Conclusions and Policy Implications

Regional income disparities in the People's Republic of China (PRC) have caught widespread attention recently. Many studies have examined different aspects of these disparities. Using regional data after adjustment based on the PRC's first economic census (conducted in 2004), we have attempted to conduct a comprehensive analysis of regional disparities in the PRC using various measurement indexes. Unlike many existing studies, our study includes in-depth research on regional disparities within provinces in addition to disparities among them. The findings show that regional disparities in the PRC have the following main features:

1. Disparities among the PRC's four regions, especially between the eastern region and the other regions, are mainly to blame for inter-provincial disparities.

Since the PRC began its reform and opening up of the economy, inter-provincial disparities have experienced a process of first narrowing and then expanding. In the early period of the reform, there were large internal disparities within the eastern region. But after the PRC first carried out the policy of opening up in the eastern region and attracted a great deal of foreign investment, the development of some less developed eastern provinces was greatly promoted. Thus, internal disparities within the eastern regions declined, which contributed much to the decline of overall regional disparities in the PRC. After the 1990s, the growth rate in the more developed eastern region was still faster than that of the national average level, resulting in further expansion of disparities between the eastern region and the other regions and aggravating the regional inequality of the whole country. In 2005, disparities among the four regions accounted for more than 70% of total disparity, dominating the trend of regional disparities.

2. Regional disparities exist both among provinces and within provinces.

In addition to the great differences among provinces in terms of area, population, and economic development level, disparities within provinces are also very common in the PRC. Whether judged by absolute level or indirect measurement indexes, internal disparities within many provinces have even exceeded inter-provincial disparities. Based on the analysis of county- and prefecture-level data, we discovered that internal disparities within provinces have shown no significant correlation with the economic development level of provinces. Large internal disparities exist not only within the low-income provinces but also within the eastern coastal high-income provinces. Compared with the levels in 1997, internal disparities in many provinces had expanded somewhat by 2005.

3. Urban-rural disparities are the main source of regional disparities.

Urban-rural disparities have contributed over 70% of regional disparities since the mid- 1980s. The increase in regional disparities has been due mainly to the rapid expansion of urban-rural disparities. Urban-urban and rural-rural disparities have also expanded somewhat, but they only account for a small share of regional disparities. Since 2000, the urbanization process in the PRC has been accelerated and the scale of urban-rural labor migration is also very huge, but urban-rural disparities continue expanding due to the fact that the economic growth rate in urban areas is much higher than in rural areas.

4. The expansive trend of inter-provincial disparities has slowed down and started to decrease somewhat since 2000.

By analyzing the data after adjustment based on the PRC's first economic census, we found that compared with the 1990s, the widening of regional disparities in the PRC has gradually slowed down since 2000. In 2004 and 2005, some statistical indicators, such as per capita GDP and household consumption level at current prices, show that regional disparities have declined to a certain extent.

The analysis indicates that compared with the 1990s, the growth rate in the PRC's coastal developed region has slowed down somewhat in recent years. Meanwhile, economic growth rates in low-income regions have become slightly higher. As a result, the widening of regional disparities has slowed down. The factors that led to the changes in regional disparities included both policies and the macroeconomic environment. As far as policies were concerned, the implementation of the Western Area Development Strategy, the attention to agriculture-related problems, and a host of other policy measures helped stimulate fast growth and increase personal income in the less developed regions. With regard to the macroeconomic environment, most of the provinces that have posted faster economic growth in recent years were those enjoying a comparative advantage in resource industries. This is because the new round of economic growth has produced a strong demand for energy and resources and stimulated a rapid development of the energy and resource industries. In addition, the fact that infrastructure construction has accelerated in the central and western regions and narrowed their disparities with the eastern region, as well as the fact that some industries have begun to move from the eastern to the central and western regions, has also helped promote coordinated development between various regions.

5. Changes in regional disparities are caused by many factors.

Changes in regional disparities in recent years can also be attributed to some cyclical factors, such as the fast development of resource industries. For this reason, we still cannot claim that the PRC's regional disparities have started a decline that will continue. But experience in the past few years indicates that if the government adopts appropriate policy measures, including improvement of the investment climate, investment in human capital, improvement of infrastructure in the less developed regions, reducing farmers' burdens and increasing their incomes, and strengthening of the transfer payment system, it can alleviate the widening of regional disparities and help achieve coordinated development between the regions.

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