How Far Has the Migration of Industry to Inland China Proceeded

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How Far has the Migration of Industry to Inland China Proceeded? Verifying the “West High, East Low” Growth Pattern from Economic Census Data Yuji Miura Senior Economist Economics Department Japan Research Institute

Summary 1. If we rank the world’s 182 countries and China’s 31 provinces, cities and autonomous regions in order of average real GDP growth rates between 2006 and 2011, all of China’s 31 provinces, cities and autonomous regions would be within the top 35 ranks. Furthermore, growth rates in central and western China are even higher than in major coastal hub cities, such as Beijing and Shanghai. Many provinces and cities in central and western China are similar in scale to countries in terms of their GDP. Because of its economic scale and growth potential, two regions are seen as the world’s most attractive frontier. 2. China can be divided into six regions: ① the southeast, ② the Bohai Rim, ③ the central, ④ the northwest, ⑤ the southwest, and ⑥ the northeast. The southeast has a GDP similar to that of Brazil, while the central and the Bohai Rim have greater GDPs than South Korea. The southwest is similar in scale to Indonesia, while the northwest and northeast both have GDPs equivalent to the aggregate GDP of Thai- land and Malaysia. While their development levels are low, the central and the southwest have high populations and have become extremely significant in future strategies for investment in China, both as the next workshops, and also as markets. 3. Investment provides a key clue to the meaning of the “West High, East Low” growth pattern. However, the level of growth sustainability in the west is not high. When we use economic census data to check the extent to which industries have migrated from the east to the west, we find that there has been little movement of labor- intensive industries, such as apparel, footwear and hat manufacturing, electronic equipment manufacturing industries, such as telecommunications equipment and computers, or capital intensive industries, such as the refining and rolling of “black metals” (steel, etc.). 4. The factor that is preventing the competitiveness of labor-intensive industries in the east from declining is China’s uniquely segmented urban labor market. The urban labor market is divided into the formal and informal markets. Wages are lower in the informal market, and participation rates for social security systems, such as pension and medical care schemes, are extremely low. There are also problems in the west, as the destination for industries migrating from the east. These include a heavier tax burden on businesses than in the east, and a lack of industrial clusters due to a less developed private sector. 5. Evidence of change in the industrial mix in the various regions of central and western China can be found in an intermittent upward trend in the contribution of mining and manufacturing industries to GDP. However, the sectors that account for most of the gap between the southeast and the Bohai Rim and other regions in terms of rates of increase in industrial sales are mining and power, gas and water utilities. Economic growth in central and western China is being driven by infrastructure construction and resource development. The per capita GDP gap between eastern China and central and western China is tending to shrink, but the “West High East Low” pattern is conspicuously evident in income distribution ratios. Given the lack of progress toward the reduction of income inequality, the path to the “harmonious society” will be a long one. 6. Without industrial migration, the economic base of central and western China has remained feeble. At the same time, the government has become alarmed at the growing social unrest engendered by urban ills, such as the formation of slums, resulting from the concentration of population in major coastal cities as a consequence of rapid urbanization. The discovery of ways to stimulate growth in groups of cities outside of the southeast and Bohai Rim areas will be extremely significant not only economically, but also politically and socially. The development and promotion of privately-owned businesses, the translation of economic growth into job creation, and the creation of an economic structure that will drive income growth will be key tasks for China’s next-generation leaders.

2 RIM Pacific Business and Industries Vol. XII, 2012 No. 45 Introduction regions with those of other parts of the world and neighboring Asian countries. In Part II, we will Economic growth rates in central and western analyze statistical data for each region, including regions are conspicuously high. In recent years, growth rates, investment and exports. The aim of real GDP growth rates in these regions have been this analysis is to verify, using economic census substantially higher than in eastern (coastal) Chi- data for the period from 2004 to 2008, whether na, and they have attracted investment by many central and western China are really following the companies, including Japanese companies. With a east in a “flying geese pattern” of economic devel- population of approximately 830 million, the cen- opment, and whether industries are really shifting tral and western regions account for 63% of Chi- from the east to central and western China. na’s total population. There is also considerable The conclusion that we will reach is that there room for further growth, since per capita GDP in has been little movement of industries to central central and western China is still around $3,000, and western China. In Part III, therefore, we will compared with $6,000 in the east. Central and reexamine the question from the perspective of western China have huge growth potential and are long-term changes in the export mix and consider likely to become the main focus of investment in why industries are not moving to central and west- China in the future. ern China. Finally, in Part IV we will ascertain While central and western China are enjoying what is causing these high growth rates in central high growth, coastal regions are experiencing a and western China and suggest that China’s next- shortage of mingong, or rural migrant workers. In generation leaders will need to achieve concrete the east, the failure of workers to return to their benefits through regional development strategies factories after visiting their home regions for the and urbanization plans, since high growth in cen- Lunar New Year has become a common problem. tral and western China is not contributing to the Companies have been forced to increase their in- achievement of China’s goal of creating a “harmo- vestment in measures to secure their work forces, nious society.” including the arrangement of two-way bus transportation, and the provision of company accom- modation and other extensive welfare benefits. 1. The Significance of Develop- In China and other countries, the media have at- ment in Central and Western tributed these problems to the growth of employ- China for Japan ment opportunities in central and western China. Some economists see economic growth in these In recent years, China’s economic growth has regions as evidence that the “flying geese pattern” been driven not by the east, but by central and of economic development is occurring within western China. Foreign companies have also start- China. The flying geese pattern is triggered when ed to see central and western China as a new fron- an industry that has lost its comparative advantage tier. In this section, we will look at the economic moves from an advanced country to a developing positioning of central and western China at the country or region through direct investment, trig- provincial, city and autonomous region levels, and gering economic development in the developing on a regional basis. country. Are central and western China following the (1) Positioning of Central and Western China east along the path of economic development? The －Conspicuous Scale and Growth Poten- purpose of this article is to answer this question tial by examining the realities of industrial migration. We will begin in Part I by ascertaining the growth At $5,415 in 2011, China’s per capita GDP is potential of central and western China by compar- similar to Thailand’s figure of $5,242 and places ing the economic scale and growth rates of these China in the World Bank’s upper middle income

RIM Pacific Business and Industries Vol. XII, 2012 No. 45 3 category. However, because China’s population account, China’s positioning as a workshop or is by far the biggest in the world at 1.35 billion, market would undoubtedly vary according to the its GDP is the second highest in the world at region. Increasingly, we need to view China not in $7,296.5 billion. Although China’s growth rate is terms of average values, but rather from the per- slowing, its importance as the world’s workshop spective of the varying development stages of in- and the world’s market will continue to rise rather dividual regions. than decline. These differences in development stages do In February 2012, the World Bank and the De- not necessarily indicate that central and western velopment Research Center of the State Council China are less important. In fact, it would be no jointly compiled a report entitled “China 2030.” exaggeration to say that the ability of central and This report predicts that if China continues to western China to catch up steadily with the east achieve growth averaging 6.6% per annum, by will determine whether or not China can achieve 2030 it will have overtaken the United States in sustainable economic growth. Fig. 1 lists the top terms of economic scale and will have greater 35 countries and regions from among 182 coun- influence on the world economy than the United tries and 31 Chinese provinces, cities and autono- Kingdom in 1870 and the United States in 1945 mous regions ranked in order of yearly average (World Bank and Development Research Center real GDP growth rates between 2006 and 2011. of the State Council [2012]). In terms of scale, at Surprisingly, the 31 Chinese provinces, cities and least, the center of gravity of the world economy autonomous regions are all among the top 35. seems certain to move across the Pacific and clos- Furthermore, provinces, cities and autonomous er to China. regions in central and western China have higher However, while we speak of China as a single growth rates than key coastal cities, such as Bei- entity, the level of development varies widely be- jing and Shanghai(2). tween coastal and inland regions. In Shanghai, In 10 years, an economy will double in size if which is the wealthiest part of China, per capita its annual real GDP growth rate averages 7.2%. GDP reached 78,989 yuan ($12,222)(1) in 2010, Its size will be tripled over the same period if the compared with just 10,309 yuan ($1,595) in Gui- growth rate averages 11.6%, and quadrupled by zhou, which is the poorest area. If we place these growth averaging 14.9%. Although central and two areas on the timescale of Britain’s economic western China have lagged behind other regions in development, there would be a gap of around 150 development, many provinces and cities now have years, with the former at 1988 and the latter at GDPs as big as some countries. For example, the 1830 (Chen, Goh, Sun and Xu [2011]). A compar- GDP of Sichuan and Yunnan Provinces is compa- ison with other countries in 2010 places Shanghai rable to that of Malaysia and Vietnam. In terms of alongside Hungary ($12,863), which is a member economic scale and growth potential, central and of the Organization for Economic Cooperation westen China can be seen as one of the most at- and Development (OECD) and Guizhou at the tractive frontiers in the world. same level as Ghana ($1,325). It is as if advanced Since 2010, the Foxconn Technology Group, and developing countries existed side by side a major Taiwanese-owned provider of electronic within China. manufacturing services (EMS), has been relocat- The offices of foreign companies, including ing its production operations from Shenzhen to those from Japan, and media organizations are Henan, Kunshan, Chongqing and other locations still concentrated in Beijing and Shanghai, and under a plan calling for northward and westward also coastal (eastern) China, such as Guangdong movement in reaction to rising wage levels in Province. There is a frequent tendency for data eastern China. According to a 2012 white paper to be distorted as if China consisted only of east- published by the American Chamber of Com- ern China. However, if these differences in eco- merce in South China, there has been a dramatic nomic development within China were taken into reduction in the number of companies identifying

4 RIM Pacific Business and Industries Vol. XII, 2012 No. 45 Fig. 1 Yearly Average Real GDP Growth Rates in Chinese Provinces, Cities and Autonomous Regions (2006-2011)

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18 16 Quadrupled in 10 years 14 Tripled in 10 years 12 10 8 Doubled in 10 years 6 4 2 0 Jilin Qatar Tibet Tianjin HubHeui nan AnhuFiujian Jiangxi Hainan Henan unnan Timor HebGeiansu Shanxi Beijing Shaanxi Sichuan LiaonGinugangxi Qinghai JiangGsuuizhou Ningxia Y Zhejiang Xinjiang Shandong kmenistan Shanghai Chongqing EasGt uangdong Afghanistan Heilongjiang Tur Inner Mongolia

East West Central

Notes: Local currency values Source: Compiled by JRI using IMF, World Economic Outlook April 2012, China Statistical Yearbook (2011) and other sources the Yangtze River Delta and Guangdong Province (2) Positioning of Six Regions in East Asian as likely investment targets over the next three Economy years, causing the gap between these regions and the three northeastern provinces and Sichuan Eastern, central and western China are tradi- province to narrow (American Chamber of Com- tional regions based on geographical factors that merce in South China [2012]). do not necessarily reflect the development stages Japanese companies with business operations or regional development plans of provinces, cities in China are also showing heightened interest in and autonomous regions. For example, although central and western China. In its June 2012 White Liaoning, Jilin and Heilongjiang are divided be- Paper on the Chinese economy and Japanese busi- tween eastern and central China, it is appropri- nesses, the Japanese Chamber of Commerce and ate to view these three provinces together within Industry in China referred to the growing impor- the framework of the Northeastern Development tance of central China for the textile and apparel Strategy, a regional development policy aimed at industries and office equipment manufacturers the revitalization of former industrial areas. Fur- (Japanese Chamber of Commerce and Industry in thermore it seems incongruous to link Chongqing China [2012]). This has led to the emergence of City, where development is relatively advanced, a “Central China Triangle” concept under which with less developed provinces, cities and autono- economic growth in the region will be driven by a mous regions, such as the Xinjiang Uighur Auton- triangular region enclosed by Wuhan City (Hubei omous Region. Province), Changsha City (Hunan Province) and As shown in Fig. 2, we have divided the 31 Nanchang City (Jiangxi Province). The attractive- provinces, cities and autonomous regions into six ness of the Central China Triangle will depend regions: ① the southeast, ② the Bohai Rim, ③ on the extent to which these provinces and cities the central, ④ the northeast, ⑤ the southwest, can look beyond their own particular interests and and ⑥ the northwest. This classification reflects achieve real cooperation. the regional divisions used in World Bank [2006], which reflect investment conditions as determined through a survey of 12,400 companies in 120 cit-

RIM Pacific Business and Industries Vol. XII, 2012 No. 45 5 Fig. 2 Regional Classifications

2 6 3 30 4 7 5 26 8 9 28 27 25 10 12 29 11 17 13 24 18 14 16 15 19 22 Bohai Rim (4) Northwest (7) 23 21 20 Northeast (3) Southeast (5) Central (6) Southwest (6) 31

1 Heilongjiang 12 Jiangsu 23 Yunnan 2 Jilin 13 Hubei 24 Sichuan 3 Liaoning 14 Chongqing 25 Shaanxi 4 B eijing 15 Hunan 26 Ningxia 5 Tianjin 16 Jiangxi 27 Gansu 6 Inner Mongolia 17 Shanghai 28 Qinghai 7 Hebei 18 Zhejiang 29 Tibet 8 Shanxi 19 Fujian 30 Xinjiang 9 Shandong 20 Guangdong 31 Hainan 10 Henan 21 Guangxi 11 Anhui 22 Guizhou Notes: Figures in parentheses denote numbers of provinces, cities and autonomous regions. Source: Compiled by JRI ies. However, while the World Bank includes area enclosed by the intersection between the ver- Shanxi in the northwest, it has been included in tical and horizontal axes. the central for the purposes of this paper. This GDP is highest in the southeast ($6,703), fol- reflects Shanxi’s inclusion in the Rise of Central lowed by the Bohai Rim ($5,609), the northeast China plan, a development policy targeting the ($4,641), the northwest ($3,802), the central central region. ($3,271) and the southwest ($2,690). The central The level of regional economic development, has the highest population (360 million), followed the investment environment and regional develop- by the southeast (300 million), the southwest (250 ment policies are all reflected in this classification, million), the Bohai Rim (200 million), the north- which is useful for predicting how each region’s west (120 million) and the northeast (110 mil- importance as a workshop or market will change lion). in the future. Fig. 3 examines the positioning of At $2.0 trillion, the GDP of the southeast is these six regions in comparison with East Asian comparable to that of Brazil ($2.1 trillion) and countries and emerging countries, such as Russia greater than that of Russia ($1.5 trillion). The next and Brazil. Per capita GDP is shown on the hori- highest is the central ($1.2 trillion), the Bohai Rim zontal axis as an indication of development level, ($1.1 trillion), the southwest ($0.7 trillion), the while population is plotted on the vertical axis. northeast ($0.5 trillion) and the northwest ($0.5 The scale of each economy is indicated by the trillion). The central and the Bohai Rim both have

6 RIM Pacific Business and Industries Vol. XII, 2012 No. 45 Fig. 3 Per Capita GDP and Population of Fig 4. Real GDP Growth Rate by Region Chinese Regions and Major Asian （%） Countries (2010) 16 (Millions of people) 15 400 14 Central China 350 13 Southeast China 12 300 11 Southwest China 250 Indonesia 10 China-Bohai Rim 9 200 Brazil 8 Bangladesh Russia 150 Northwest China 7 100 Philippines Northeast China 6 Vietnam Thailand South Korea 1997 98 992000 01 02 03 04 05 06 07 08 09 10 11 50 (Calendar years) Laos Malaysia Cambodia Bohai Rim Northwest Northeast 0 Southeast Central Southwest 0 5,000 10,000 15,000 20,000 25,000 (Per capita GDP, $) Source: Compiled by JRI using CEIC data and the China Statistical Yearbook (various years) Notes: Current prices Source: Compiled by JRI using IMF, World Economic Out- look April 2012, China Statistical Yearbook (2011) and other sources (1) Investment-Led “West High, East Low” Pattern bigger economies than South Korea ($1.0 trillion). The “West High, East Low” phenomenon, The southwest has the same GDP as Indonesia whereby real GDP growth rate is higher in cen- ($0.7 trillion), while the aggregate for the north- tral or western China than in eastern China, first west and northeast is equivalent to the total for emerged in 2007, though earlier dates of 2004 and Thailand ($0.3 trillion) and Malaysia ($0.2 tril- 2005 respectively have been suggested for urban lion). While development levels are low in central fixed asset investment and exports (Kwan [2009]). and southwest China, their large populations mean Fig. 4, which traces trends in regional real that their positioning as workshops or markets GDP growth rates, clearly shows that the “West will have an important influence on strategies for High, East Low” phenomenon first appeared in investment in China. 2007. This pattern was maintained despite dramatic changes in China’s economic environment resulting from slower exports to the developed 2. Is the Economic Growth of countries in the wake of the Lehman shock and Central and Western China monetary tightening in response to fears of a real Sustainable? estate bubble. Growth was especially rapid in the northwest, where the growth rate had already There has been extensive debate within and reached the same level as in the southeast and the outside of China about the sustainability of high Bohai Rim by 2000. The southwest had the high- economic growth in central and western China. est growth rate in 2011 at 14.3%, followed by In the following analysis, we will first re-examine the northwest (13.4%), the central (12.8%), the the statistical evidence, including regional growth northeast (12.5%), the Bohai Rim (11.3%) and the rates and investment statistics, and then consider southeast (10.1%). the sustainability of economic growth in these re- The reasons for this pattern can be verified us- gions. ing data for both investment and exports, which are regarded as the drivers of economic growth in China. Investment data are useful for explain-

RIM Pacific Business and Industries Vol. XII, 2012 No. 45 7 Fig. 5 Fixed Asset Investment by Region Fig. 6 Export Growth Rates by Producer （％） Region 45 （％）

40 60 35 50 30 40 25 30 20 20 10 15 0 10 ▲ 10 5 ▲ 20 0 ▲ 30 1997 98 99 2000 01 02 03 04 05 06 07 08 09 10 (Calendar years) ▲ 40 1996 97 98 99 2000 01 02 03 04 05 06 07 08 09 10 11 Bohai Rim Northwest Northeast (Calendar years) Southeast Central Southwest Bohai Rim Northwest Northeast Southeast Central Southwest Notes: Amounts that could not be classified by region have been omitted. Nominal basis. Source: Compiled by JRI using CEIC data and the China Source: Compiled by JRI using CEIC Statistical Yearbook (various years)

2009. ing the “West High, East Low” phenomenon (Fig. This is why opinions are divided, even within 5). Investment levels in the northwest remained China, on the value that should be placed on the relatively high even after 1999, when investment “West High, East Low” phenomenon. Some ac- in other regions stagnated. Furthermore, while the cept the phenomenon as evidence that central and rate of increase in investment in the southeast and western China are narrowing the development gap the Bohai Rim slowed dramatically after peaking with eastern China, while others see it simply as a in 2004, other regions recorded larger increases copy of the traditional investment-based economic than in either the southeast or the Bohai Rim. development model and question its sustainabil- In 2007, for example, investment in the south- ity(3). east and the Bohai Rim increased by 19.0% and 18.4% respectively year on year, compared with (2) Is the “Flying Geese Pattern” of Economic an increase of 32.8% in the central, 32.3% in the Development Valid－Distribution of La- northeast, 28.5% in the northwest and 28.1% in bor-Intensive Industries the southwest. It would be reasonable to conclude that the Chinese economy has been driven in re- Growth rates alone are not enough to ascertain cent years by investment in regions other than the the sustainability of economic growth in central southeast and the Bohai Rim. and western China. We also need to assess the real Export data are less convincing than those for economic situation as manifested in the extent investment (Fig. 6). The figures can be interpreted to which industries are shifting from the east to as showing that the northwest achieved a larger central and western China. The government’s ef- increase than other regions in 1998-1999, and forts to achieve balanced development through the that the northwest, the central and the southwest improvement of infrastructure are symbolized in recorded higher rates of increase than the south- the Great Western Development Strategy. In east- east and the Bohai Rim in 2007-2008. However, ern China, meanwhile, there has been a shortage the evidence for the “West High, East Low” phe- of unskilled migrant workers, known as mingon- nomenon in exports is less clearly defined than ghuang, since 2004. Companies have been forced with investment. For example, the southeast and to increase wages, and they have also seen their the Bohai Rim had the smallest export declines in export added value tax rebates reduced as part of

8 RIM Pacific Business and Industries Vol. XII, 2012 No. 45 efforts to alleviate trade friction with the United not only on exports, but also on production for States. These factors have eroded the comparative domestic consumption. In the economic census advantage of southeast China. The extent to which data, the value of exports is shown as a subtotal of industries have shifted from the southeast to other the value of sales, which means that it is possible regions is an important indicator of the sustain- to calculate total sales and the value of exports as ability of economic growth in central and western a percentage of total sales for each province, city China. and autonomous region, and the contributions to Essentially we are asking whether the “flying the growth of sales between 2004 and 2008. geese” pattern of economic development, which In Fig. 7, we have calculated these values for occurred historically in East Asia, is now occur- textile products, footwear and hats, which are the ring within China. The “flying geese” pattern oc- most labor-intensive industries. Contributions to curs when industries that have lost their compara- the growth of sales are represented on the map. In tive advantage move from advanced countries 2008, these industries were ranked 15th in terms to less developed countries and regions through of their contribution to the value of the manufac- direct investment, thereby triggering economic turing sector’s production (2.3%) and 6th in terms development in developing countries (Akamatsu of the contribution to job numbers (6.4%). These [1962], Kojima [2000]). The phased movement industries are also among the most likely to shift of labor-intensive industries, such as textiles, to to central and western China because of their vul- Japan, the NIEs, the original ASEAN members, nerability to rises in labor costs, and also because China and the later ASEAN members played a of the reduction of the average rebate on the ex- key role in the economic take-off of these coun- port added value tax from 17% to 13% in 2004. tries and regions, through both employment and However, Fig. 7 also shows first that although exports. there has been a moderate decline in the percent- However, it is extremely difficult to verify this ages of sales in Shanghai, Jiangsu, Zhejiang and phenomenon within China. Although each of the Guangdong, the percentages in Fujian and Shan- 31 provinces, cities and autonomous regions com- dong are rising, indicating that there has been no pile economic yearbooks, because different meth- decline in the importance of the southeast as a ods are used to categorize exports, it is impossible production base, and second that while there has to produce consistent time-series data. For this been a marginal rise in the percentages of sales in reason, we will use data from the National Eco- Henan, Hubei and Hunan in the central, there has nomic Surveys (economic censuses) conducted in been an even bigger increase in the percentage for 2004 and 2008 to ascertain the extent to which in- Liaoning in the northeast. The export ratio for tex- dustries have relocated from the southeast, which tiles, footwear and hats has meanwhile fallen from has China’s biggest industrial clusters in the Pearl 55.0% of production to 36.0% in the space of just River Delta and Yangtze River Delta, to other re- four years. This signifies an increase in produc- gions. tion for domestic demand, but there has been little Although the period between the surveys is scattering of production sites as a result of this short, they provide data for 30 different manu- trend. facturing industries at the province, city and au- In 2004, the southeast accounted for 77.1% of tonomous region level. Another advantage of the the value of sales and 78.1% of exports. The next economic census data is that it is possible to ex- highest percentages were for the Bohai Rim at tract not only export values, but also the values 14.8% and 19.8% respectively. By 2008, these of industrial production and sales. In addition to shares had fallen to 70.8% and 77.8% respec- its status as the world’s workshop, China is also tively for the southeast, and to 14.5% and 12.2% becoming increasingly important as a market in for the Bohai Rim. The central shares meanwhile its own right. To ascertain the extent of industry rose from 5.0% and 4.7% respectively in 2004 to relocation accurately, we therefore need to focus 8.0% and 4.7% respectively in 2008, and those of

RIM Pacific Business and Industries Vol. XII, 2012 No. 45 9 Fig. 7 Sales and Export Ratios for Textile Products, Footwear and Hats

Name of province, Contributions to the rate of increase in the value of sales in 2004-2008 city, autonomous 2004 (%) 2008 (%) 2004-08 region 1 Value of Value of Export Value of Value of Export Value of Region sales exports ratio sales exports ratio sales A B B/A A B B/A Contribution 2 National 100.0 100.0 55.0 100.0 100.0 36.0 135.6 Beijing Bohai Rim 1.8 1.6 49.4 1.0 0.9 30.1 0.7 6 3 Tianjin Bohai Rim 1.5 1.6 60.2 0.9 1.5 61.0 0.6 30 Hebei Bohai Rim 2.3 1.6 37.8 1.7 1.0 21.7 1.7 4 Shanxi Central 0.1 0.0 1.5 0.1 0.0 0.0 0.2 7 5 8 Inner Mongolia Northwest 0.2 0.0 8.1 0.2 0.0 2.0 0.4 26 9 Liaoning Northeast 1.9 2.7 79.1 4.7 4.3 32.7 9.3 28 Jilin Northeast 0.2 0.1 32.5 0.3 0.3 33.5 0.5 27 10 12 25 Heilongjiang Northeast 0.1 0.0 47.1 0.1 0.0 32.2 0.1 29 11 17 Shanghai Southeast 8.2 7.9 53.0 5.1 5.5 38.9 3.9 13 24 Jiangsu Southeast 22.8 19.6 47.3 23.1 20.7 32.2 31.6 14 18 Zhejiang Southeast 17.7 19.6 60.8 15.3 21.4 50.4 18.3 16 15 Anhui Central 0.6 0.9 77.5 1.1 0.9 28.8 2.0 30% or higher 22 19 25% or higher but below 30% Fujian Southeast 8.5 9.7 62.3 9.1 9.4 37.1 12.9 20% or higher but below 25% 23 21 20 Jiangxi Central 1.4 1.6 61.9 1.7 1.4 30.3 2.6 15% or higher but below 20% Shandong Bohai Rim 9.3 9.1 53.9 10.9 8.8 29.2 16.3 10% or higher but below 15% Henan Central 0.7 0.4 28.4 1.8 0.5 10.3 3.6 5% or higher but below 10% Hubei Central 1.8 1.6 50.8 2.3 1.6 25.8 3.6 Below 5% 31 Hunan Central 0.4 0.2 29.9 0.9 0.2 7.1 1.7 Guangdong Southeast 19.9 21.5 59.5 18.2 20.8 41.0 23.0 1 Heilongjiang 12 Jiangsu 23 Yunnan Guangxi Southwest 0.0 0.0 53.2 0.1 0.1 26.0 0.3 2 Jilin 13 Hubei 24 Sichuan 3 Liaoning 14 Chongqing 25 Shaanxi Hainan Southwest 0.0 0.0 0.0 0.1 0.1 48.0 0.2 4 B eijing 15 Hunan 26 Ningxia Chongqing Southwest 0.1 0.0 12.4 0.2 0.0 1.1 0.4 5 Tianjin 16 Jiangxi 27 Gansu Sichuan Southwest 0.3 0.1 19.5 0.6 0.4 19.9 1.3 6 Inner Mongolia 17 Shanghai 28 Qinghai Guizhou Southwest 0.1 0.0 17.2 0.0 0.0 6.8 0.0 7 Hebei 18 Zhejiang 29 Tibet 8 Shanxi 19 Fujian 30 Xinjiang Yunnan Southwest 0.0 0.0 16.9 0.0 0.0 15.5 0.0 9 Shandong 20 Guangdong 31 Hainan Tibet Northwest - - - 0.0 0.0 0.0 0.0 10 Henan 21 Guangxi Shaanxi Northwest 0.1 0.0 34.3 0.1 0.0 6.6 0.2 11 Anhui 22 Guizhou Gansu Northwest 0.0 0.0 0.0 0.0 0.0 3.0 0.0 Notes: Calculated on a nominal basis Qinghai Northwest 0.0 0.0 17.6 0.1 0.0 9.2 0.1 Source: Compiled by JRI using data from First National Economic Survey Ningxia Northwest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (2004) and Second National Economic Survey (2008) Xinjiang Northwest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 the northeast from 2.1% and 2.8% respectively to lar analysis. These industries have achieved rapid 5.1% and 4.7% respectively over the same period. growth as a result of foreign investment. In 2008 Because the years compared are only four years they accounted for 9.4% of the value of produc- apart, it is difficult to assess the significance of tion (second highest) and 7.1% of job numbers these changes. Do these figures show that industry (third highest). Although the percentage of domes- relocation has occurred, albeit on a limited scale, tically manufactured parts has increased in recent as a prelude to the “flying geese pattern” of eco- years, manufacturing in China is weighted heav- nomic development, or do they indicate that there ily toward low-added-value assembly processes, has been no relocation of production sites even in which means that these industries are vulnerable the textiles, footwear and hat manufacturing in- to rising labor costs in the same way as the tex- dustries, which do not require massive capital in- tiles, footwear and hat manufacturing industries. vestment and can easily relocate? Fig. 8 points to the same conclusions as Fig. 7. We will revisit this question in the next section, First, although the production and export shares which provides a long-term overview of changes of Guangdong Province and Shanghai have fallen, in China’s trade structure. To ascertain whether those of Jiangsu have risen, and there has been or not the “flying geese” pattern is applicable, we absolutely no reduction in the importance of the will subject the telecommunications equipment southeast as a center for the manufacture of tele- and computer manufacturing industry and manu- communications equipment, computers and other facturers of other electronic equipment to a simi- electronic equipment. Second, the value of sales

10 RIM Pacific Business and Industries Vol. XII, 2012 No. 45 Fig. 8 Sales and Export Ratios for Telecommunications Equipment, Computers and Other Electronic Equipment

Name of province, Contributions to the rate of increase in the value of sales in 2004-2008 city, autonomous 2004 (%) 2008 (%) 2004-08 region Value of Value of Export Value of Value of Export Value of 1 Region sales exports ratio sales exports ratio sales A B B/A A B B/A Contribution National 100.0 100.0 63.1 100.0 100.0 68.0 97.2 2 Beijing Bohai Rim 5.5 3.1 35.5 5.5 4.4 54.1 5.2 6 3 Tianjin Bohai Rim 6.3 6.1 61.2 3.9 3.6 63.7 1.4 30 Hebei Bohai Rim 0.3 0.0 10.3 0.3 0.1 15.1 0.4 4 Shanxi Central 0.0 0.0 2.3 0.2 0.1 20.8 0.4 7 5 Inner Mongolia Northwest 0.2 0.0 0.5 0.2 0.0 0.1 0.2 8 26 9 Liaoning Northeast 1.8 1.8 64.1 1.4 1.1 51.8 1.0 28 27 Jilin Northeast 0.1 0.1 38.8 0.1 0.0 9.5 0.1 10 12 25 Heilongjiang Northeast 0.1 0.0 8.6 0.0 0.0 26.2 0.0 29 11 17 Shanghai Southeast 12.9 14.6 71.7 12.0 14.5 82.0 10.9 13 Jiangsu Southeast 19.5 23.1 74.5 22.6 24.3 73.0 25.0 24 14 18 Zhejiang Southeast 4.2 2.4 36.2 3.9 3.4 59.9 3.6 15 16 19 Anhui Central 0.3 0.0 7.1 0.4 0.1 13.7 0.4 30% or higher 22 Fujian Southeast 5.3 5.0 59.6 3.9 3.8 65.6 2.4 25% or higher but below 30% 20% or higher but below 25% 23 21 20 Jiangxi Central 0.1 0.0 19.1 0.4 0.2 27.8 0.6 15% or higher but below 20% Shandong Bohai Rim 3.6 1.8 31.4 5.8 4.2 49.7 7.7 10% or higher but below 15% Henan Central 0.4 0.1 17.2 0.3 0.0 3.0 0.3 5% or higher but below 10% Hubei Central 0.7 0.1 13.0 1.1 0.4 26.4 1.6 Below 5% 31 Hunan Central 0.4 0.2 29.3 0.3 0.1 18.8 0.3 Guangdong Southeast 36.3 40.8 71.0 34.8 38.9 76.0 32.7 1 Heilongjiang 12 Jiangsu 23 Yunnan Guangxi Southwest 0.1 0.0 5.9 0.3 0.1 24.4 0.4 2 Jilin 13 Hubei 24 Sichuan 3 Liaoning 14 Chongqing 25 Shaanxi Hainan Southwest 0.0 0.0 47.3 0.0 0.0 52.6 0.0 4 B eijing 15 Hunan 26 Ningxia Chongqing Southwest 0.2 0.0 2.7 0.2 0.0 7.6 0.2 5 Tianjin 16 Jiangxi 27 Gansu Sichuan Southwest 1.1 0.4 22.5 1.7 0.5 21.7 2.2 6 Inner Mongolia 17 Shanghai 28 Qinghai Guizhou Southwest 0.1 0.1 39.0 0.1 0.0 0.8 0.0 7 Hebei 18 Zhejiang 29 Tibet 8 Shanxi 19 Fujian 30 Xinjiang Yunnan Southwest 0.0 0.0 4.1 0.0 0.0 9.4 0.0 9 Shandong 20 Guangdong 31 Hainan Tibet Northwest - - - 0.0 0.0 - 0.0 10 Henan 21 Guangxi Shaanxi Northwest 0.6 0.2 17.1 0.4 0.1 14.0 0.2 11 Anhui 22 Guizhou Gansu Northwest 0.0 0.0 16.6 0.0 0.0 5.6 0.0 Notes: Calculated on a nominal basis Qinghai Northwest 0.0 0.0 - 0.0 0.0 0.0 0.0 Source: Compiled by JRI using data from First National Economic Survey Ningxia Northwest 0.0 0.0 49.5 0.0 0.0 - 0.0 (2004) and Second National Economic Survey (2008) Xinjiang Northwest 0.0 0.0 8.6 0.0 0.0 19.0 0.0 and production have fallen in Beijing and Tianjin, expand. but both sales and exports have risen in Shandong Unlike the textiles, footwear and hat manufac- Province, indicating that there has been no subsid- turing industries, the telecommunications equip- ence in the Bohai Rim. ment, computer and other electronic equipment Looking at the individual regions, we find the manufacturing industries require a significant southeast shares of the value of sales and ex- amount of capital investment, which means that ports in 2004 were 78.2% and 86.0% in 2004 and a four-year period would be too short to ascertain 77.3% and 85.0% respectively in 2008, and that whether industry migration was really occurring. its ranking has remained unchanged. The shares We can at least conclude that the economic cen- of the Bohai Rim also have remained almost un- suses do not reflect the relocation of production changed, at 15.9% and 11.0% respectively in sites as called for in the aforementioned “north- 2004 and 15.5% and 12.3% respectively in 2008. ward and westward” plan of the Foxconn Technol- In contrast with the textiles, footwear and hat ogy Group. Even so, it is clear that there was no manufacturing industries, the telecommunications industry migration during the four years between equipment, computer and other electronic equip- 2004 and 2008. ment manufacturing industries have not migrated to the central or the northeast. Their ratios of sales to exports have risen, and their production bases in the southeast and the Bohai Rim continue to

RIM Pacific Business and Industries Vol. XII, 2012 No. 45 11 (3) Lack of Progress toward Restructuring of duction. This situation has also been seen as a ma- Iron and Steel Industry－Capital Inten- jor burden on the environment. sive Industries In fact, one of the aims set forth in the 11th 5-Year Plan (2006-2010) was to accelerate the Industry migration as part of the “flying geese elimination of outmoded production methods, fa- pattern” of economic development has been ana- cilities and products, and to improve product qual- lyzed mainly as a process involving the movement ity. The Plan also called for the development of of labor-intensive industries, which have lost their the iron and steel industry as part of a recycling- comparative advantage due to rising wages and based economy, and for measures to encourage other factors, to less developed countries through restructuring through the formation of cross-re- investment. However, in an environment in which gional corporate groups in order to create interna- there is free movement of production factors, not tionally competitive companies. If this policy had only labor-intensive industries but also capital- been faithfully implemented, there would have intensive industries are likely to come under been significant relocation of production facilities pressure to relocate. China is the world’s biggest within the iron and steel industry. producer of iron and steel, but most of its blast As in the previous section, we can verify this furnaces are small or medium-capacity facilities, by analyzing data from the economic censuses. with the result that there is a chronic tendency Unlike labor-intensive industries, the refining and toward falling production efficiency and overpro- rolling of “black metals” (steel, etc.) is not con-

Fig. 9 Sales and Export Ratios for Refining and Rolling of Black Metals

12 RIM Pacific Business and Industries Vol. XII, 2012 No. 45 centrated in the southeast and the Bohai Rim. As ings of individual companies(4). However, the gov- shown in Fig. 9, Hebei and Jiangsu Provinces, ernment has invested in the iron and steel industry which are the biggest production areas in China, and identified it as a core industry targeted for have continued to increase their shares of both competitiveness improvement. For this reasons, sales and exports, while those of Beijing and there tend to be strong incentives for regional gov- Shanghai have fallen. At first glance, this can be ernments to support companies through subsidies, seen as evidence of progress toward industrial mi- tax reductions or other measures. It is not certain gration. However, the fact that the number of com- that a decline in earnings will drive industry re- panies (business sites) in the black metal refining structuring. and processing industries rose from 7,141 in 2004 to 8,012 in 2008 suggests that there has been little progress toward the elimination of inefficient 3. Reasons for the Lack of Prog- companies. If elimination is defined as a reduc- ress toward Industrial Migra- tion in the number of companies accompanied by tion to Central and Western a dramatic rise in the value of sales per company, China the process has been limited to a few provinces, such as Shanxi and Hebei (Fig. 10). As far as can be ascertained from the economic Individual provinces, cities and autonomous census data, the high growth rates achieved in zones are in fact trying to increase the production central and western China cannot be explained in capacity of their own black metal refining and terms of the “flying geese pattern” of economic rolling industries, and there is little regional con- development. However, it may be premature to centration. In this sense, this sector can be seen to reach such a conclusion based on a period of just be strongly influenced by the local protectionist four years. In this section, we will re-examine this policies of what are known in China as “lordship question from the viewpoint of long-term changes economies.” Some predict that industry restructur- in the export mix. We will also consider why there ing through mergers and acquisitions will become has been so little migration of industries to central inevitable as slower economic growth erodes earn- and western China.

(1) Limited Migration of Export and Produc- tion Bases Fig. 10 Iron and Steel Industry Restructuring (Value of sales per company in 2008 as multiples of 2004 figures) China’s export mix has changed conspicuously

4.5 in step with its economic development. Fig. 11 Shanxi traces changes in the export mix using single- 4.0 y = -0.0046x + 2.602 R 2 = 0.2363 digit codes from the Standard International Trade Heilongjiang 3.5 Yunnan Classification (SITC) system. In China, exports Hebei Jilin Qinghai are divided into “primary goods,” which are low- 3.0 Inner Mongolia Guangxi Xinjiang Henan Guizhou added-value items classified as SITC4 or below, Shandong Zhejiang 2.5 Gansu Hunan Hubei Tianjin Fujian Jiangsu and “industrial goods,” which are items classified Hainan Shaanxi 2.0 Sichuan Ningxia Liaoning as SITC5 or higher. The “flying geese pattern” of Shanghai Guangdong 1.5 Beijing Jiangxi Anhui economic development can be observed in the fact Chongqing that the percentage of industrial goods in China’s 1.0 ▲ 250 ▲ 150 ▲ 50 50 150 250 national export mix has risen in step with eco- (Increase/decrease in number of companies 2004-2008) nomic development. Textile products make up around 40% of the Source: Compiled by JRI using data from First National items included in SITC8 (miscellaneous manu- Economic Survey (2004) and Second National (5) Economic Survey (2008) factured articles) in Fig. 11 . The reduction of

RIM Pacific Business and Industries Vol. XII, 2012 No. 45 13 Fig. 11 Changes in China’s Export Mix (SITC Codes)

（％） 100

0 1994 95 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 10 (Calendar years) SITC0：Food and live animals SITC1：Beverages and tobacco SITC2：Crude materials, inedible SITC3：Mineral fuels, lubricants SITC4：Animal and vegetable oils, fats and SITC5：Chemicals waxes SITC7：Machinery and transport equipment SITC6：Manufactured goods classified chiefly SITC9：Commodities and transactions not by material classified elsewhere in the SITC SITC8：Miscellaneous manufactured articles

Source: Compiled by JRI using China Statistical Yearbook (2011)

the “flying geese pattern” of economic develop- Fig. 12 RCA Index for Apparel (SITC 84) ment. As it lost its comparative advantage in leading countries, the textile industry relocated to less 7 developed countries, where it helped to kick-start

6 economic development. In value terms, however, China is still the world’s leading producer and 5 exporter of apparel. Its share of world apparel ex- 4 ports increased from 18.2% in 2000 to 34.0% in 3 2009. Vietnam’s share has only risen from 0.9%

2 to 2.7%. The fact that there has been almost no reduction in China’s RCA index provides further 1 evidence that apparel manufacturing is still a core 0 industry that continues to support manufactur- 2000 01 02 03 04 05 06 07 08 09 (Calendar years) ing and exporting in China. Nor has there been China Vietnam India any change in the mix of locations in which these export goods are produced, and the southeast Source: Compiled by JRI using WTO data continues to account for over 70%. In fact, the statistics show that the southeast’s share has actu- the percentage of SITC8 items in China’s exports ally increased (Fig. 13). The analysis of manufac- reflects a decline in China’s comparative advan- turing industries in the areas of textile products, tage for textile products. In fact, China’s revealed footwear and hats, and telecommunications equip- comparative advantage (RCA) index(6) for ap- ment, computers and other electronic equipment parel (SITC84) fell below that of Vietnam in 2001 in Part II led to the conclusion that there had been (Fig. 12). In China, apparel manufacturing has no relocation of production and export bases for become a declining industry, while in Vietnam labor-intensive industries between 2004 and 2008. it is a growth industry that contributes to both In fact, the same conclusion applies to the 15-year employment and exports. In the East Asian tex- period up to 2011. tile industry, at least, we can find evidence of the multi-layered catch-up process associated with

14 RIM Pacific Business and Industries Vol. XII, 2012 No. 45 Fig. 13 Exports by Location of Production Fig. 14 Guangdong, Jiangsu and Zhejiang

（％） Provinces’ Shares of Processing Trade

100 （％） 100

80 80

60 60

40 40 20 20 0 1994 95 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 10 11 (Calendar years) 0 Bohai Rim Northwest Northeast 1995 2000 05 09 (Calendar years) Southeast Central Southwest Guangdong Jiangsu Source: Compiled by JRI using CEIC data Zhejiang Other regions

Source: Compiled by JRI using data from provincial statistical bureaus

(2) How Can Labor-Intensive Industries in Eastern China Maintain their Competi- However, there is little wage variation among tiveness? provinces and cities in eastern China, all of which are among the most economically developed areas Despite rising wage levels in eastern China, in China. It seems unlikely that the lateral spread there has been no relocation of production bases of the processing trade has helped to maintain to western and central China. Why have labor- competitiveness. Another phenomenon that is dif- intensive industries in eastern China not lost their ficult to explain in terms of the maintenance of competitiveness even in this environment? The competitiveness is the fact there seems to have first reason is that production and export bases been little dispersal of the processing trade within that were previously concentrated in Guandong Guangdong Province, evidence of which includes Province have been dispersed to Jiangsu and other the fact that the Peal River Delta’s share has risen coastal provinces. As is apparent from the graph from 92.2% in 2000 to 95.2% in 2009. in Fig. 14, which shows Guangdong, Jiangsu One answer to this puzzle can be found in Chi- and Zhejiang Provinces’ shares of the processing na’s uniquely divided urban labor market. The trade, Guangdong and Jiangsu accounted for an urban labor market is split into the formal mar- extremely large share of activity in eastern China ket, which consists of “units” in the form of state- until 2009, while Zhejiang was positioned as a owned enterprises, stock-cooperative corpora- successor region(7). Because of limitations in the tions, limited companies and foreign-owned com- statistics, it is difficult to clarify the role of “other panies, and the informal market, which is made regions” in Fig. 14. However, according to a pre- up of small privately-owned companies and self- vious study (Zeng, Li, Tian [2011]), in which employed people. This division is driven by the regional shares of China’s processing exports household register system. Rural migrant work- were calculated for the period from 1995 to 2007, ers, known as nongmingong, have limited access eastern China’s share of processing trade exports to the formal market compared with people who was 95.9% in 1995 and remained high at 97.4% have household registration. Wages are low in the in 2007. We can therefore assume that “other re- informal market, and coverage by social security gions” are mostly other provinces and cities in systems, such as pensions and medical care, is ex- eastern China. tremely low.

RIM Pacific Business and Industries Vol. XII, 2012 No. 45 15 For example, in 2010 the average yearly wage Fig. 15 Sales of Textile, Footwear and Hat Manufacturing Industries of people working for “units” was 30,916 yuan and Size of Informal Labor nationally and 31,277 in Guangdong, compared Market (2008) with averages of 20,090 yuan and 21,644 respec- (Sales in hundreds of millions of yuan) tively for those in privately-owned enterprises. In 2,500 both cases, the figures for “units” are about 1.5 Jiangsu times higher. Just 7.6% of nongmingong are cov- 2,000 y = 1.9763x - 252..36 2 ered by pension schemes, and coverage rates for R = 0.8252 Guandong Zhejiang workers’ accident insurance, medical insurance 1,500 unemployment insurance and childbirth insurance Shandong are only 21.8%, 12.2%, 3.9% and 2.3% respec- 1,000 tively. (These figures are all national averages for 2009, based on an economic survey of nongmin- 500 gong by the National Bureau of Statistics [2010].)

This situation contrasts sharply with the cover- 0 age of people with household registration, which 500 1,000 1,500 (10s of 1,000s of workers) has reached almost 100%. The cost of providing social security for employers and employees is Notes: The number of workers in the informal market was calculated as urban employees - SOE employees equivalent to about 40% of wages, and when this - collective employees - stock-cooperative employ- factor is taken into account, it becomes clear that ees - joint-ownership company employees - limited company employees - stock limited corporation em- wage costs in the informal labor market are very ployees - employees of Hong Kong/Macao Taiwan- ese companies - employees of foreign companies. low. Source: Compiled by JRI using data from the Second Na- At the national level, the ratio between formal tional Economic Survey (2008) and China Statisti- cal Yearbook (2009) and informal employees is around 1:1 (Miura [2012a]. However, there is considerable variation at the regional level. By 2010, the number (3) Why are Industries not Migrating to Cen- of workers in the informal market had reached tral and Western China? 108.23 million. Jiangsu Province had the highest total at 13.67 million (12.6% of the total), fol- To understand why industries are not migrat- lowed by Guangdong at 12.41 million (11.5%), ing to central and western China, we need to look Zhejiang at 7.66 million (7.1%) and Shandong at not only at factors in eastern China, but also is- 6.5 million (6.0%). There is a positive correlation sues that prevent central and western China from between the sales of the textile, footwear and hat becoming targets for migration. One problem is manufacturing industries in each province, city the tax burden on businesses. Fig. 16 traces earn- and autonomous region, as shown in Fig. 7 (Part ings and taxes per worker in the textile, footwear II), and the size of the informal labor market (Fig. and hat manufacturing industries in each region 15). It is highly likely that the production loca- in 2004 and 2008. Businesses need to site their tions of labor-intensive industries are determined production facilities in regions in which the tax not by the lowest nominal wage levels but by the burden is low and earnings are high (in the lower lowness of real wages, as symbolized by the size right of the graph). of the informal labor market. In 2000, privately- In 2004, the regions that met these criteria were owned enterprises accounted for just 0.7% of the southeast and the Bohai Rim. By 2008, the Guangdong Province’s exports. The fact that this positions had changed dramatically, resulting in had risen to 24.8% by 2009 is proof of a rapid in- a rise in the relative status of the central and the crease in the informal labor market’s contribution northeast. However, the advantage that these re- to exports. gions should have gained has been eroded by the heavy tax burden, especially business taxes and

16 RIM Pacific Business and Industries Vol. XII, 2012 No. 45 Fig. 16 Profits and Tax Costs Per Worker the industry began as a subsidiary activity for im- in the Textile, Footwear and Hat Manufacturing Industries poverished farming families, and its continuing (Taxes, 10s of 1,000s of yuan) growth is attributable to support from the town-

1.6 ship government and massive inflows of rural migrant workers from Guizhou (Miura [2012a]). 1.4 According to the findings of an empirical study 1.2 Central of industry clustering in the township (Otsuka, 1.0 Southwest Bohai Rim Sonobe [2004]), business performance differed Southeast 0.8 Northeast according to distance from a market established Northwest 0.6 within the township. Although the variation in dis- Southeast (Higher earnings) 0.4 Northwest Bohai Rim tance was only 1-10km, the researchers concluded Central Southwest 0.2 that companies that were close to the market en- Northeast joyed a number of advantages over those that were

0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 further away. First, they had more opportunities to (Profits, 10s of 1,000s of yuan) trade with other regions. Second, their added val- 2004 2008 ue per garment was higher. Third, their corporate

Notes: Taxes are the sums of value-added tax, income size was bigger. Fourth, their labor productivity tax, business tax education charges, city utilization tax and stamp duty, etc. was higher. The study also indicated that the attri- Source: Compiled by JRI using data from First National butes of business managers were important. Busi- Economic Survey (2004) and Second National Economic Survey (2008) ness managers who were former factory workers contributed to industry development by improving production efficiency, and those with backgrounds local taxes, such as city maintenance and con- in sales by pursuing higher added value. struction taxes, compared with the southeast and One lesson that we can learn from this is that the Bohai Rim. In China, the central government’s clustering is important for the textile, footwear capacity to reduce regional gaps through fiscal and hat manufacturing industry, which is regarded transfers is limited, with the result that less de- as a typical labor-intensive industry. Another is veloped regions try to secure revenues by taxing that there will be no migration of industries to businesses. This fiscal system is one of the factors central and western China unless an environment that is preventing industry migration to central can be created in which people who have acquired and western China. specialized skills and knowledge through migrant Another factor is the problem of industry clus- employment and other means can actively start ters. As is apparent from Fig. 7, there has been a up their own businesses. Data from the economic rapid rise in the domestic sales ratio of the tex- censuses show that the number of people em- tiles, footwear and hat manufacturing industries. ployed in manufacturing industries increased by This has been accompanied by a gradual decline 20.64 million in the four years between 2004 and in the contribution from contract processing, 2008. However, the southeast accounted for 59.1% whereby manufacturers took advantage of low la- of this increase and the Bohai Rim for 13.2%, bor costs to produce goods under contract from while the aggregate share of the four other regions foreign companies, with materials, specifications was just 27.7% (the central : 14.6%, the southwest and delivery dates stipulated by the customer. The : 6.4%, the northeast : 5.5%, the northwest : 1.2%). percentage of goods produced for domestic markets has meanwhile tended to increase. Privately- owned enterprises have played a key role in this trend. For example, Zhili Township in Huzhou City, Zhejiang Province has become known for its cluster of children’s apparel manufacturers, but

RIM Pacific Business and Industries Vol. XII, 2012 No. 45 17 4. Benefits of “Harmonious Soci- mittently. In central and northwestern China, the ety” Dependent on Economic contribution from mining and manufacturing has Growth in Central and Western already reached the same level as in the Bohai China Rim and the southeast. What has lifted the contribution from mining The achievement of economic growth in central and manufacturing in central and western China? and western China will have a crucial significance To find the answer to this question we will look for the government’s goal of creating a “Harmo- at data from the economic censuses, which allow nious Society.” We will conclude by using cen- us to divide the statistics for mining and manu- sus data to ascertain the sources of high growth facturing into individual sectors using common in central and western China, and by considering indicators, such as industrial production and sales. whether high growth in those regions would con- Moreover, the data cover the period from 2004 to tribute to the creation of the “Harmonious Soci- 2008, which was a time of transition in China’s ety.” industrial structure. We should therefore be able to identify the factors that drove the growth of (1) Drivers of High Growth in Central and mining and manufacturing in central and western Western China China. Fig. 18 traces the contributions of mining, manufacturing and electricity, gas and water utili- Why are central and western China achieving ties to growth in the value of sales in each region high growth despite the lack of industry migra- between 2004 and 2008. tion to those regions? Fig. 17 traces changes in the While the contribution from manufacturing is percentage of GDP (nominal basis) contributed by large, the sectors that best explain the gap between supply factors in each region at each development rates of increase in southeastern China and the stage, using the contribution from agriculture, for- Bohai Rim and other regions are mining and elec- estry and fisheries as a standard. In southwestern, tricity, gas and water utilities. Economic growth central and northwestern China, the contribution in central and western China appears to have been from agriculture, forestry and fisheries has fallen driven by infrastructure construction, and by re- rapidly since around 2000, while the contribution source development in response to resource short- from mining and manufacturing has risen inter- ages. Looking just at manufacturing, we find that

Fig. 17 Changes in Regional GDP Supply Factor Mixes (Nominal Basis) （％）

＜Southwest＞＜Central＞＜Northwest＞＜Northeast＞＜Bohai Rim＞＜Southeast＞ 50 45 40 35 30 25 20 15 10 5 0 1993 98 2003 08 1993 98 2003 08 1993 98 2003 08 1993 98 2003 08 1993 98 2003 08 1993 98 2003 08 (Calendar years) Agriculture, forestry, fisheries Mining & manufacturing Construction Services

Source: Compiled by JRI using CEIC data

18 RIM Pacific Business and Industries Vol. XII, 2012 No. 45 Fig. 18 Contributions to Rate of Increase in Industrial Sales Fig. 19 Contributions of Fixed Capital (2004-2008) Formation to GDP （％）（％） 75 250 70 13.0 65 200 17.3 15.0 60 6.9 6.7 150 55 6.3 50 124.4 173.5 45 100 143.7 132.3 135.9 40 116.0 50 35 52.5 30 9.1 19.7 1.3 25.3 16.7 0 1995 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 10 Bohai Rim Northwest Northeast Southeast Central Southwest (Calendar years) Bohai Rim Central Northwest Electricity, gas, water utilities Northeast Southeast Southwest Manufacturing Mining

Notes: Nominal basis Source: Compiled by JRI using CEIC data Source: Compiled by JRI using data from First National Economic Survey (2004) and Second National Economic Survey (2008) tion. the industries that make large contributions in the central include not only labor-intensive industries, (2) Lack of Linkage between Economic such as textiles, footwear and hat manufacturing, Growth Rates and Rates of Increase in In- and manufacturing of telecommunications equip- come ment, computers and other electronic devices, but also capital-intensive industries, such as the man- Because central and western China have ufacture of chemical raw materials and products, achieved relatively high economic growth rates transportation equipment and non-metallic min- compared with the southeast and the Bohai Rim, eral products, and the refining and rolling of black the gap between eastern China and central and metals and non-ferrous metals. western China in terms of per capita GDP has In Part III we suggested that investment was started to narrow. However, GDP is the sum of driving economic growth in central and western added value, and per capita GDP is calculated by China because the rate of increase in investment dividing that by the population. The fact that the was high. This pattern is also apparent from a per capita GDP gap between eastern China and breakdown of GDP (nominal basis) by demand central and western China is narrowing does not factor. necessarily mean that the income gap is also being Fig. 19 analyzes the contribution of fixed capi- reduced. In fact, while the coefficient of variation tal formation to GDP. The level of investment has in the per capita GDP of each province, city and remained steady in the southeast and the Bohai autonomous region peaked out in 2001 and is now Rim, but it has risen rapidly in the northwest since falling, the coefficient of variation in urban per 2001, and in other regions since around 2005. It capita income and rural net income continues to is extremely abnormal for investment to account rise (Miura [2010]). for 60-70% of GDP, and this situation shows that We will examine this problem in closer de- economic growth in central and western China is tail. As shown in Fig. 4, the GDP growth rates an example of the type of unbridled investment- for southwest, northwest and the central are now led growth that has led to calls for corrective mea- higher than those for the southeast and the Bohai sures under the Hu Jintao-Wen Jiabao administra- Rim. In 2007, Shanghai had the highest per capita

RIM Pacific Business and Industries Vol. XII, 2012 No. 45 19 GDP at 62,041 yuan, which is 8.5 times higher to a lack of time-series consistency in the GDP than the figure for Guizhou Province, which was data from a distribution perspective(8). As a next- the lowest at 7,273 yuan. By 2010, Shanghai’s best approach, we will use per capita GDP and figure had risen to 76,074 yuan and Guizhou’s to income to ascertain how the labor share varies 13,119 yuan, while the gap had narrowed to 5.8 in different provinces, cities and autonomous re- times. gions. In Fig. 20, values obtained by subtracting Has the income gap narrowed to the same ex- the average annual rate of increase in nominal tent? In 2007, Shanghai’s per capita disposal in- GDP from the average annual rates of increase in come of 20,668 yuan was 2.3 times higher than urban per capita disposable incomes and rural net Guizhou’s 8,871 yuan. By 2010, Shanghai’s fig- incomes in cities in each province, city and auton- ure had increased to 28,838 yuan and Guizhou’s omous region have been plotted on a graph. The to 11,929 yuan, but the gap had widened to 2.4 graph covers the period from 2007 to 2011, when times. A similar comparison of the gap in rural the real GDP growth rates of central and western net incomes shows that in 2007 Shanghai’s figure China were higher than those for the southeast of 10,145 yuan was 4.3 times higher than Gui- and the Bohai Rim. zhou’s 2,329 yuan, and that by 2010 the gap had The data in Fig. 20 need to be viewed with care, narrowed to 4.1 times, with Shanghai’s figure at since urban disposal incomes are overestimated 13,978 yuan and Guizhou’s at 3,424 yuan. The because they do not include rural migrant work- gap between the Shanghai urban sector, which is ers, and rural net incomes because they include the wealthiest area in China, and Guizhou’s rural remittances from migrant workers. We also need sector, which is the poorest, has also narrowed, to be aware that the sum of nominal GDPs for from 8.8 times in 2007 to 8.4 times in 2010. Some all provinces, cities and autonomous regions is gaps have widened while others have narrowed, substantially greater than the national figure pub- but it is clear that gaps in per capita incomes have lished by the National Bureau of Statistics. Just not been reduced by as much as gaps in per capita as the rate of increase in real GDP as published GDP. by the National Bureau of Statistics does not One reason for this inconsistency between per match the rates of increase for individual prov- capita GDP and incomes relates to issues with the inces, cities and autonomous regions(9), so there labor share. From a distribution perspective, GDP are major discrepancies in nominal GDP, and the is divided into various factors, including employee figures for provinces, cities and autonomous re- incomes, asset incomes and operating surpluses. gions are significantly overstated. We cannot be The labor share represents employee incomes as certain of the extent to which each is overstated. a percentage of GDP. Under the Hu Jintao-Wen If there is no regional variation in the overstating Jiabao administration, China’s leaders stressed the of nominal GDP, we need to assume that the rate need to improve the sustainability of economic of increase in the eastern cities that receive rural growth by switching from an economic growth migrant workers and the rate of increase in rural model led by investment and exports to one led net incomes in western and central China, from by consumption. One of the factors that appears where the workers migrate, will both be lower. to have hindered this transition was a low labor What is significant is the fact that even if the fig- share. The consensus view among economists is ures for provinces, cities and autonomous regions that the labor share has been falling since the early that have high labor shares are reduced, there will 1990s (Simarro [2011]). also be proportionate reductions in the figures for The government publishes GDP and employee provinces, cities and autonomous regions with low income statistics for provinces, cities and autono- labor shares, with the result that the “West High, mous regions in the China Statistical Yearbook, East Low” pattern will remain intact as far as in- and the labor share can be calculated from these come distribution ratios are concerned. The fact figures. However, the results are not reliable due that the reduction of per capita GDP gaps among

20 RIM Pacific Business and Industries Vol. XII, 2012 No. 45 Fig. 20 Changes in Income Distribution in Provinces, Cities and Autonomous Regions (2007-2011) (% points) 6

▲2

▲4

▲6

▲8

▲10

▲12 u n a B e i j n g T i a n j H e b i S h a n d o g S h a n x i A n h u i J i a n g x H e n a H u b e i H u n a S h a n g i J i a n g s u Z h e j i a n g F u j i a n G u a n g d o I n e r M o g l i a T i b e t S h a n x i G a n s u Q i n g h a N i n x a X i n j a g L i a o n g J i l n H e i l o n g j a G u a n g x i H a i n C h o n g q i S e c h u a n G u i z h o Y Bohai Rim Central Southeast Northwest Northeast Southwest Urban Rural

Notes: The figures were calculated by subtracting the average rate of increase in per capita GDP between 2007 and 2011 from the average rate of increase in disposable income in cities in each province, city and autonomous region and the average rate of increase in rural net income. All figures are on a nominal basis. Source: Compiled by JRI using CEIC data provinces, cities and autonomous regions has not Railway Project(10). It was identified as a top prior- reduced income gaps suggests that China is still ity policy in the area of regional development un- far from achieving its “harmonious society” con- der both the 11th Five-Year Plan (2005-2010) and cept. the 12th Five-Year Plan (2011-2015). The government has continued to introduce oth- (3) Tangible Benefits Needed from Regional er regional development plans, including the Strat- Development and Urbanization egy for the Revitalization of Northeast China in 2003 and the Rise of Central China Plan in 2005, Without industrial migration, the economic base as part of its efforts to reduce gaps between coast- of central and western China has remained feeble, al and inland regions. The Strategy for the Revi- and there is a risk that growth rates will fall be- talization of Northeast China appears to identify cause of resource price declines or other factors. the three northeastern provinces of Heilongjiang, China needs to take urgent action to modify its Jilin and Liaoning, together with the eastern part economic structure so that economic growth can of the Inner Mongolia Autonomous Region, as a generate employment and drive income growth. fourth economic area that will rank alongside the This will require a review of regional development Pearl River Delta and the Yangtze Delta. The Rise strategies. of Central China Plan seeks to realize the latent The Great Western Development Strategy, potential of six provinces－Shanxi, Henan, Anhui, which was formally adopted at the National Peo- Hubei, Jiangxi and Hunan － by leveraging their ple’s Congress in March 2000, typifies China’s positioning as the hinterland of the Pearl River approach to regional development. The strategy Delta and the Yangtze Delta. All of these plans are is a collection of projects, the most important of identified as top priority policies in the 12th Five- which are the West-East Electricity Transfer Proj- Year Plan (2011-2015). ect, the South-North Water Transfer Project, West- The West-East Electricity Transfer Project and East Gas Pipeline Project and the Qinghai-Tibet the South-North Water Transfer Project are still in

RIM Pacific Business and Industries Vol. XII, 2012 No. 45 21 progress, and it would be premature to question “Two Horizontal and Three Vertical” urbanization their benefits in relation to regional development strategy to the 12th Five-Year Plan, in addition strategies. However, the fact that economic growth to the Great Western Development Strategy, the in central and western China has not been accom- Strategy for the Revitalization of Northeast China panied by industrial migration, and the fact that and the Rise of Central China Plan. The previous population has become concentrated in eastern five-year plan called for the development of high- China, as discussed below, suggest that the results ly efficient and harmonious urban spaces along of regional development initiatives under the 11th a vertical axis encompassing coastal China and Five-Year Plan have not been entirely in line with stretching from Harbin to Guangzhou, and along the government’s objectives. horizontal axes from Lianyungang to Lanzhou and Between 2000 and 2010, the 15-65 population from Shanghai to Chongqing. In the 12th Five- increased by 128.62 million, or 14.1%(11). Fig. 21 Year Plan the concept was stated in more specific analyzes the contributions of provinces, cities and terms as a policy calling for the formation of 21 autonomous regions to this 14.1% increase. This city groups along two horizontal axes (Shanghai- age group can be seen as the working population, Chengdu, Lianyun-Urumchi) and three vertical and when we examine where these people moved axes (Dalian-Nanning, Harbin-Guangzhou, Huhe- to during the 10-year period, it becomes apparent haote－Kunming). The aim is to alleviate regional that there was absolutely no progress toward the gaps by exploiting each region’s comparative ad- alleviation of the tendency for population to con- vantages to drive urbanization that is sustainable centrate in the southeast and the Bohai Rim. Us- in terms of population, resources, the environment ing the regional classifications in Fig. 2, we find and industry (Fig. 22). that the southeast made the biggest contribution The incorporation of urbanization plans into at 5.4 percentage points, followed by the Bohai regional development strategies was prompted Rim (2.7 percentage points), the northwest (2.1 by the government’s strong sense of alarm about percentage points), the central (2.0 percentage rapid urbanization. China’s urbanization ratio (the points), the northeast (0.9 percentage points) and urban population as a percentage of the total pop- the southwest (0.9 percentage points). ulation) was low compared with other developing This situation led the government to add the countries because of the development of township

Fig. 21 Contributions to Growth in 15-64 Population

(% points) 2.5

2.0

1.5

1.0

0.5

0.0

▲0.5

Jilin Hebei Anhui Hubei Tibet BeijinHgenaSnhanxFiujian unnaJinangxi Henan Gansu Hainan Jiangsu ShaaYnxi Xinjiang Tianjian Guangxi NingQxiiangGhuaizi hou Zhejiang Shanghai Liaoning Sechuan Guangdong Shandong Heilongjiang Chongqing Inner Mongolia

Source: Compiled by JRI using China Statistical Yearbook (2010) and data from the fifth census (National Bureau of Statistics of China, http://www.stats.gov.cn/tjsj/pcsj/rkpc/dwcrkpc/)

22 RIM Pacific Business and Industries Vol. XII, 2012 No. 45 Fig. 22 The “Two Horizontal and Three Vertical” Urbanization Strategy

Southern Jizhong area

Taiyuan City Group Huhehaote City Group Priority urbanization Ningxia Lateral Economic Zone areas Major cities

Lanzhou-Xining area 23

1 Hachang area 9 24 10 17 Tianshan North Face area 25 18 Bohai Rim area 11 31 32 Donglong Gulf area 26 2 19 35 34 3 Zhongyuan Economic Zone 27 Guanzhong-Tianshui area Wanjiang City Group 20 36 Yangtze Delta area 5 4 12 37 6 28 Yangtze-Zhongyou area 21 Southern Zangzhong area Taiwan Strait West 29 Coast Economic Zone 7 13 Chengyu Economic Zone 8 30 15 14 33 Pearl River Delta area Central Yunnan area 22 Qianzhong area 16 Northern port area

1 Urumchi 9 Shijiazhuang 17 Huhehaote 25 Shenyang 33 Shenzhen 2 Xining 10 Taiyuan 18 Beijing 26 Qingdao 34 Jinan 3 Lanzhou 11 Yinchuan 19 Zhengzhou 27 Nanking 35 Lianyun 4 Chengdu 12 Chongqing 20 Hefei 28 Ningbo 36 Shanghai 5 Xian 13 Guiyang 21 Nanchang 29 Fuzhou 37 Hangzhou 6 Lhasa 14 Kunming 22 Guangzhou 30 Xiamen 7 Wuhan 15 Nanning 23 Harbin 31 Dalian 8 Changsha 16 Haikou 24 Changchun 32 Tianjin

Source: Compiled by JRI using http://www.gov.cn/2011lh/content_1817761.htm enterprises in the rural sector, and also because of migrated each year. This rise in the urbanization the effects of restrictions on population movement ratio is primarily attributable to migration, which under the household register system. However, the is expected to continue at an average of around urbanization ratio has been rising rapidly since 10 million people per year (World Bank [2012]), around 2000, and the rate of increase is not ex- and to the fact that most of people who migrate to pected to slow until around 2020 (Fig. 23). At the cities remain in the informal labor market (Miura time of the 2000 census, there were 144.39 mil- [2012a]). By 2050, China’s urbanization ratio is lion people who had been absent from their regis- expected to approach level in developed countries. tered domiciles for six months or longer. By 2010, The migration of labor, which is a production the number had risen to 261.39 million. Most of factor, actually helps to improve the sustainability these people are rural residents who have migrat- of economic growth, since individuals enhance ed to cities in search of employment. The figures their productivity by moving to cities to realize show that an average of 11.7 million people have their potential. The process is therefore essential

RIM Pacific Business and Industries Vol. XII, 2012 No. 45 23 Fig. 23 China’s Urbanization Ratio Conclusions （％） 100 Will China be able to achieve the balanced eco- 90 nomic development sought by the government in 80 an environment of rapid urbanization? The cur- 70 rent situation does not engender optimism. As is 60 50 apparent from the analysis in this article, it is not 40 possible to ascertain the real economic situation in 30 central and western China from the data that can 20 be obtained from the China Statistical Yearbook, 10 such as real GDP growth rates, for provinces, 0 cities and autonomous regions. To evaluate the 1950 60 70 80 90 2000 10 20 30 40 50 (Calendar years) sustainability of growth, we need to identify the China Developing countries sources of growth, and for that we need analyses Developed countries based on more detailed data, such as data from the Notes: Developing countries do not include less developed economic censuses. countries and China. The ratio is calculated urban population/total population. China currently has five national central cities Source: Compiled by JRI using UN, World Urbanization Prospects: The 2011 Revision (Beijing, Tianjin, Shanghai, Guangzhou, Chongq- ing), but the government is considering a plan to increase this to around 8-10, with most of the new to economic development and is a positive trend candidates, such as Shenyang City in Liaoning for the future. Problems are occurring because the Province and Changsha City in Hunan Province, concentration of population in a few coastal cit- located in regions other than the southeast and the ies has exceeded the capacity of those cities. This Bohai Rim(12). However, given that a regional de- is leading to slum formation and other urban ail- velopment strategy centered on the development ments, while also heightening social instability. of hardware infrastructure, such as electric power Since the time of the 11th Five-Year Plan, the and railroads, has been one of the factors driv- government has adopted policies designed to re- ing investment-led economic growth in central strict population inflows into major coastal cities and western China, it seems unlikely that the eco- and facilitate migration into small and medium- nomic base in these regions could be strengthened sized cities in central and western China. As is simply by changing administrative units. apparent from Fig. 21, however, population con- Of particular significance are trends in the pri- tinues to concentrate in the southeast and the Bo- vate sector, including privately-owned and indi- hai Rim. Efforts to stimulate the growth of urban vidual enterprises. Traditional regional develop- groups outside of these regions will be highly ment and urban planning strategies placed little significant not only economically but also from emphasis on the software aspects, such as the the political and social perspectives. There will promotion of private sector investment. A World be a change of leadership at the 18th National Bank survey of the investment climate in major Congress scheduled for this autumn. The “Two Chinese cities (World Bank [2006]) highlighted a Horizontal and Three Vertical” concept and the number of significant trends. First, the burden of achievement of balanced economic development taxes and fees on sales was 3.1% in the top 10% are vital goals, and China’s new leaders cannot of cities and 6.9% in the bottom 10%. Second, en- afford to allow initiatives in these areas to end in terprises in the top 10% of cities spent 36 days per failure. year on bureaucratic interactions, compared with 87 days in the bottom 10%. Third, customs clear- ance procedures took an average of 5.4 days in the top 10% of cities and 20.4 days in the bottom

24 RIM Pacific Business and Industries Vol. XII, 2012 No. 45 10%. These data show that it is wrong to assume that development will occur automatically in central and western China simply because regional development plans and urban plans have been formulat- ed. Central and western China have lagged far behind eastern China in the development of the private sector, and investment is carried out mainly by state-owned enterprises and joint stock limited companies (Miura [2012b]). Local governments in central and western China must work to cultivate and promote private enterprises by means of such measures as the expansion of investment opportunities through deregulation, as well as the sim- plification of procedures through administrative reform, and the expansion of financial services to supply funds to promising business ventures. Foreign direct investment is likely to be the catalyst for the development and promotion of private enterprises. In eastern China there was a virtuous circle in which investment led by foreign companies drove improvements in the investment environment and provided investment opportunities for private enterprises. If this same virtuous circle can be formed in central and western China, the sustainability of growth will be dramatically enhanced. When we ask if central and western China can follow the “flying geese” pattern of economic development, we are really asking whether they can break out of the guojin mintui (“state sector advance, private sector retreat”) pattern, whereby private enterprises are crowded out of markets by the growth of state-owned enterprises.

RIM Pacific Business and Industries Vol. XII, 2012 No. 45 25 7. Zhejiang Province’s share of the processing trade is ex- End Notes tremely low compared with its share of production and exports of textiles, footwear and hats, as indicated by the 1. This calculation is based on an exchange rate of 6.4629 economic censuses (Fig. 14). The reason for this is not yuan to the dollar (yearly average). known, but there is a strong possibility that are errors in the statistics, which equate the processing trade with production of textiles, footwear and hats, and that the contribution of textiles, footwear and hat manufacturing 2. The real GDP growth rate for all of China as published to the processing trade in Zhejiang may be extremely by the National Bureau of Statistics is substantially high compared with Guangdong and Jiangsu. lower than the growth rates for provinces, cities and autonomous regions. Over 20 of the 31 provinces, cities and autonomous regions have growth rates higher than the national figure. This unusual situation has existed 8. Until 2007, the China Statistical Yearbook included GDP since 1996. Normally it would be necessary to consider statistics for provinces, cities and autonomous regions the appropriateness of such high growth rates. However, from a distribution perspective. Simple addition of these there is no way to ascertain the precise growth rates of figures indicates that the labor share has fallen signifi- provinces, cities and autonomous regions. The discus- cantly, from 49.4% in 1993 to 40.3% in 2007. However, sion in this article will be based on the assumption that there are no data for 2008, and the labor share based on while the growth rates may be inflated, they can be seen the data published in 2009 is 46.5%. We have to doubt as indicating that central and western China are achiev- the credibility of these figures, since they indicate the la- ing higher growth than the east. bor share has risen by 6.2 percentage points in the space of just two years.

3. For the views of Chinese economists, see People.com, Gediyuqi GDP Zengsu“Xigao Dongdi” Zheshechu ze- 9. This abnormal situation, with the national figure exceed- nyangde xinhao? [Are predicted regional GDP growth ed by at least 20 of the 31 provinces, cities and autono- rates a signal of the “West High East Low” Phenome- mous regions, has continued since 1996. non?] (http://politics.people.com.cn/GB/1026/13807672. html) 10. Under the West-East Electricity Transfer Project, electric power will be generated in the west and supplied to the 4. Maeil Business Newspaper, January 10, 2010, Chugoku east. The aim of the South-North Water Transfer Project Tekko Gyoukai, Baishu/Gappei Kasoku ka Hokou Tou- is to supply water from the Yangtze to northern China. jicho ga Yosoku [Will M&A in the Chinese Iron and Under the West-East Gas Pipeline Project, natural gas Steel Industry Accelerate? Predictions by Baosteel CEO] from western China will be supplied to the east. The Xinhua Business Communication, (http://www.xinhua. Qinghai-Tibet Railway Project is an ambitious scheme jp/industry/metal/288518/) to build a railway linking Xining in Qinghai Province with Lhasa in the Tibet Autonomous Region.

5. HS61, HS62 and HS63 were defined specifically as textile products. 11. In both the 2000 and 2010 censuses, there are discrepancies between the national figures and the sums of figures provinces, cities and autonomous regions. Calculations of rates of increase and contributions were based on the 6. The RCA index is an indicator of comparative advantage figures for provinces, cities and autonomous regions. in exporting a particular type of good. An index of 1.0 or higher signifies that there is a comparative advantage in the product category concerned. For example, Country i’s comparative advantage for Product j can be calculated as 12. According to an article in Japanese on the Xinhua Busi- (value of i’s exports of j/i’s total exports)/(world exports ness Communication website (http://www.xinhua.jp/ of j/total world exports). socioeconomy/economy/286211/), a government study group recommended that the number of national central cities be increased to 8-10. The story was also carried in the November 2, 2011 edition of Mainichi Keizai Nyusu.

26 RIM Pacific Business and Industries Vol. XII, 2012 No. 45 8. Miura, Y. [2012b], Chugoku“Kokka Shihonshugi” no References Risuku－Kokushin Mintai no Saihyouka wo Tsujite [The Risks of “State Capitalism” in China－A Reassessment Japanese of the “State Sector Advance, Private Sector Retreat”], 1. Otsuka, K., Sonobe, T. [2004], Sangyo Hatten no Rutsu JRI, RIM, April 2012 to Senryaku － Nitchutai no Keiken ni Manabu [The Roots of and Strategies for Industrial Development － Learning from the Experience of Japan, China and Tai- English wan], Chisen Shobo 9. Akamatsu, K. [1962], “A Historical Pattern of Econom- ic Growth in Developing Countries”, The Developing Economies, Preliminary Issue No.1 (March-August), 1-2 2. Kwan, C.H. [2009], Seiko Toutei ni Tenjita Chugoku ni Okeru Keizai Seichou－Arawarehajimeta Kokunainban Gankou Keitai no Kouka [Economic Growth after Chi- 10. Chen, Q., Goh, C.C., Sun, B. and Xu, L,C. [2011], Mar- na’s Shift to a West High-East Low Pattern－The Emerg- ket Integration in China, Policy Research Working Paper ing Benefits of a Domestic Flying-Geese Pattern] (http:// 5630, World Bank www.rieti.go.jp/users/china-tr/jp/ssqs/090605ssqs.htm)

11. The American Chamber of Commerce in South China 3. Kojima, K. [1958], Shihon Chikuseki to Kokusai Bungyo [2012], 2012 White Paper on the Business Environment [Capital Accumulation and International Divisions of in China Labor], in Keizai Seisaku to Kokusai Boeki [Economic (http://www.amcham-southchina.org/amcham/static/ Policies and International Trade] (a collection of essays publications/whitepaper.jsp) published as a 60th birthday tribute to Dr. Kaname Aka- matsu), Shunjusha 12. Simarro, R.M. [2011], Functional Distribution of In- come and Economic Growth in the Chinese Economy, 4. Kojima, K. [2000], Gankoteki Keizai Hattenron － Sai- 1978-2007, School of Oriental and African Studies Uni- kento [A Reassessment of the Flying Geese Theory of versity of London, Department of Economics Working Economic Development], in Hitotsubashi University Papers No.168 Hermes-IR, Surugadai Keizai Ronshu 9 (2) [Surugadai Economic Essays 9 (2)] 13. World Bank [2006], China Governance, Investment Climate, and Harmonious Society: Competitiveness En- 5. The Japanese Chamber of Commerce and Industry in hancements for 120 Cities in China, Report No.37759- China [2012], Chugoku Keizai to Nihon Kigyou 2012 CN Nen Hakusho [2012 White Paper on the Chinese Econo- my and Japanese Businesses] 14. World Bank and Development Research Center of State Council [2012], China 2030－Building a Modern, Har- 6. Miura, Y. [2010], Fuanteika Suru Chugoku－Seicho no monious, and Creative High-Income Society Jizokusei wo Yurugasu Kakusa no Kouzu [Instability in China－Growth Sustainability Threatened by Disparity], Toyo Keizai Shinposha Chinese 15. Zeng, G., Li, H., Tian, H. [2011], Jiagong Maoyi Tidu Zhuanyi Yanjiu － Jiyu“Yanxing Lilun”de Shijiao [The 7. Miura, Y. [2012a], Chugoku no Shakai Anteika to Hat- Gradient Transfer of the Processing Trade － From the ten Moderu no Tenkan wo Habamu Infomaru Sekuta no Perspective of the “Flying Geese Theory], in Hebei Uni- Kakudai [China’s Efforts to Achieve Social Stability and versity of Economics and Business, Jingli Yu Guanli Change its Development Model Hindered by an Expand- [Economics and Management], January 2011, Vol.25, ing Informal Sector], JRI, Business & Economic Review, No. 1 March 2012

RIM Pacific Business and Industries Vol. XII, 2012 No. 45 27 16. Department of Rural Social and Economic Survey, Na- tional Bureau of Statistics, Zhongguo Nongcun Zhuhu Diaocha Nianjian [Yearbook of Rural Household Sur- veys in China]

28 RIM Pacific Business and Industries Vol. XII, 2012 No. 45