ s counties is not simply the result ofcentral governmentpolicy, but also dueto local efforts and factor endowments,and the infusionof foreign investment. Therefore,it canbe arguedthat the interplay ofthree dominantforces— global forces, state policy,and local forces—is critical to the understandingof regional inequality in Jiangsu.In

Figure 1. Patternsof regionalinequality in Jiangsu Province based on percapita gross value of industrial andagricultural output, 1950– 1995. Comparable prices. Source:JiangsuStatistical Bureau (JSB), Jiangsutongji nianjian [JiangsuStatistics Yearbook ](Beijing:Chinese Statistics Press, 1990– 96); JSB, Benxiangxiandaihua licheng [PathwaysTo Modernization ](Nanjing:Jiangsu Statistical Bureau, 1994).

12.S. Rozelle,‘ Ruralindustrialization and increasing inequality: emerging patterns in China’ s reforming economy’, Journalof Comparative Economics 19,(1994), pp. 362– 391; C. C.Fan,‘ Developmentfrom above, below andoutside’ , ChineseEnvironment and Development 6(1&2),(1995), pp. 85– 116.

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short,multiscale andmultimechanism canalso improvethe understandingof the complexityof regional inequality withinprovinces in China. Theabove analysis indicates that regionalinequality is multifaceted andis more complicated thanoften assumed .While regionalinequality mayd ecline at one geographicalscale, ananalysis ofalternative scales mayreveal contradictory trends. Moreover,und erlyingforces ofregional d evelopmentalso differ from countryto country and from region to region. The issue ofregional inequality is oftenintertwined withethnic conicts, tradedisputes, migration,resource  ow,and manyother issues. Therefore,polices towardsregional d evelopmentand regional integration must consider the complexityof regions and the multiscalar natureof regionalinequality.

Changingmechanisms ofregional development: China’ s triple transitions China’s economicreforms havefundamentally changed the mechanisms under- lyingregional inequality. A burgeoningliterature has attempted toexplore the natureof economic transition in China.Oi conceptualizes China’s economic transition as aprocess ofd ecentralization, duringwhich local states havetaken controlof economic d evelopment,giving rise to local state corporatism,while Nee’s market transition theoryemphasizes the infusionof market mechanisms as fundamental to the changeof incomed istribution in rural China. 13 Isynthesize that China’s economictransition canbe best understoodas the triple processes of decentralization, marketization, andglobalization. These triple transitions have fundamentally changedthe mechanisms underlyingregional d evelopmentand policyin China. Shortlyafter the foundingof the PRCin1949, China formulated a centralized system ofŽ nance,investment, andad ministration in order to take controlover the economyand to launchthe Soviet model ofsocialist industrialization. While during certain periodsChinadecentralized its economicsystems, Mao’s system was essentially centralized.Post-Mao economicreforms havebrought d ramatic changes to the level ofcentral controland the role ofthe state. Decentralization, in an attempt to reducethe central controlof d ecision-makingand to providemore incentives to regions,is animportant part ofreforms. Consequently, reforms have givenlocal authorities considerable powerin decision-makingand resource alloca- tion.Although the state remains important,the controland capacity ofthe central state haved eclined,whichcan be shown by an analysis ofChina’ s Žscal and investment systems. Duringmuch of Mao’ s period,China’s Žscal system was characterized by centralized revenuecollection andinterregional resourcetransfer, givinglittle autonomyto the regions. 14 Throughthe introductionof contracting systems, Žscal

13.J. C. Oi,‘ Fiscal reform andthe economic foundations of localstate corporatismin China’ , WorldPolitics 45(1),(1992), pp. 99– 126; V. Nee, ‘Atheoryof market transition’, AmericanSociological Review 54, (1989), pp.267– 282. 14.For China’ s central–local Ž scal relations,see, forexample, D. S.G.Goodman,‘ Politicalperspectives’ , inD. S.G.Goodman,ed., China’s RegionalDevelopment (London:Routledge, 1989), pp. 20– 37; M. Oksenbergand J. Tong,‘ Theevolution of central–provincial Ž scal relationsin China, 1971– 1994: the formal system’, ChinaQuarterly

114 REGIONAL INEQUALITY INCHINA decentralization has reducedthe Žscal controlof the central government,and local governmentshave received greater powerin revenue collection andlocal spending. Localrevenue retention rates rose steadily in all ofthe provinces.The tax assignment system was implemented in 1994,and has moreclearly speciŽed Ž scal responsibilities ofthe central andlocal governments.Viewing the reformperiod as awhole,Ž scal reformhas givenregions much Ž scal authorityand incentives. Althoughthe central governmentretains certain levels ofŽ scal control,Ž scal reformhas contributedto the increasing revenueshared by regionsand the growth oflocal spending. Investment reforms haveincreased the controlof local governmentsover capital resources andŽ nancial institutions. 15 Theproject approvalprocess has beenlargely decentralized tothe local governmentsthat are managingmore investment projects thanthe center.The central governmentinstead focuses onlarge-scale projects and priority sectors suchas energyand infrastructure. Forexample, in 1997the central governmentad ministered only129 key-point ( zhongdian)constructionprojects. Decentralization has also conveyedlocal governmentsconsid erable powerin enterprise management.As aresult, the central governmentis nolongermonopoliz- ingthe investment allocation process,and local governmentshave used their increased powerto mobilize resources forinvesting inmore proŽ table sectors. Moreover,reforms haveencouraged the use ofmultiple sources ofcapital for investment, suchas private savings andforeign investment; most ofthese fundsare beyondcentral control. Localgovernments, especially townshipand village governments,are acting very muchas entrepreneurswhose motives derive froma desire to maximize incomeand power.The interd ependencebetween local governmentsand enterprises stimulates the bargainingeffort oflocal governmentswho have actively initiated policies to stimulate local economicgrowth. However, the tension ofcentral controland local autonomyhas persisted in China,and waves of decentralization tendto be followed byattempts at recentralization bythe central government.Moreover, d ecentraliza- tion aloned oes notcharacterize the process ofChina’ s economicreform; marketization is anothermajor theme ofreforms andhas becomeespecially important duringthe 1990s. Therelaxed state controland the growthof market mechanisms in economic developmentcan be d emonstrated in manyaspects. Firstly, the controlof state budget overthe economyhas declined,as evidencedby the decrease in the ratio

Footnote 14continued 125,(1991), pp. 1– 32; C. P.W.Wong,‘ Central–local relations in an era ofŽ scal decline:the paradox of Ž scal decentralizationin post-Mao China’ , ChinaQuarterly 128,(1991), pp. 691– 715; Y. H.Wei,‘ Fiscal systems and unevenregional development in China, 1978– 1991’ , Geoforum 27(3),(1996), pp. 329– 344; A. Wedeman,‘ Agency andŽ scal dependencein central– provincial relations in China’ , Journalof Contemporary China 8(20),(1999), pp.103– 122. 15.The work on regional investment in China is very limited, see, however,B. Naughton,‘ Thethird front’ , China Quarterly 155,(1988), pp. 351– 386; Q. S.Zhou,‘ Capitalconstruction investment and its regional distribution in China’, InternationalJournal of Urbanand Regional Research 17(2),(1993), pp. 159– 177; Y. S.Huang, In ation andInvestment Controlsin China (Cambridge:Cambridge University Press, 1996);L. J.C.Ma andY. H.Wei, ‘Determinants ofstate investmentin China’, Tijdschriftvoor Economische en Sociale GeograŽ e [Journalof Economic andSocial Geography ]88(3),(1997), pp. 211– 225; Y. H.D. Wei,‘ Fiscal reforms, investment,and regional developmentin Jiangsu province’ , Issues &Studies 36(2),(2000), pp. 73– 98.

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Table 1. Sourcesof Ž nancefor Ž xedasset investment (%), 1981– 95

YearState budget Domestic credits Foreign investment Enterprise funds Other

1981 28.1 12.7 3.8 1985 16.0 20.1 3.6 1990 8.7 19.6 6.3 52.4 13.1 1995 3.1 21.0 11.5 53.2 13.8

Source:StateStatistical Bureau, Zhongguotongji nianjian [StatisticalYearbook of China ] (Beijing: ChinaStatistics Press, 1991, 1996).

ofbudget revenueto national incomefrom 37.2% in 1978 to 21.8% in 1991. 16 The controlover local expenditures has also beenred uced,andenterprises andind ivid- uals haveobtained consi derable Žscal authority.Second ly,state controlover investment has steadily declined,while proportionsand absolute sizes ofinvest- ment controlledby localities haveincreased .Budgetaryinvestment as apercentage oftotal investment declined dramatically from77.7% in 1978 to only 6.6% in 1995.17 Asshownin Table1, state budgetaryinvestment as asourceof Žnancefor Žxedasset investment declined from28.1% in 1981to 3.1%in 1995.In 1997, enterprise fundsandd omestic credits provided55.6 and 18.3% of Ž xedasset investment, respectively, followedby foreign investment (11%).These investments are controlledless bythe central andlocal governments.Third ly,price reformhas dramatically reducedstate controlover prices. Atwo-trackprice system was created in the early andmid -1980s,but market prices haveeventually taken control. Fromthe late 1970sto 1994,the share ofind ustrial outputsubject to the planfell from95 to 4%. 18 Lastly, shares ofoutput and labor absorption by SOEs have

Table 2. Grossindustrial output by ownership, 1952– 95

Volume(billion Yuan) Proportion(%)

YearState Collective Individual Other State Collective Individual Other

1952 14 1 7 12 41.2 2.9 20.6 35.3 1965 126 14 0 0 90.0 10.0 0 0 1978 329 95 0 0 77.6 22.4 0 0 1985 630 312 18 12 64.8 32.1 1.9 1.2 19901,306 852 129 105 54.6 35.6 5.4 4.4 1995 China3,122 3,362 1,182 1,523 34.0 36.6 12.9 16.6 Zhejiang114 373 226 96 14.1 46.1 27.9 11.9 Jiangsu250 709 52 170 21.1 60.0 4.4 14.4

Source:Sameas Table 1.

16.Ministry of Finance, Zhongguocaizheng tongji (1950– 1991) [ChinaFinance Statistics (1950– 1991) ] (Beijing: SocialPress, 1992). 17.State StatisticalBureau, Zhongguoguding zichan touzi tongji nianjian 1950– 1995 [StatisticalYearbook of FixedAsset Investment inChina ](Beijing:China Statistics Press, 1997). 18.J. H. Chen,ed., 1995nian zhongguo guomin jingji he shehuifazhan baogao [1995China National Economic andSocial Development Report ](Beijing:China Planning Press, 1995).

116 REGIONAL INEQUALITY INCHINA declined dramatically. Asshownin Table 2, the share ofoutputproduced by SOEs declined from77.6% in 1978 to 34%in 1995.Multiple forms ofownership have emergedin China,includ ingstate, collective, private/individual,share holding, foreign,and joint ownershipforms. Non-state sectors havegrown more rapi dlyand are exertinggreat inuence on the Chinese economy. Thereform of China’s planningsystem has beencritical in the changingrole of planand markets. Inthe early andmid -1980s,Soviet-style mandatoryplanning was gradually discardedin favor of guid anceplanning to establish aplannedsocialist commodity economy.A two-trackprice system (state-Žxed prices vs.market prices) was created to introducethe market mechanism gradually.In 1987, the policywas coinedas ‘the state regulates the market,and the market guides the enterprises’. This policywas changedin 1992so as ‘tod evelopsocialist market economy’. Consequently,many bureaucratic coord ination organsand vertical controlinstruments havebeen removed .Thestate has becomemore  exible, entrepreneurial,legalistic, andtechnocratic thanits predecessor. 19 Thestate has beenchanging from one of planning and directing economicresources directly to onewhere the state managesthe policies, whichad just the resources andmarkets. Thestate is exertingmuch less controlover the economythan in Mao’ s era,and is nolongermonopolizing economic d evelopmentin China. Ind eed,manyscholars havebeen very concerned that the state has lost its controlover the Chinese economy,but the process ofChina’s economicreform is notsimply removingstate control; the state still actively initiates macropolicies that are critical to economic andregional d evelopment.In add ition, the processes ofd ecentralization and marketization are accompaniedby another process, the globalization ofeconomic activities. Chinahas dramatically restructured Mao’s policyof self-reliance andfavored openingup its domestic economyto the outside world.Toencourage foreign investment, the Joint VentureLaw permitting foreignd irect investment (FDI)in Chinawas introducedin 1979,followed by the establishment offour special economiczones (SEZs) of Shenzhen, Zhuhai, Shantou, and Xiamen in 1980. Variousstate incentives weregranted to the SEZsto attract FDI,suchas tax and dutyexemptions,  exible laborpolicies, andinfrastructure improvement.China’ s openareas wereextended consecutively from SEZs to 14open coastal cities (OCCs) in1984, and three delta areas (Zhujiang,Minjiang, and Changjiang deltas) in 1985and 1986. A series oflaws andincentive policies wereintrod uced in the mid- andlate-1980s to encourageforeign investment andtrad e.In 1988, HainanIsland was separated fromGuangd ongand was designated as China’s largest special economiczone. In the early 1990s,the center emphasizedopening upShanghai’ s Pudongdistrict. Thegovernment has gradually improvedChina’ s foreignrelations, especially with investors fromTaiwan, South Korea and Singapore. Facilitated byglobalization ofcapital, China’s economicreforms andfavorable

19.J. Howell,‘ Theimpact ofthe open door policy on theChinese state’ , inG. White,ed., TheChinese State in theEra of Economic Reform (Armonk,NY: M.E.Sharpe, 1991), pp. 119– 146; World Bank, China:Reform and the Roleof thePlan in the 1990s (Washington,DC: World Bank, 1992).

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investment conditionshave attracted the interest offoreigninvestors. FDIin China increased dramatically fromUS$4.4 billion in 1991to US$45.2billion in 1997. Rapideconomicgrowth, foreign investment, efforts oflocal governments,and ties to the international markets havealso contributedto the growthof international trade.Exportincreased fromUS$9.8 billion in 1978to US$183billion in 1997,and in 1997import reachedUS$142 billion. Inmuch of the reformperiod ,foreigninvestment was less signiŽcant. During the 1980s,FDI as asourceof Žnancingoften accounted for less than6% ofŽxedasset investment, suchas 3.6%in 1985, but in the 1990s,foreign investment andtrad e havebecome important componentsof the Chinese economy.In 1995, FDI in Chinaaccounted for 11.5% of Ž xedasset investment, andthe ratio ofexport to GDPwas 21.5%.Although some restriction policies towardsFDIwereintrod uced in the mid- andlate-1990s, China is muchmore integrated intothe globaleconomy. Foreigninvestment is particularly important intechnological improvement, and is unevenlyd istributed amongthe provinces.China’ s coastal provinceshave generally attracted 90%of FDI,and even in 1995, the central andwestern regionsas awhole still onlyattracted 12.3%of the total. 20 Theabove analysis showsthat Chinahas experiencedd ramatic restructuring.The macrocontext for regional d evelopmentand policy has changedrapidly. While the direction forfuture d evelopmentremains debatable,it canbe assured that Chinais nolonger the same as traditional state socialism. While the Chinese government has notbeen willing toad optthe term ‘capitalism’to describe the natureof China, the analysis ofthis section has shownthat the controland capacity ofthe central state haved eclined dramatically, andlocal andglobal forces haveemerged as important forces underlyingeconomic and regional development. Since the mid- 1990s,the developmentof regions, such as Sunan,has beenheavily in uenced by globalization andmarketization/ privatization, as well as bythe role ofthe local states. Thewealth ofregions relies notonly on local states, butalso oncentral governmentpolicy, local factor endowmentsand non-state agents,and foreign investment andtrad e.Again, it is the multiple mechanisms ofglobal forces, the central state, andlocal states andfactors that are shapingregional inequality. As I will elaborate in the followingsection, China’s triple transitions also suggest that the orthodoxregional policy will beless effective ind ealing with regional developmentissues.

Regionalpolicy in China:toward sthe twenty-Žrst century Since the 1990s,the central governmentof Chinahas beenincreasingly concerned with the rise in the coastal–interior inequality,weak d iffusion effects, andregional conicts. Infact, the central governmenthas nevertotally ignoredthe issue of regionalinequality andinterior development.Even d uringthe 1980swhen d evelop- ment policywas biased towardsthe coastal region,some measures werestill taken tored ucepoverty and the coastal–interior divide.Special funds, preferential bank

20.State StatisticalBureau, Zhongguotongji nianjian [StatisticalYearbook of China ](Beijing:China Statistics Press, 1996).

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loans andtax exemptionshave been continuously granted to the interior. The governmentencouraged the coastal provincesto makecompensation agreements on energyand raw materials with the interior provinces.Economic reforms andopen doorpolicy have been gradually extend edto the interior areas. With the increasing revenueas aresult ofincome growth and tax reforms,state investment inthe interior regionhas increased since the mid-1990s,especially forthe improvement ofeducation,infrastructure, energyand raw materials. Thecentral governmenthas urgedcoastal enterprises andforeign investors to providecapital andmanagement skills to improvethe conditions ofthe interior. Theinterior has also experienced some growthin export and foreign investment. However,as Ihaveshown in the abovesection, the macrocontext for China’ s regionaldevelopment has changedd ramatically. Economicreforms havebrought profoundchanges to the roles ofthe state, regions,and global forces. While the state remains important,the controlof the central state overthe Chinese economy has declined.Thecentral governmentno longer monopolizes the resourcealloca- tionprocess andhas becomeless capableof committing alarge share oftotal investment forinterior development.Moreover, the central state couldneverignore the developmentof the coastal provinces,which are the major tax contributorsto the state coffers andcan more effectively participate inthe international division of labor.This is evidencedby the vigorousd evelopmentof Shanghai’s Pudongd istrict andthe drive to buildShanghaiinto aglobalcity. Meanwhile,as aresult of decentralization, marketization andglobalization, local andglobal forces have emergedas important forces underlyingeconomic and regional d evelopment. Foreigninvestment tendsto concentrateon China’ s coastal provincesand well- developedregions, and always favorssome regionsover others. Thechanging global environment, as well as the changingd omestic context,has important implications forChina’ s regionald evelopmentpolicy. First, globalization has becomea major trendof the worldeconomy and the worldis changingmore rapidly.21 While scholars are debatingover the natureand consequence of global- ization, oureconomies have become more integrated ,andthe competition among countries andregions has becomemore intense. Multinational enterprises (MNEs) haverisen as major players inthe globaleconomy, challenging the controlof nation-states. Capital andlabor have also becomemore mobile, and government controlover factor mobility has becomemore d ifŽcult. Foreigninvestment and tradewill continueto serve as important factors ofregionald evelopmentin China. Firms andregions in Chinahave to adapt to the globalizingeconomy and to participate inglobal competition andthe international division oflabor.Trad itional waysof vertical controland state dominanceund er state socialism, payinglittle attention tothe globalenvironment and local context,have become ineffective in territorial administration. Second,the process ofglobalization is accompaniedby regionalization,either at supra-or subnational scales. Theformer includ es the establishment ofregional tradingblocs, such as the NorthAmerican Free TradeArea(NAFTA), the EuropeanUnion (EU), and Asia– PaciŽ c EconomicCo-Prosperity forum (APEC).

21.P. Dicken, GlobalShift (New York:Guilford Press, 1998).

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Thelatter refers to the emergenceof new clusters, metropolitan regions,and border tradingblocs. The d ynamics andcomplexity of the globaleconomy stimulate the emergenceof alliance capitalism andnetworked regions. Governance in developedsocieties has beenchanged from managerialism to developmentalism/ entrepreneurialism andpublic– private partnership.Regions have to exploit their competitive edgesand fully take advantageof their region-speciŽc conditions.With increasing powerfrom d ecentralization, regionsalso tendto seek fair treatment fromtheir higher-levelgovernments. Moreover, local states andŽ rms haveto collaborate moreactively andpurposefully with eachother. The attitud eof governmentstoward Ž rms, especially inChina, must bechanged from principle– agentrelationships to partners in order toachieve the goalof regionald evelopment. Localinitiatives usinglocal resources andregional networks to promoteeconomic developmentwill becomeeven more important, and shoul dserve as amajor componentof regional policy. Thethird trendis the comingof the informationage. Flexible productionand rapidtechnologicalchange have become norms for tod ay’s economy.New initia- tives promoteentrepreneurship, international cooperation,and the triple alliance amongŽ rms, universities, andgovernments in research andd evelopment.Technol- ogyenhancement and human capital developmentshould also bepart ofregional developmentpolicies. Rapidtechnologicalchange has placeda heavyburden on developingcountries andpoor regions, as those countries andregions lack re- sources to lead the technologicalrevolution. These changes have intensiŽ ed competition amongnations, regions, and Ž rms. Thesebroad changes, as well as domestic restructuring,require new strategies ofregional d evelopmentin China.

Facilitating the developmentof non-statesectors While some scholars haveargued for increasing Žscal transfers to reduceregional inequality inChina, regional policy in developedcountries nolonger emphasizes redistribution, althoughinterregional budget transfer hadbeen heavily used for industrialization, infrastructure developmentand resource exploration. 22 China’s regionalpolicy should not emphasize interregional Žscal transfers, as regional policies centeredon the welfare system andinterregional Žscal transfers simply do notwork well. Moreover,the central governmentis nolonger monopolizing the Chinese economy,and China has becomepart ofthe globaleconomy. State support forinterior developmentis limited, andthe state is nolonger functioning as the dominantforce d rivingregional d evelopment.As Ihaveargued previously, state policies, local forces andglobal change have become the three major mechanisms drivingChina’ s regionald evelopment.China’ s central andlocal governmentsare becomingglobal citizens, andsound policy making must consider the changing globalenvironment and the globalcommunity. Domestic andglobal changes have

22.J. Taylor and C. Wren,‘ UKregionalpolicy: an evaluation’ , RegionalStudies 31(9),(1997), pp. 835– 848; D. Maillat,‘ Innovationmilieus and new generationsof regional policies’ , Entrepreneurshipand Regional Development 10,(1998), pp. 1–16.

120 REGIONAL INEQUALITY INCHINA also intensiŽed the competition amongregions and stimulated the efforts oflocal governmentsin improving local development. China’s SOEshave been in trouble for years, and previous reforms havefailed torevitalize SOEsand to solve the problemsof state ownership.However, in many interior provinces,SOEs are still the backbonesof the economiesand state banks still tendto favorSOEs in provid ingloans. While the State Counciland State PlanningCommission hadattempted to promotethe developmentof townshipand village enterprises (TVEs)as enginesfor interior development,the evidence suggests that nosigniŽ cant progresshas beenachieved . 23 While Iam notrejecting the continuedreform and d evelopmentof SOEs and TVEs, the governmentsmust makemore efforts tofacilitate the developmentof shareholdingcompanies, foreign invested enterprises, andthe private sector byinitiating furtherreforms and providingmore favorable policies to these sectors. Theuse ofnon-government fund sinind ustrial andinfrastructure improvement, especially foreignand private investments, needsto beexpand edd ramatically. Shareholdingcompanies have the potential to becomethe backbonesof the economiesin bothcoastal andinterior China.In add ition, foreigncapital and foreigninvested enterprises are important inthe developmentof bothrich andpoor regions.Moreover, international evidencesuggests that small enterprises tendto generatemore jobs thanlarge companies,although the latter is better positionedin regionaland global competition andhas advantagesin economies of scale and agglomeration.Small enterprises also havesome advantagesin market penetration and exible production,and shoul dbeencouraged in developmentpolicies.

Improving‘ soft’infrastructure: humanresources Moreefforts shouldbe madeto improve the ‘soft’infrastructure. Theimprovement of‘hard’infrastructure, suchas transportation,is certainly important in China,but the soft infrastructure is equallyimportant, especially in humancapital and networkingd evelopment.Intangible factors havebeen wi dely concernedby re- gionalpolicy, and d evelopinginterregional networksand partnerships has also becomean important componentof regional d evelopmentstrategy. 24 Cheaplabor is amajor advantageof the interior provinces.While coastal China has attracted migrant workersfrom the interior byprovid ingmore job opportuni- ties, higherwages, and better living conditions, the interior regionstill has alarge laborforce pool which is attractive to foreigncompanies and coastal enterprises. 25 Cheapprod uctioncosts havebeen successfully promotedby the UnitedStates’ Southin attracting investment fromthe North,and can also bepromotedas amajor advantageto attract investment byinterior China.In add ition, interior Chinahas

23.D. L.Yangand H. K.Wei,‘ Ruralenterprise development and regional policy in China’ , AsianPerspective 20(1),(1996), pp. 71– 94. 24.S. Holland,‘ New dimensionsto regional theory and policy in the European Union’ , inW. Blaas, ed., A New Perspective forEuropean Spatial Development Policies (BrookŽeld: Ashgate, 1998), pp. 86– 101. 25.There is ahugeliterature on migration in China, for example, Y. H.Wei,‘ Interregionalmigration in transitional socialistcountries: the case ofChina’, GeoJournal 41(3),1997, pp. 205– 214; D. J.Solinger, ContestingCitizenship inUrban China (Stanford:Stanford University Press, 1999).

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some advantagesin ed ucationand technology d evelopment,especially incities like Wuhan.Regions must fully utilize humanresources, at the same time enhancing humancapital developmentshoul dbeemphasized in regionald evelopment. Inadd ition, the Chinese governmenthas encouragedthe developmentof inter- regionalcooperation, in anattempt topromote interior development.At the same time, factor mobility is still highlyconstrained by suchregulations as the household registration system, urbanizationpolicies, andmonetary policies. Moreover,co- operativerelationships shouldbe d evelopedbetween large cities andtheir surroundingcounties, especially inŽ scal andmonetary policies. Forexample, the current‘ city-leadingcounty’ ( shi dai xian)system does notpromote fair economic relationships betweencities andcounties, and is sometimes described bycounties as ‘cities exploitingcounties’ ( shi gua xian).Reforminglocal publicŽ nanceand interregional relations has becomean urgent task in the regionald evelopmentof China.Such reforms cannotbe carried outby the Ministry ofFinance only, but haveto bein alliance with planningand resource management agencies.

Enhancinggeographical targeting Afundamental feature ofthe space economyis geographicalunevenness. Geo- graphicaltargeting has longbeen used as animportant approachto urban and regionaldevelopment, and continues to be wi dely usedin both d evelopedand developingcountries. 26 Moreefforts shouldbe mad etouse enterprise zonesto promotethe developmentof poverty stricken areas inChina. In China, numerous developmentzones (or ind ustrial districts) havebeen promoted for economic development,includ ingspecial economiczones (SEZs), the high-techzones, and enterprise zones.Unlike the UnitedStates, wherethe EmpowermentZones and Enterprise Communities (EZ/EC)programis akeystep in rebuildingAmerica’ s innercities andrural heartland,many of the developmentzones in Chinaare located in the coastal region.One of the major purposesof the EZ/ECis to create abetter business environmentand to promotelocal entrepreneurialism. However, developmentd istricts in Chinese cities tendto have few linkages with the cities, andcontribute little to the improvementof the regionald evelopmentenvironment andto the role as incubatorsof innovation. Someregions, such as Wenzhouof Zhejiang province, have never received any strongsupport from the central andprovincial governments, yet showtremend ous dynamics in economicgrowth. While after the mid-1990sthe emphasis ofregional policyshifted to the interior region,the central governmentshoul dalso paysome attention tothe developmentof the coastal areas that are better positionedin global competition andare the major tax contributorsto the state coffers.Problems of intraprovincial inequality in coastal Chinaremain serious andshoul dreceive more attention fromthe central government.Numerous TVEs and private enterprises havecontributed signiŽ cantly to the rapidgrowthof the Chinese economyand providedjobs formillions ofrural workers,but these enterprises are notread yto

26.D. Bigmanand H. Fofack,eds, GeographicalTargeting for Poverty Alleviation (Washington,DC: TheWorld Bank,2000).

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competeat the globallevel andare ill-prepared forthe informationage. Trad itional cities in coastal Chinaalso requireproper policies forsuccessful economicand spatial restructuring.

Reformingurban and regional planning institutions Institutional reformis especially important to the poorregions that haveinferior environmentsfor economic d evelopment.More efforts shouldbemadealong lines that improvethe transparencyand fairness ofgovernment policy and encourage people’s participation in the decision-makingprocess. Strengthening urban and regionalplanning and management in China is needed. Europe 2000 1 stressed the needfor spatial planningand increased cooperationin spatial planningissues. 27 Chinese urbanand regional planning was interruptedfor many years, particularly duringthe Cultural Revolutionwhen urban planning d epartments wereeven eliminated. In1998, China initiated aradical reformof its central government.The original 40componentsof the State Councilwere reduced to 29,and the numberof central governmentofŽ cials was cut as well. Territoryplanning, which was underthe administration ofthe State PlanningCommission (SPC),has beentransferred tothe newlyestablished Ministry ofTerritory and Resources (MTR).SPC, which has beenrenamed State DevelopmentPlanning Commission (SDPC),is nolonger in chargeof territory/ regionalplanning, but MTR lacks the powerto administer comprehensiveregional planning. SDPC, Ministry ofConstruction, and MTR all deal with regionald evelopmentand planning issues, butare notwell coordinated witheach other. Further institutional reforms are neededto promote regional developmentin China. Althoughgreat improvementshave been made since the late 1970sthrough the increase ofpersonnel, fund ing,and d ecision power,the currenturban planning approachin China still partially follows the Soviet mode,emphasizing project allocation andurban d esign.Planning is oftenisolated fromdevelopment strategies, planningimplementation, andurban and regional management, and has to be remedied constantly.Planning has notbeen effective in providingguidance for urban/regionald evelopmentand growth management. Poor coord ination exists amongd ifferent ministries, departments, bureaus,and their branches.A more fundamental problemis that manyof the plannersare trained as technocrats,and theyhave to workhard er to deal with issues ind evelopmentstrategies, resource management,environmental protection, citizen participation, regulatoryframework, andimplementation mechanisms—issues critical to contemporaryurban and re- gionalplanning. While China’s economicsystem has experiencedd ramatic changes,China’ s urbanand regional planning system still needsradical restructur- ing,especially duringthe process ofrapi dtransition fromstate socialism. Reform

27.Commission for European Communities, Europe 2000 1 :Cooperationfor European Territorial Development (Luxembourg:Commission of the European Communities, 1994).

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ofthe planningsystem andthe improvementof territory managementremain urgent issues in China. While the governmentis neededto improveinfrastructure andhuman capital, nonproŽt organizations,non-state enterprises andind ividuals shouldmore actively engagein the regionald evelopmentprocess, but unlike Western societies, where non-governmentalorganizations (NGOs) are important participants andd ecision makers ofregional d evelopmentprocesses, non-state enterprises andagents are largely excludedfrom d ecision-makingin China. As Ihaveargued previously, non-state enterprises andagents haveemerged as major componentsof the Chinese economy,and must begiven more roles toplay in the developmentprocess.

Conclusion Theissue ofregional inequality in Chinahas attracted considerable scholarly attention. This paperhas shownthat patterns ofregional inequality relate to geographicalscale, andan analysis ofmultiple mechanisms canimprove the understandingof the changeof regional inequality. Rather thanneoclassical or radical theories ofregionalinequality whichemphasize free mobility ofcapital, this paperargues that it is multiple mechanisms, includingstate policy,global forces, andlocal states andagents that determine unevenregional d evelopmentin China. Sucharguments are basedon the dramatic changestaking place inChina, i.e. the controlof the central governmenthas declined,while the roles ofregions/localities andglobal forces in regionald evelopmenthave become more important. While whatwill eventuallyemerge remains debatable,the globaland d omestic contexts forChina’ s regionaldevelopment have changed d ramatically. Globalization ofthe economyis fuelingcompetition amongcountries and regions,and competition amongChina’ s regionshas becomemore intense. The futureof China’s regionshas becomeuncertain in the globalization andinformation era.Changes require new thinking on regional d evelopmentstrategies andpolicies in China.While considerable efforts havebeen mad ein promotingregional cooperationand integrated regionald evelopment,problems still exist. Moreefforts shouldbe madeto improvecurrent regional development policies in China.As the issue ofregionalinequality is complex,and multiple mechanisms havecontributed to unevend evelopmentacross regions,we should neither over-emphasize,nor de-emphasize,the role ofthe state inregional d evelopmentas advocatedby disciplinary exclusionists andtheoretical extremists. IexpectChina’ s regionswill continueto befragmented and the coastal–interior inequality will tendto persist into the future.Regional inequality will remain animportant issue facingre- searchers andthe Chinese government,and constant monitoringand research are required.

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