Developing China’s Interior

Posted on October 31st, by matt_schiavenza in Uncategorized. No Comments

Matthew Yglesias has a good post at Slate putting China’s growth- and current slowdown- into some perspective. Toward the end, he lays out the bullish case for China’s interior:

My bull case for China would be that for all the rapid catch-up growth the PRC has seen there are still enormous region-to-region gaps. That means that even if Shanghai and the Pearl River Delta have run out of room for further catchup, there’s still enormous scope for interior regions to catch up with the prosperous coasts. We know that existence governance institutions were good enough for coastal China to do a lot of catch up so why shouldn’t they be good enough for the interior to catch up with the coasts?

In response, Max Fisher writes that developing China’s interior depends on developing export-oriented industries and/or encouraging domestic consumption. This is basically correct, and it’s worth explaining why in more detail:

For one thing, it’s unrealistic to expect China’s interior to ever approach the prosperity level of the coast. After all, Kansas and Arkansas have always been poorer than New York, and will likely always be. The inherent economic advantages to being on a coastline aren’t going to go away. The more realistic goal, then, is whether inland development can occur quickly enough to offset the slowdown affecting China’s coastal region. I believe it can, for the following reasons.

First, the infrastructure in China’s inland regions- think Sichuan, Guizhou, and Yunnan- remains in dire need of upgrades. Rural parts of these provinces lack access to decent roads, for one, and there are severe deficiencies in ¬†electricity and plumbing. China may have built a handful of sleek airports in recent years, but a quick visit to the countryside reveals just how much work needs to be done. Beijing can continue investing enormous sums into fixed assets without experiencing the kind of diminishing returns evident in developed economies, something that will keep GDP figures high.

Second, China’s economy is so fragmented that its inland regions are best seen as part of other regional economic networks. The southwestern provinces may face logistical challenges in terms of trans-Pacific shipping, but they are better positioned for trade relationships with countries like Myanmar, Thailand, and Vietnam. Xinjiang has the advantage of being next to the energy-rich Central Asian republics, while parts of northern China are best suited for trade with Russia. Obviously, this won’t amount to more than a small fraction of China’s trade to Europe and North America, but it does represent a viable export strategy for these regions.

Third, reform of China’s antiquated hukou laws would spur urbanization in the inland provinces, as rural Chinese from Sichuan and Hubei will migrate to cities like Chengdu, Chongqing, and Wuhan. China is often thought to have a large number of “mega cities” but given the size of the rural population, the number and size of these cities should be much higher. And they will be, as I believe that hukou reform will happen sometime during the Xi/Li years.

Eventually, China’s economy will reach a point where political corruption becomes too big of a problem to ignore. But that point, I believe, is not imminent simply due to the enormous potential of inland development.




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