Infant Mortality Rate in 2005
                                                                                        Heil...
How have regional disparities in their different
            dimensions evolved since the revolution?

                   ...
Rural-Urban and Inland-Coastal Inequality
                                       q     y
16                               ...
Why No Convergence?
• I an ideal world, if assuming integrated factor
  In id l          ld         i i t     t df t
  mar...
Walk Through History:
                       g        y
         China’s Development Strategy

• Heavy industry-led develo...
Rural Reform
• Abolished the inefficient collective farming

• Rural h
       l household responsibility system –
        ...
Rural-urban Disparity and HIDS
                                p y


     Great Leap Forward/Great Famine
                ...
Open U
                  O    Up
• In the late 1970s, China set up 14 special
  economic zones in the coast. Allow some pe...
2. Shanghai




          1. Shenzhen
Page 11
Inland-Coastal Disparity and Openness
                       p y         p
 Planning era                Reform era
80     ...
Decentralization
              Decentrali ation
• Expenditures tie more closely to revenue.

• Local government officials’...
Regional Inequality and Decentralization
          g         q     y
90                                                40....
Go West Strategy
• Started in 1999.

• Massive infrastructure investment in the west.

• Set up Chongqing as a province-le...
Other Regional Strategies
• “Rising Central”

• “Reinvigorating Northeast”

• Setting up a new economic zone in Tianjin.
4. Tianjin
          3. Chongqing
                                  2. Shanghai




                         1. Shenzhen
P...
New Socialism Countryside
• Abolished agricultural taxation

• Provided direct grain subsidies to farmers

• Waived tuitio...
Regional Inequality 1952-2007
           g         q     y
                       Gini                      Stimulus packa...
Conclusions
• Development strategies and economic policies
  have affected the course of economic growth and
  income dist...
The Limit of Decentralization

  •   When there is large regional variation,
      decentralization may not work well.

  ...
Coastal Region: Race to the Top
•   Conditions:
    • Regions are similar;
    • There is a mobile factor of capital
     ...
Uneven Fiscal Burden




       Zhang (2006)
Regressive Tax Rate in China
  g




          Zhang (2006)
Two spirals
•   Tax burdens are extremely high in poor regions with
    agriculture as the major means of production.
    ...
Per Capita GDP in 2008
                                                                                  Heilongjiang

   ...
The Impact of Openness
• In a closed economy, regional comparative
  advantage is mainly determined by agricultural
  prod...
The Impact of Decentralization
• But decentralization has strong distributional
  impact.

• Centralization: more transfer...
Regional Inequality and Harmonious Development in China
Regional Inequality and Harmonious Development in China
Regional Inequality and Harmonious Development in China
Regional Inequality and Harmonious Development in China
Regional Inequality and Harmonious Development in China
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Regional Inequality and Harmonious Development in China

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Xiaobo Zhang
15th September 2009, International Food Policy Research Institute (IFPRI), Washington D.C.

Published in: Technology, Economy & Finance
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Regional Inequality and Harmonious Development in China

  1. 1. Infant Mortality Rate in 2005 Heilongjiang Inner Mongolia Jilin Xinjiang j g Liaoning Beijing Tianjin Gansu Shanxi Ningxia Hebei Qinghai Shaanxi Shandong Jiangsu Tibet Anhui 73/1000 Sichuan Hubei Shanghai Zhejiang Guizhou Hunan Jiangxi 3/1000 Fujian Infant Mortality Rate Yunnan Guangxi Guangdong Taiwan < 5.0 Hong Kong 5.1 - 10.0 Macau 10.1 15.0 10 1 - 15 0 a a Hainan 15.1 - 30.0 > 30.0 Urban/Rural IMR = 2.2 Not Included Inland/Coast IMR = 2.1
  2. 2. How have regional disparities in their different dimensions evolved since the revolution? Gini 40 35 30 25 20 15 Outcome (per capita consumption at the provincial level 10 In six decades) in three dimensions: Overall O ll 5 Rural-Urban (RU) Inland-Coastal (IC) 0 1950 1960 1970 1980 1990 2000 2010
  3. 3. Rural-Urban and Inland-Coastal Inequality q y 16 4 14 12 3 10 8 2 Rural-urban Inland coast Inland-coast 6 4 1 2 0 0 1950 1960 1970 1980 1990 2000 2010
  4. 4. Why No Convergence? • I an ideal world, if assuming integrated factor In id l ld i i t t df t markets and full factor movement (no frictions), market forces will equalize marginal returns to factor inputs, leading to convergence across regions and sectors. g • Development strategies and economic p p g policies matter to the observed spatial inequality.
  5. 5. Walk Through History: g y China’s Development Strategy • Heavy industry-led development strategy in the 1950s – Vi l d China’s comparative advantage at the time Violated Chi ’ i d h i that capital was scarce and labor was abundant. – Formed Hukou (Household registration system) and ( g y ) create rural-urban gap • B the late 1970s, Chi had experienced the By h l 1970 China h d i d h Great Famine and Cultural Revolution and its economy was at the verge of collapse.
  6. 6. Rural Reform • Abolished the inefficient collective farming • Rural h l household responsibility system – h ld ibili grant farmers land user rights and allow themto make their own production h k h i d i decisions.
  7. 7. Rural-urban Disparity and HIDS p y Great Leap Forward/Great Famine d/ i 60 16.0 Cultural Revolution 66-76 14.0 50 12.0 40 10.0 30 8.0 HID ru 6.0 20 4.0 10 Rural reform 2.0 0 0.0 1950 1960 1970 1980 1990 2000 2010
  8. 8. Open U O Up • In the late 1970s, China set up 14 special economic zones in the coast. Allow some people (regions) to get rich first. first • Cheap labor and land + abundant capital from overseas made the coastal area a growth engine in the 1980s.
  9. 9. 2. Shanghai 1. Shenzhen Page 11
  10. 10. Inland-Coastal Disparity and Openness p y p Planning era Reform era 80 3.5 70 3.0 60 2.5 50 Openness 2.0 40 Trade ti T d ratio 1.5 Inland-coastal disparity 30 1.0 20 0.5 10 0 0.0 1950 1960 1970 1980 1990 2000 2010
  11. 11. Decentralization Decentrali ation • Expenditures tie more closely to revenue. • Local government officials’ promotion is based on their performance in economic growth and revenue growth. growth • Horizontal inter-judiciary competition serves as a commitment device for local governments to create more favorable investment environment.
  12. 12. Regional Inequality and Decentralization g q y 90 40.0 80 35.0 70 30.0 60 25.0 50 20.0 Decentralization 40 Gini 15.0 30 10.0 10 0 20 10 5.0 0 0.0 1950 1960 1970 1980 1990 2000 2010
  13. 13. Go West Strategy • Started in 1999. • Massive infrastructure investment in the west. • Set up Chongqing as a province-level city, enjoying the same status as Shanghai and Beijing .
  14. 14. Other Regional Strategies • “Rising Central” • “Reinvigorating Northeast” • Setting up a new economic zone in Tianjin.
  15. 15. 4. Tianjin 3. Chongqing 2. Shanghai 1. Shenzhen Page 17
  16. 16. New Socialism Countryside • Abolished agricultural taxation • Provided direct grain subsidies to farmers • Waived tuitions of nine-year basic education in vast rural areas • Increased public investment in rural areas • ……
  17. 17. Regional Inequality 1952-2007 g q y Gini Stimulus packa 40 Go West 35 30 25 20 ? 15 New Countryside Movement & 10 Building Harmonious Society 5 0 1950 1960 1970 1980 1990 2000 2010
  18. 18. Conclusions • Development strategies and economic policies have affected the course of economic growth and income distribution distribution. • Changes in regional inequality match the phases of Chinese history remarkably well
  19. 19. The Limit of Decentralization • When there is large regional variation, decentralization may not work well. • There is an increasing scale of economy due to the fixed cost of administration. • With the presence of increasing scale, decentralization may force capital flow from poor to rich regions.
  20. 20. Coastal Region: Race to the Top • Conditions: • Regions are similar; • There is a mobile factor of capital p • Consequence: • Less tax on capital but more on land • Better investment environment • MMany iinnovations at the l l l l i h local level
  21. 21. Uneven Fiscal Burden Zhang (2006)
  22. 22. Regressive Tax Rate in China g Zhang (2006)
  23. 23. Two spirals • Tax burdens are extremely high in poor regions with agriculture as the major means of production. • Downward spiral: small tax base, more extraction base from limited agricultural surplus and nonfarm activities, worsening investing environment, and lowering public goods provision. • They are low in developed regions initially with a large nonfarm sector. • Virtuous cycle: light tax burden for each enterprise, y g p , more public inputs, better investing environment.
  24. 24. Per Capita GDP in 2008 Heilongjiang Inner Mongolia Jilin Xinjiang Liaoning Beijing Gansu Hebei Ningxia Shanxi Shandong Qinghai g Shaanxi Henan Jiangsu Tibet Anhui Sichuan Hubei Shanghai Zhejiang Hunan Jiangxi Guizhou GDP Per Capita Fujian (yuan) Yunnan Guangxi Guangdong Taiwan $10,000 Hong Kong Macau < 10000 10001 - 15000 $1,000 $1 000 Hainan 15001 - 20000 20001 - 40000 Urban/Rural income=3.3 > 40000 Not included Inland/Coast income=2.2
  25. 25. The Impact of Openness • In a closed economy, regional comparative advantage is mainly determined by agricultural production conditions. • When opening up, regional comparative advantage is i evaluated in a global context. l di l b l • In addition, many policy privileges are granted to coastal regions. t l i
  26. 26. The Impact of Decentralization • But decentralization has strong distributional impact. • Centralization: more transfers and less incentives for local governments • Decentralization: less transfers, more incentives.

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