Mt. Huangshan, Anhui (Copyright © by Arne Hückelheim, September 23, 2009) Chapter 10

10. Regional Diseconomies and Development Strategy 10.1 Spatial comparative advantages 10.2 Spatial economic separation 10.3 Spatial diseconomies and China 10.4 Regional development strategies

Keywords: comparative advantage, spatial diseconomies, regional economics, interregional separation, spatial economic integration, transprovincial border economic zone, development strategy, location quotient

10.1 Spatial comparative advantages General overview Location quotient Empirical evidence

AreaAdvantageous industrial sectorsDisadvantageous industrial sectors Bohai Sea rim Petroleum and natural gas extraction; coal mining; ferrous and nonferrous metals mining; petroleum processing and coking Timber and bamboo logging; apparel; chemical fibers; electric, telecommunication, instruments, meters and other measuring equipments Pearl river delta Apparel; electric, telecommunication equipments, leather, furs and manufactured goods; palm fiber and straw products; timber and bamboo logging; fresh water Petroleum and natural gas extraction; smelting and pressing of ferrous metals; coal mining and preparation; universal machines Yangtze river delta Chemical fibers; textile; instruments, meters and other measuring equipment; smelting and processing of nonferrous metals; universal machines Petroleum and natural gas extraction; ferrous and nonferrous metals mining; coal mining; timber logging Note: Bohai Sea rim=Beijing, Tianjin, coastal Hebei and Shandong and Liaodong peninsulas; Pearl river delta=Guangdong and northern Hainan (Hong Kong and Macau are excluded); Yangtze river delta=Shanghai, Zhejiang and southern Jiangsu. Table 10.1 Comparative advantages of China’s three economic engines

The location quotient (LQ) of region j in industry i can be calculated as:

Interpreting the Location Quotient (LQ) LQ <1, suggesting that local economy is less than was expected for a given industry. Therefore, that industry is not even meeting local demand for a given good or service. LQ=1, suggesting that the local economy is exactly sufficient to meet the local demand for a given good or service. Therefore, that industry is meeting local demand for the given good or service. LQ>1, suggesting that local economy is greater than expected and it is therefore assumed that there is an "extra" part of goods and services. This extra economy then must export their goods and services to other areas.

ProvinceCoalPetro- leum MetalNon- metal TimberFood Anhui Beijing Fujian Gansu Guangdong Guangxi Guizhou Hainan Hebei Heilongjiang Henan Hubei Hunan Inner Mongolia Jiangsu Jiangxi Table 10.2 Interprovincial comparative advantage indexes

ProvinceCoalPetroleumMetalNon-metalTimberFood Jilin Liaoning Ningxia Qinghai Shaanxi Shandong Shanghai Shanxi Sichuan Tianjin Tibet Xinjiang Yunnan Zhejiang Table 10.2 (Cont’d)

10.2 Spatial economic separation Geographical barriers Administrative barriers Ethno-cultural barriers

Topographical type Core counties Peripheral counties 2-d border3-d border Plain area Mountain area All Note: An i-d border county is one which is bordered by i provinces. Source: Guo (1996, 73-4). Table 10.3 Average income level (yuan/person) by region

ProvinceMain ethnic groupsMain languages (dialects) AnhuiHan, Hui, SheMandarin BeijingHan, Hui, ManchuMandarin ChongqingHan, YiMandarin FujianHan, She, HuiMin, Kejia GansuHan, Hui, TibetanMandarin, Mongolian GuangdongHan, Yao, ZhuangCantonese (Yue), Kejia, Miao-Yao GuangxiZhuang, Han, YaoChinese dialects, Dai GuizhouHan, Miao, BuyiChinese dialects, Dai HainanHan, Li, MiaoChinese dialects, Kejia, Dai HebeiHan, Hui, ManchuMandarin HeilongjiangHan, Manchu, KoreanMandarin HenanHan, Hui, MongolMandarin HubeiHan, Tujia, HuiChinese dialects HunanHan, Tujia, MiaoXiang (Chinese dialects), Miao-Yao Inner Mongolia Mongol, HanMongolian, Mandarin Table 10.4 China’s ethnic and linguistic differences, by province

ProvinceMain ethnic groupsMain languages (dialects) JiangsuHan, Hui, ManchuChinese dialects, Mandarin, Wu JiangxiHan, Hui, MiaoGan (Chinese dialects) JilinHan, Korean, ManchuMandarin LiaoningHan, Manchu, MongolMandarin NingxiaHui, Han, ManchuMandarin QinghaiHan, Tibetan, HuiTibetan, Mongolian ShaanxiHan, Hui, ManchuMandarin ShandongHan, Hui, ManchuMandarin ShanghaiHanWu ShanxiHan, Hui, MongolMandarin SichuanHan, Yi, TibetanMandarin, Tibetan TianjinHan, Hui, KoreanMandarin TibetTibetan, Han, MenbaTibetan XinjiangUighur, Han, KazakTurkish dialects, Mongolian YunnanHan, Yi, BaiMandarin, Tibetan ZhejiangHan, She, HuiChinese dialects, Wu Table 10.4 (Cont’d)

10.3 Spatial diseconomies and China China’s quest for spatial integration Multiregional economic cooperation Trans-province border economic cooperation

Border economic cooperative zone (BECZ) Participating provinces Land area (000 sq. km) Population (million) a Natural resources Zhongyuan Association for Economic and Technological Coordination Shanxi, Hebei, Shandong, Henan Coal, petroleum, agricultural resources The Yellow River Delta Economic Zone Shanxi, Shaanxi, Henan Coal, bauxite; copper; hydraulic power The Huaihai Economic Zone Jiangsu, Shandong, Henan, Anhui Coal, agricultural resources The H-H-S-S Border Zone for Economic Cooperation Hubei, Henan, Sichuan, Shaanxi Petroleum; coal; phosphor; iron ore; natural alkali; crystal; mercury The S-G-G Border Economic Zone Shaanxi, Gansu, Sichuan Lead; zinc; petroleum; natural gas; pottery The F-G-J Border Zone for Economic and Technological Cooperation Fujian, Guangdong, Jiangxi Coal; manganese; hydraulic power; copper; gold; silver The Joint Congress for Promotion of Economic Development in the Dabieshan Area Anhui, Henen, Hubei Biological and agricultural resources ( a ): Data as of the 1990s. Table 10.5 Selected transprovincial border economic cooperative zones in China

Area type 2-d border counties3-d border counties (1) non- BECZ (2) BECZ (2)-(1)(1) non- BECZ (2) BECZ (2)-(1) Plain area Mountain area NA623.01NA All Notes: (1) An i-d border county is one which is bordered by i provinces. (2) BECZ= trans-provincial border economic cooperative zone. Source: Guo (1993). Table 10.6 Average income level (yuan/person) by type of border-region

10.4 Regional development strategies Historical review Coastal area development strategy Western region development strategy Resurgence of the old industrial base

PeriodCoastal (%)Inland (%)Coastal/inland 1953–57 (1st FYP) –62 (2nd FYP) – –70 (3rd FYP) –75 (4th FYP) –80 (5th FYP) –85 (6th FYP) –90 (7th FYP) –78 (pre-reform) –90 (post-reform) – Notes: The total investment of coastal and inland areas are less than % due to the exclusion of the spatially ‘unidentified’ investment which includes (1) the trans-provincial investment in railway, post and telecommunication, electric power, etc.; (2) the unified purchase of airplanes, ships, vehicles, etc.; and (3) the investment in national defense. Sources: (1) SSB (1991, 1992) and (2) Li and Fan (1994, p. 65). Table 10.7 Spatial distribution of investment,

Case study 8 Fighting for rainfalls?

Chapter conclusion : Despite the mutually complementary conditions between many of its different regions, the Chinese economy has been internally affected by various geographical, administrative and cultural barriers that exist between provincial administrations. Following an empirical analysis of the spatial efficiency of the Chinese economy, this chapter studies the possibilities and conditions under which the Chinese economy can (or cannot) be optimized spatially. We will analyze the negative economic impacts of China’s interprovincial barriers. The result shows that the multiregional complementarities have not been utilized fully and that due to this existing cross-border separation the Chinese economy cannot be spatially optimized. During recent decades, China’s economic reform and open-door policies have developed its provincial and local economies disproportionally. The particular focus of the final part of this chapter will examine China’s various efforts on the search for spatial economic integration.

Suggested reading Alesina, A., E. Spolaore, and R. Wacziarg (2000). “Economic integration and political disintegration,” American Economic Review, Volume 90, pp. 1276–96. Bai, Chong-En, Y. Du, Z. Tao, and S. Y. Tong (2004). “Local protectionism and regional specialization: evidence from China’s industries,” Journal of International Economics, Volume 63, Issue 2, pp. 397–417. Brun, J.F., J.L. Combes, and M.F. Renard (2002). “Are There Spillover Effects between the Coastal and No-coastal Regions in China?” China Economic Review, Volume 13, pp Chung, Jae Ho, Hongyi Lai and Jang-Hwan Joo (2009). “Assessing the “Revive the Northeast” ( zhenxing dongbei) Programme: Origins, Policies and Implementation,” The China Quarterly, Volume 197, pp Demurger, S., J.D. Sachs, W.T. Woo, S. Bao, G. Cheng, and A. Mellinger (2002). “Geography, Economic Policy, and Regional Development in China,” NBER Working Paper 8897.

Suggested reading Du, Julan, Qing He, Oliver M. Rui (2011). “Channels of interprovincial risk sharing in China,” Journal of Comparative Economics, Volume 39, Issue 3, pp Goyal, S. and K. Staal (2003). “The political economy of regionalism,” European Economic Review, Volume 48, pp Greif, Avner and Guido Tabellini (2010). “Cultural and Institutional Bifurcation: China and Europe Compared,” American Economic Review, Volume 100, Issue 2. Jalan, Jyotsna and Martin Ravallion (1999). “China's Lagging Poor Areas,” American Economic Review, Volume 89, Issue 2. Ke, Shanzi (2010). “Determinants of Economic Growth and Spread–backwash Effects in Western and Eastern China,” Asian Economic Journal, Volume 24, Issue 2, pp. 179–202.

Suggested reading Li, Z. (1993). “In-Depth Exploration of the Question of Regional Blockades,” Chinese Economic Studies, Volume 26, Issue 5, 23–36. Magee, Darrin (2008). “Spatial Structure and Regional Development in China: An Interregional Input–Output Approach,” Regional Studies, Volume 42, Issue 10, December, pp Sonobe, Tetsushi, Dinghuan Hu, Keijiro Otsuka (2006). “Industrial development in the inland region of China: A case study of the motorcycle industry,” Journal of Comparative Economics, Volume 34, Issue 4, pp Tong, Yanqi (2007). “Bureaucracy Meets the Environment: Elite Perceptions in Six Chinese Cities,” The China Quarterly, Volume 189, pp Yang, D. (1990). “Patterns of China’s Regional Development Strategy,” The China Quarterly, Volume 122, pp. 230–57.

Suggested reading Yao, S. and Z. Zhang (2001). “Regional Growth in China under Economic Reforms,” Journal of Development Economics, Volume 38, pp Yeung, Godfrey (2002). “WTO Accession, the Changing Competitiveness of Foreign-financed Firms and Regional Development in Guangdong of Southern China,” Regional Studies, Volume 36, Issue 6, August, pp Zhang, Jingxiang and Fulong Wu (2006). “China's changing economic governance: Administrative annexation and the reorganization of local governments in the Yangtze River Delta,” Regional Studies, Volume 40, Issue 1, February, pp Yuan, Juanwen and Anke Niehof (2011). “Agricultural Technology Extension and Adoption in China: A Case from Kaizuo Township, Guizhou Province,” The China Quarterly, Volume 206, pp