Closing the Gap Between China’s Coast and Interior

I have a column in the January 2011 issue of China Economic Review, a special issue devoted to examining China’s new Five Year Plan.  My own article focuses on the effort to address China’s regional disparities in income and development.  You can access the original version here.

Closing the Gap

Infrastructure investment in China’s interior will only pay off if local officials devise competitive development plans, says Tsinghua’s Patrick Chovanec

Visit one of China’s coastal cities, where much of the country’s trade and investment is concentrated, and you might easily believe you’ve landed in Tokyo, Seoul, or Singapore.  Travel to a village in China’s interior and you might just as easily think you’ve stumbled into one of the poorest corners of Africa.

One of the top priorities of the 12th Five-Year Plan will be reducing China’s huge, and often disturbing, wealth gap – a gap that propels at least 200 million migrants every year to fi nd jobs along the more prosperous coast.  In 2009, China’s 12 coastal provinces (out of 31) accounted for 65% of the country’s GDP, and had a collective per capita GDP 50% higher than the national average.

The most obvious solution lies in infrastructure.  There are thousands of more remote places where new highways, bridges, railroads, and airports are desperately needed to connect both people and products to outside markets.

China has attracted worldwide attention with its ambitious plans to ferry passengers across the country in trains running on ultra-modern high-speed rail lines, freeing up existing capacity to handle other goods. A better, if less glamorous, approach is to develop the country’s intermodal freight network.

While America’s passenger rail services leave something to be desired, its freight rail system is the best in the world. Inland Chinese cities like Chengdu or Lanzhou are really no more remote from global markets than Chicago or Denver; the difference is a robust and efficient logistics network. With container terminals, rail yards, and modern storage facilities in place, more industries would find it plausible to locate in China’s interior, alleviating the need for workers to travel so far from home to find a job.

Rather than moving people more quickly, the country should build a rail system that moves goods and makes people more productive where they already are.

As China grows more interconnected, local officials face another challenge: identifying and capitalizing on their city or region’s unique competitive advantage. All too often, when I travel around China, I hear provincial or municipal leaders recite the same standardized list of “pillar industries” they are trying to foster: automobiles, pharmaceuticals, information technology, real estate, and financial services. They all want to replicate Shanghai’s Pudong New Area in their own backyards.

But just as America only has one Manhattan, China has no need for hundreds of Pudongs. Instead, officials need to think seriously about how their local plans fi t into a broader, highly competitive picture. 

The first step is seeing beyond the simple dichotomies of coast and interior, urban and rural.

Lumping the country’s economically advanced areas into one basket, and its underdeveloped areas in another, glosses over crucial distinctions, and offers little in terms of strategy. China is actually composed of at least nine different regions, each with its own character, history, and economic dynamics.

Take the three southwest provinces – Guangxi, Guizhou, and Yunnan – which are poor and desperate for infrastructure. Officials are wisely capitalizing on its natural scenic beauty as a tourist draw and its strategic location as a cross-border trade gateway to Southeast Asia.  Less wisely, they are recasting the region’s land- and water-hungry sugar industry into a dubious green energy play in order to grab more central government subsidies.

Or take the three provinces of the northeast: Liaoning, Jilin, and Heilongjiang. Officials there are shrewdly capitalizing on the region’s ties to Japan and Korea to attract foreign investment and serve as an outsourcing center.  Less shrewdly, they’ve bought into state-funded schemes to construct vast port and real estate projects on the scale of Pudong, and to repackage bluecollar Shenyang as a “financial capital.”

These two examples illustrate the temptation that local Chinese officials face to adopt cookiecutter solutions, as well as the immense potential that can be realized by those who have the vision to carve out rich and sustainable competitive niches.

Developing China’s interior isn’t a matter of extending or reproducing the success of its coastal regions. It’s about enabling new kinds of success that complement, rather than compete with, what has already been achieved.

BTW, for those who are interested in reading more about the “nine regions” I cited, check out my November 2009 article in The Atlantic, called “The Nine Nations of China,” which I have reposted here.  You can access the individual region descriptions by clicking on the links in the population comparison chart.