Saturday May 10, 2008
ASIA FOCUS : CHINA KNOWLEDGE
The jigsaw puzzles of China's economy
Development disparities among provinces keep many people from enjoying
prosperity
TIGER TONG
China, the world's second largest goods exporter and fourth largest
economy, is growing at the fastest pace among all major economies. But
there is a vast difference in regional economic development in China
among the 31 mainland provinces. Instead of being a homogenous
country, China is more like a macrocosm of the world.
Grouped by geographic location, the 31 mainland provinces are divided
into four regions: coastal (10 provinces), northeastern (3), central
(6) and western (12). As foreign investment and foreign trade have
been the most important catalysts for China's growth in the past 30
years, the coastal region has moved far ahead of other regions. In
2007, seven coastal provinces were among the 10 biggest economies,
with Guangdong, the first to open to the world, in top spot with a GDP
exceeding US$400 billion. Henan, the most populous province in China
located in the central region, ranked fifth, the highest among all non-
coastal regions (see chart).
Calculating the share of the coastal region in China's economy is not
as easy as it appears. Data released by the National Statistics Bureau
for a long time have not tallied with data from provincial-level
statistical bureaus. For example, while the National Statistics
Bureau's preliminary data showed that China's GDP grew 11.4% in 2007
(now revised to 11.9%), the weighted average GDP growth rate based on
individual provincial data was 14.2%.
No doubt, local officials tend to inflate GDP figures for their own
interests. Nevertheless, it is also plausible that the National
Statistics Bureau would keep the figure down to avoid concern about a
potentially overheating economy. Probably, the true figure is in
between.
Therefore, the sum of individual provincial GDP figures was used to
calculate the share of different regions in China's economy. In 2007,
the 10 provinces in the coastal region accounted for more than 55% of
the economy (see chart) despite occupying only 9.5% of the total land.
Despite that, the region's GDP share was slightly lower than in 2006,
but still 1.2 percentage points higher than in 2003.
Indeed, the coastal region takes much bigger shares in terms of
foreign trade and foreign direct investment (FDI). In 2007, the region
accounted for 89% of China's foreign trade and 70.9% of utilised FDI.
Again, it is worth noting that provincial FDI figures are normally
"inflated" and on a much-bigger scale than GDP figures. In contrast,
foreign trade figures are among the few accurate sets of data in
China, and provincial data tally closely with national figures.
In terms of foreign trade and foreign investment, the twin deltas in
the coastal region remain dominant in China. In 2007, 66.3% of China's
foreign trade and 45% of utilised FDI took place in the Yangtze River
Delta, comprising Shanghai, Jiangsu and Zhejiang, and the Pearl River
Delta (Guangdong), the backbone of the export-driven economy.
Besides aggregate figures, at an individual level, there is also a
bigger gap between coastal and inland China. For example, Shanghai
ranks first in terms of GDP per capita (US$8,500 in 2007). In
contrast, GDP per capita in Guizhou, the poorest province, was only
$900, about 10.6% of the Shanghai figure.
In general, vast regional disparities are normally not a desirable
thing for a country's economic growth as they can trigger serious
social problems. But on the other hand, it indicates that there is
still plenty of room to grow in China.
After 30 years of development, the operating cost, including labour
and land in the coastal region, has been soaring rapidly, which is
eroding the ascendance of China as the world's factory.
But as its vast hinterland still lags behind the coast, besides
shifting production lines to Vietnam or Cambodia, some businesses are
seeing those underdeveloped regions in China as another option. Faced
with the increasing gap between the coastal and interior regions,
China is striving to build more expressways and railways to overcome
the single biggest impediment to inland development: logistics.
Perhaps the past 30 years were just the first wave of China's
development. In the near future, we will see an accelerated micro-
globalisation within the robust economy. To put it simply, Shanghai is
more like today's United States while Guizhou is more like China
decades ago.
Tiger Tong is an analyst with China Knowledge, a premier provider of
trade and investment information on China. Opinions expressed are his
own.
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