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'Hinterlands' now leading growth
By Liang Da (China Daily)
Updated: 2009-06-22 10:52
In the gloom of the financial crisis, there is still a bright spot for China - growth in its central, western and even northeastern regions is gathering momentum.

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But the growth picture is very different in many of the nation's formerly booming coastal areas.

According to the National Bureau of Statistics, annualized GDP growth in Guangdong province sank to 5.6 percent in the first quarter, the lowest level in 20 years. In contrast, development in the hinterlands is accelerating. Anhui registered growth of 11.6 percent, Sichuan 10.8 percent and Hubei 10 percent in the first quarter.

Losing steam

Shanghai, the largest business city in the country, found itself second from bottom on the list of first-quarter statistics on the Chinese mainland with 3.1 percent growth, better only than Shanxi province, which recorded a minus 8.1 percent as a result of its reliance on energy resources - which suffered a major fall in product prices.

Zhejiang province, once seen as China's cradle of private enterprise with perhaps the largest cluster of small and medium-sized private companies in the country, was third from the bottom at 3.3 percent.

Guangdong, the largest province in China in economic strength - in both GDP and foreign trade - was only slightly better, ranking sixth from last.

GDP in the three regions fell below the national average of 6.1 percent. Of China's high-profile cities, only Beijing's performance matched the national average.

Among the 10 Chinese cities that enjoyed the fastest economic growth in 2008, eight are from Inner Mongolia, Liaoning and Jilin.

'Hinterlands' now leading growth

Industrial output in the western region also grew much faster in April, at 12.7 percent, 6 points higher than the eastern region and 7.2 percentage points more than central China.

The figures indicate that the main driving force of the economy is shifting from south to north and from east to west. Effects of the 4 trillion yuan ($586 billion) stimulus package in central and western regions are taking the lead for recovery, a structural change that will play a critical role as China grapples with the financial crisis.

Over the past 30 years, China averaged an economic growth of 9.8 percent annually. But during the process, the gap between eastern coastal regions and inland areas also grew wider. As a developing economy, the disparity in regional development is not only an important issue for the moment, but also a long-term challenge for economic and social development.

There are important reasons for the current restructuring of the economy. First, the coastal cities and provinces have witnessed drastic drop in overseas orders. Second, most of the infrastructure projects in the stimulus package are located in central and western regions. The interior provinces are now getting ample development funds from the central government for building their own public infrastructure and soon enough, their own manufacturing capacity. That's why we have seen much faster investment growth in these areas.

With the central government trying to maintain the economy's growth by extending huge fiscal stimulus to projects such as expressways and bridges, mostly in the poorer central and western regions, areas in the relatively developed eastern and southeastern regions will have to be more creative in evolving a future business model.

Keeping brisk growth

Given all the factors, China will be able to maintain brisk economic growth in the years to come. Although regional disparity won't be bridged in a short time, the government's various measures will play a positive role in reducing the gap. There are several reasons.

First, the central government has unveiled a host of favorable measures to boost the development of inland areas.

The government spent 200 billion yuan to build a high-speed railway between Beijing and Shanghai that will also benefit less-developed regions along the line.

Most recently, the State Council approved plans to boost economic development in East China's Jiangsu province, promising to turn it into a regional transport hub and a center for low-polluting, high-yield industries.

In its master plan, the State Council called on the provincial government to include greater integration of rural and urban economies in the region as part of the development proposals.

Still, the central and lower-level governments need to make efforts in the following aspects to reduce the development gap.

First, further increase fiscal support for central and western regions. Given the current weak fiscal status of the regional governments, the central government should increase its transfer payment for central and western regions to enhance local government ability to provide public services.

Second, the central government still needs to increase its State-backed investment projects in western provinces. It could use favorable measures to encourage private and foreign investment to enter the western region to improve the bottlenecks in the economy, such as in electricity, transportation and communication systems, which would help boost the viability of the region in the long run.

Third, it's necessary to further adjust the tax policies for different regions. Tax policy should stay in accordance with industrial policy. For example, the central government could offer tax incentives for transportation, telecom and energy projects in inland areas that would help increase investment in the regions.

The author is a senior statistician at the National Bureau of Statistics

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