1 - China's Regional Economic Development: An Overview

Summary

The Chinese economy has grown at breakneck speed since it started economic reform and the open door policy in 1978. Economic growth for the past three decades averaged at 9.7 per cent. China's economy, with its total GDP for 2007 at US$3.4 trillion, is about to replace Germany as the world's third largest economy after the United States and Japan. The country is also enjoying surging foreign reserves totaling US$2 trillion in 2008 on the back of rising exports and foreign direct investment. China today is the world's third largest trading power after the United States and Japan.

For a huge and diverse continental economy like China, regional development has always been a critical issue in the nation's development policy. In fact, all large economies face a serious problem of economic disintegration because of geographical barriers and high transport costs. Before World War II, China's coastal region was much more developed than its interior, and Shanghai was economically more externally integrated than internally integrated as it was cheaper for it to import food and raw materials from other countries by sea than to bring them over from the inlands. After Mao took power in 1949, he tried to balance China's development by developing parts of Northwest China and Northeast Asia. This is helped by bringing development away from China's coastal provinces to some new areas in the interior. However, Mao's strategies were marred by his obsession with excessive regional self-reliance — at one time, even a small commune in the countryside had to be largely self-reliant.

On the eve of Deng Xiaoping's economic reform and open-door policy in 1978, China's economy was, therefore, highly disintegrated and fragmented, thanks to years of central planning and the implementation of the self-reliant policy. It was not just provinces and cities that tried to be as economically self-reliant as possible, even a large industry or a large state-owned industry tried to produce everything, completely oblivious to the basic economic principle of comparative advantage. The economy was rife with inefficiencies and local protectionism.