China’s Steps to Reduce Income Inequalities Offers Benefits for Asia-Pacific
Bangkok (UN Information Services) – China’s efforts to reduce income inequalities within the country are showing signs of encouraging progress through government trade and investment policies, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) reports in its latest regional survey.
The Economic and Social Survey of Asia and the Pacific 2008 notes that China’s development programmes towards the western provinces also provide benefits for neighbouring Asia-Pacific economies from greater regional trade as a vehicle to growth. Growth was also underpinned by greater foreign direct investment and backed by research and development.
The “Go West” policy, started in 1999, is aimed at narrowing per capita gross domestic product income differences, currently considered among the highest in the world, the Survey says. By 2006, the programme saw more government spending in three quarters of western provinces compared to the majority of coastal provinces.
Preliminary signs in 2005/06 pointed to faster economic development and a narrowing in income gaps in eight of the 12 western provinces – Inner Mongolia, Chonguing, Guangxi, Sichuan, Shaanxi, Gansu, Qinghai and Guizhou – than in the majority of the ten coastal provinces.
Government spending showed signs of reaching more western provinces. Provincial government spending growth was higher in seven of the 12 western provinces – Xinjiang, Shaanxi, Qinghai, Sichuan, Gansu, Chongqing and Ningxia – than the majority of coastal provinces.
In three quarters of the western provinces fixed asset investment grew relatively rapidly. “Final consumption increased more in a quarter of the western provinces than in the majority of coastal provinces. Foreign direct investment, a focus of the ‘Go West’ policy, increased substantially in a quarter of the western provinces,” the Survey says. Research and development spending also increased substantially in a third of the western provinces.
The Survey notes that under China’s method of fiscal decentralization, while funds for poorer regions grew rapidly they still lagged behind those for richer regions.
The regressive nature of the transfers is due to their being tied to tax-related revenue sharing and tax rebates. As a consequence richer provinces are having more funds returned. Progressive transfers occur through ear-marked grants that assist in equalizing payment differences between the regions.
Research and development spending also grew more rapidly in four of the 12 western provinces – namely Ningxia, Tibet, Inner Mongolia, and Xinjiang – than in the majority of coastal provinces.
The development of China’s western provinces also tied in closely with similar initiatives being undertaken in neighbouring countries to boost development in “lagging border regions through cross-country trading ties.”
Trade, especially exports, showed a more rapid rise in most western provinces than in coastal regions although the former’s rise began from a lower base. Growth was reported in Tibet, Qinghai, Gansu, Xinjiang, Sichuan, Ningxia, Guangxi, Chingqing, and Yunnan provinces. There was also evidence of a rapid recent increase in foreign direct investment in Sichuan, Inner Mongolia, and Shaanxi.
The Survey also looks at steps taken by other countries in the region, such as the Russian Federation, India and Indonesia, to redistribute wealth through regional development programmes in light of economic liberalization.
The Russian Federation, which is also facing uneven development, has seen a far-reaching programme of financial transfers to lagging regions. “The central government is striving to improve business opportunities in poorer regions by creating growth clusters and improving transport infrastructure,” the Survey says.
In the case of India, growth has been dominated by the export of services that has resulted in state-level development being tied to population skills, which disadvantages northern regions. But in the case of China, growth has been led by manufactured exports, “which ties provincial growth to the availability of transport linkages.”
“A particularly encouraging trend for China’s neighbours is the relatively rapid export growth seen in many western provinces. The Government is encouraging this trend through extensive projects to improve cross-border transportation,” the Survey says.
China’s Xinjiang province, sharing borders with Afghanistan, Kazakhstan, Kyrgyzstan, Mongolia, India, Pakistan, the Russian Federation and Tajikistan, is being seen as China’s gateway to Central Asia. The province’s trade with Central Asia has tripled since 2002, reaching a record US$9 billion in 2006.
A similar story of fast cross-border trade growth has been reported between Tibet and the neighbouring countries of India, Myanmar, and Nepal. In Guangxi province, cross-border trade has also grown with neighbouring Vietnam, rising by nearly 50 per cent in 2006 to US$1.8 billion. Yunnan’s trade links have expanded with the Lao People’s Democratic Republic, Myanmar and Vietnam. Mongolia and the Russian Federation have reported rapid increases in trade with Inner Mongolia.
As the region's most comprehensive annual review of economic and social developments, ESCAP's Economic and Social Survey of Asia and the Pacific provides the only independent source of analysis covering all countries in this vast and diverse region, and considers both the social and economic spheres of development. The 2008 Survey, entitled "Sustaining Growth and Sharing Prosperity," looks at the most critical issues, challenges and risks our region faces in the months ahead.
Headquartered in Bangkok, Thailand, ESCAP is the largest of the UN's five Regional Commissions in terms of membership, population served and area covered. The only inter-governmental forum covering the entire Asia-Pacific region, it aims to promote economic and social progress.