Rethinking Regional Disparity in China

Abstract

Income disparities in China decreased both across provinces and across three transprovincial areas from 1978 through 1984. After 1984 there was an increase in disparity across the three areas, but there was no change across provinces. The faster growth of the coastal area can be attributed to the growth of the previously relatively poorer areas of the eastern seaboard. But this was not realised at the cost of growth in other areas; instead it contributed to overall national economic growth. International trade and foreign direct investment are the main driving forces behind the changes in regional disparity. The reasons for the concentration of trade and foreign investment in the coastal area are its inherent comparative advantage in terms of lower labour costs, better infrastructure facilities, close relations with overseas Chinese, favourable geographic location, as well as national industrial policies that protect the domestic market from foreign investment. The central government's preferential policies towards the coastal area were a necessary, but not sufficient, condition for such a concentration of foreign trade and investment.