How has the Western Development Strategy affected regional inequality in China? (III)
Part 2 - The Western Development Strategy: Origin and Implementation
Phases of Chinese development
The emergence of the Western Development Strategy (WDS) (‘Xibu Da Kaifa’ 西部大开发) is
best understood within the context of Chinese development phases. From the founding of the People’s Republic of China (PRC) on 1st October 1949, China’s development strategy has been marked by three distinct phases.
Balanced development (1949-1978)
Under the chairmanship of Mao Zedong and ideology of Maoism, government policy sought to promote similar growth among the provinces, seeing the interregional imbalance as irrational (Yang 1990). Primarily, this was because: (i) production was too far away from the materials needed and from the interior market; (ii) government wanted to exploit the resources of the inland (State Statistical Bureau 1984); (iii) there were security concerns of having a concentration of industry in an area so historically vulnerable (Yu Di et al 1983). For example, in the First Five Year Plan (FYP) of 1953-57, more than half of total industrial investment and two-thirds of industrial projects were moved to the inland provinces (Kirkby 1985), for which fiscal centralisation was required, redistributing revenue from the wealthy to the poor provinces (Lardy 1975). Due to the turbulence caused by the Great Leap Forward, Cultural Revolution, Vietnam War, and isolation from the international community, the security concerns outweighed the egalitarian (Fan 1995). The “Third-Front” or “san xian” (三线) strategy of moving industry away from high-risk areas privileged remote inland areas, but their attractiveness in terms of remoteness meant that they lacked infrastructure and agglomeration economies, being more inefficient and costly.
According to some research, inequalities were reduced, reflecting Mao’s desire to guarantee a minimum standard of economic security for all. On the other hand, consumption was sluggish and investment was unproductive. Mao’s development strategy of egalitarianism and self-reliance had ignored comparative advantage (Liu 1984), and therefore, equity had come at the cost of efficiency (Yang 1990, p.240). A number of studies suggest Mao’s spatially-biased investment policy had not reduced uneven regional development (Paine 1981; Luk 1985; Cole 1987; Walker 1989; Tsui 1991).
Unbalanced development (1979-1999)
Marxism-Leninism-Maoism continued to officially guide the policy of the Chinese Communist Party (CCP), but the interpretation and application of the doctrine changed substantially. The overwhelming preference of policymakers became for efficiency over egalitarianism (Zhou & Ru 1986). This preference is best summarised by former paramount leader Deng Xiaoping’s view that some should be allowed to get rich first in order to create wealth (Wang & Zeng 1988; Hsu 1991). Uneven development was seen as necessary for efficiency (Fan 1995). Maoist redistributive policies were seen to have been a disaster (Liu 1986). In their place, neoclassical regional development theory and the ‘stages of development’ argument gained ground (Hsu 1991), especially the inverted-U model (Kuznets 1955; Williamson 1965), backwash and spread (Myrdal 1957; Richardson 1976), and the core-periphery model (Friedmann 1966). Collectively, these theories were used to argue that China was in an early stage of development, and so in the short run, regional inequality would be inevitable (Zhang 1989). Influenced by Smithian and Ricardian economics, division of labour, regional specialization, and comparative advantage dominated policy (Leung & Chai 1985; Chen 1987), giving rise to the “three-economic-belts” view that became influential (Fan 1995), conceptualizing China as three broad regions – the east, centre, and west.
Figure 1: Regional Inequality (1953-97). (Source: Wu (2004) p. 56)
Deng’s policy of uneven development was predicated on ‘step-ladder theory’ (Yang 1990), also known as ‘trickle-down economics’, where growth would diffuse from east to west over time (Yang et al. 1988). Open zones (Open Coastal Cities (OCCs) and Special Economic Zones (SEZs)) spread among the coastal provinces, using spatially-biased ‘preferential policies’ (qingxie zhengce 倾斜政策) that granted favouritism and liberalisation in investment, foreign-exchange, prices, and investment policy (Xu 1989; Zhang 1989).
The preferential policies of the Deng years institutionalised selective and concentrated coastal growth. Fan highlights the problem succinctly:
“The dilemma of the interior provinces is apparent. They sell primary and agricultural goods at low prices while they buy industrial goods at high prices from coastal provinces; coastal provinces, on the other hand enjoy low-priced raw materials from the interior as well as the substantial profits from selling high-priced products manufactured from these raw materials.” (Fan 1995, p.426)
The problem of “unequal competition” (Li 1991; Liu 1991), compounded by lower revenue remittances by wealthy provinces during a period of fiscal decentralisation (Prime 1991), resulted in revenue from the inland being transferred to the coast (Tang 1991; Tang et al. 1993)
Coordinated development (2000-present)
The assumption that the uneven development strategy would cause trickle down benefits did not materialise (Shi & Ping 2004). Despite opening up preferential policy support and a competitive environment for the hinterland and inland provinces in 1991 and 1992 (Gao & Tong 2008), the cumulative advantage the coastal provinces gained during the 1980s became crystallised and insurmountable (Lu & Deng 2011). The east benefited more than the centre or west from the uneven development phase (Guo et al. 2002). As a result, regional disparities spiked from the 1990s (Jian et al. 1996; Démurger 2001; Grewal & Sun 2002; Lin & Liu 2005; Zhang & Kanbur 2005; Fan & Sun 2008; Fan et al. 2010). China’s Gini coefficient for income rose from 0.33 in 1980 to 0.47 in the early 2000s (Fan & Sun 2008, p.1), which the World Bank argued was the fastest such increase ever seen (Editorial 2005, p.9). Unprecedented levels of migration from inland to coastal provinces were caused by this widening gap (Fan 2008), contributing to unrest and dissent (Wang & Hu 1999; O’Brien 2002; Lee 2007; Fan & Sun 2008).
The Chinese government began to recognise the significant spike in regional inequality and from the late 1990s, the WDS led a raft of regional policies designed to develop the inland areas with a focus on the west (Tian 2002; Wen 2005). The Ninth Five-Year Plan (1996-2000) specifically aimed to reduce regional inequality. Government policy recognized the role interregional trade could play for regional development (China Communist Party Central Committee 2005), and planned to channel huge investment into infrastructure to stimulate interregional trade based on comparative advantage (He & Duchin 2009). In addition to the WDS, further regional development programmes such as the “Rise of Central China” and “Revitalise Northeast China” were introduced to further domestic demand and interregional trade (Chen & Zheng 2008). Under the premiership of Zhu Rongji, China announced the WDS in 1999 and it was formally implemented in 2000 (Zhu 2000).
Western Development Strategy (WDS)
The WDS encompasses a “a vast and sprawling number of policies and objectives” (Golley 2007, p.119). Learning from Mao’s disastrous Third Front mass economic campaign, President Jiang Zemin urged careful analysis and long term policy planning over “rushing headlong into mass action” (People’s Daily 2000a). The policies that make up the WDS broadly fall under the following categories.
i) Infrastructure
The majority of WDS investment has been for transport, urban infrastructure, communication, energy and irrigation (Tian 2000b). An extensive system of roadbuilding was ordered, including 12,600km of national highway, 210,000km of local and regional highways, 15,000km made up by eight interprovincial highways and 150,000km for township and village roads. For rail, an expansion of the train network included the Qinghai-Tibet and Chongqing-Tibet railways, and a light-rail service for Chongqing. The program also targeted twenty airports for enlargement, playing a role as national and regional hubs. A 4,200km gas pipe from the natural gas reserves in Xinjiang was also assessed (National Development and Reform Commission 2000), as well as plans for expansion of hydropower-based power generation and several large scale projects for irrigation.
ii) Environmental projects
By promoting environmental protection, the Chinese government seeks to reduce the damage caused by disasters like droughts and floods. These projects include afforestation in the Yangtze region and prohibitions on cutting natural forests in Gansu, Shaanxi, Sichuan and Yunnan (People’s Daily 2000c), controlling deserts through restoration of forests and pastures (Lai 2002), and using shelter forests in the northern region.
iii) Economic adjustments
The Chinese government is seeking to exploit the comparative advantage of the west (minerals, crops, cattle, tourism) as well as high-tech industries (Tian 2000b, pp.11–12). The west’s unique attractions – for example, the Terracotta Army of Xi’an, the tropics of Xishuangbanna, and the Silk Road – make tourism a valuable sector for a future prosperous west (Du et al. 2000, pp.115– 116). Furthermore, the west is China’s leader in nuclear, aviation, and aerospace sectors, and is a significant player in other fields like solar and biotech. The WDS program hopes to use these advantages in support of developing high-tech industry (Bai 2000, pp.375–378).
iv) Research and Development/Human Capital
One of the west’s big challenges is brain drain. Through improved funding, training, and research facility support, the WDS aims to encourage the relocation of university teachers and students from coastal to eastern provinces (People’s Daily 2000a). The west has seen an increase in college and university funding (Lai 2002). The government has also emphasised the importance of population planning as for many years, villages had violated the one child policy, putting great strain on the northwestern ecosystem (People’s Daily 2000b), although many, particularly Xinjiang Uighurs, are skeptical and see population control as a means to dilute ethnic minorities (Mackerras 1998).
v) FDI and trade
The state introduced new preferential policies for the western region after recognising that a ‘soft (policy) environment’ (‘ruan huanjing’ 软环境) (Chung et al. 2009) left the west with limited FDI.
In brief, the new preferential policies have given favourable tax rates to investment projects, upgraded ‘developmental zones’ to ‘national economic and technological development zones’, and give more ability for foreign firms to extract minerals, construct infrastructure, and pilot projects (Lai 2002). The west is also set to play an important role in the new Silk Road known as the ‘One Belt One Road’ initiative (‘yi dai yi lu’ 一带一路), exporting into Central Asian markets (Fang & Chen 2000, pp.398–413).
Aims
Whilst the literature suggests many disparate aims for the WDS, there are two convincing arguments that command the widest scholarly consensus. Firstly, the government aims to reduce interregional inequality between the inland (particularly the west) and the coastal provinces, as discussed earlier in this paper. The share of national GDP continued to skew eastward in the reform period. From the 1978-1995 period, the coastal share of GDP increased from 52.5% to 58%, decreased in the centre from 29.7% to 26.5%, and in the west from 17.8% to 14.5%. By 2000, the inland region accounted for 90% of China’s ‘poor’ (Fang & Chen 2000, p.211). Growing discontent in the inland region, which even led to the inland provinces being unwilling to export materials to the coast (Xu et al. 1992, pp.267–278), gave impetus to calls for the inland regions to be ‘compensated’ with even greater preferential policies than the coast had received (Yang 1997, p.118).
The second motivator is unity and national security. 56% of China’s ethnic minorities and two- thirds of the country’s borders are made up by the inland provinces, particularly in Tibet and Xinjiang where 94% and 61% of the population are non-Han Chinese and share large contested borders with neighbouring countries. These provinces also contain the most notable separatist movements, influenced primarily by history and demographics (Tian 2000a, pp.6–7). In addition to domestic terrorism, China fears involvement of foreign countries in its ethnic affairs,stemming from the 1950s experience of the CIA training Tibetan guerrilla soldiers to fight the People’s Liberation Army (Knaus 1999).
Ultimately, as Lai describes,
“by initiating the WDS, Beijing hopes to lift the living standard of ethnic minorities, rid separatism of its economic catalysts, and minimise the ethnic clashes and opportunities for Western interference” (2002, p.450).
For a further discussion of factors including desire to stimulate domestic demand, structural reforms, and ecological improvement, see Lai (2002).
Scholarly view
Much has been written about the nature of inequality in China, which will be covered in the next chapter. Much less has been written on the WDS. In sum, scholarly work contests the effect of the WDS. The pessimistic view, best represented by Grewal and Ahmed (2011), is that whilst living standards have risen significantly in the western provinces, the western region still lags behind significantly in terms of their share of most economic indicators. According to this view, regional disparities have increased not because the west has not grown, but that the east’s cumulative advantage and consistently high growth rates have led to a divergence in economic outcomes. This echoes the earlier prediction of Yang (1990). On the other hand, optimists like Lu and Deng (2011) argue that the WDS has been a success because it has reversed the economic development prospects for the western region. Liu, Wang, and Hu (2009) find that the increased growth of the western provinces has put them on course for convergence, rather than divergence, with the east. More recently, Dai (2016) finds that interregional inequality has decreased since the launch of the WDS, but that there has been a rise in western intraregional inequality. In the same study, Dai finds that Yang’s (1990) prediction for growing east-west interregional inequality holds for the 1990s but not for the period following the WDS.
The diverse findings of WDS research are reflective of measuring differences within the studies. Firstly, a major distinction between the studies is what is classified as a “western” province. The WDS has included Inner Mongolia and Guangxi as part of the regional development project, which has therefore led scholars to classify these as “western”. Previous geographical interpretations of China had, however, classified Inner Mongolia as a “central” province and Guangxi as an “eastern” one. This classification will significantly affect any conclusions we may have about regions, since Guangxi would be poor by eastern standards but above average in the west. Inner Mongolia, if included in the west, would perform significantly better than other western provinces in most economic indicators, distorting averages and the western share of national economic outcomes. Secondly, WDS research has used different measures of economic activity, from economic growth (Lu & Deng 2011; Liu et al. 2009) to gross regional product (Grewal & Ahmed 2011) and output of industrial sectors (Dai 2016), to assess regional inequality. Thirdly, time has given more recent research a wider scope with which to analyse trends. Due to the lagged-effects of infrastructure investment, meaningful conclusions were difficult to draw from the decade immediately following the launch of the WDS.
Summary
This chapter began by outlining the three phases of Chinese development – balanced, unbalanced, and coordinated. It went on to outline the policy areas of the WDS and the two major motivations behind the regional development strategy – regional inequality and national integrity. Finally, a summary of the scholarly verdict on the WDS was presented. In the next chapter, I present a review of the relevant literature, before positing the hypothesis being tested by this paper.