Chinese spatial inequalities and spatial policies

Transcription

1 Chinese spatial inequalities and spatial policies Michael Dunford School of Global Studies University of Sussex, Falmer, Brighton BN1 9QN Tel : (44) (0) M.F.Dunford@sussex.ac.uk and Visiting Professor Chinese Academy of Sciences(CAS), Graduate University of CAS , Beijing, China and Li Li Institute of Geographical Sciences and Natural Resources Research Chinese Academy of Sciences(CAS), Graduate University of CAS , Beijing, China Li.Li@sussex.ac.uk Abstract In the last fifty years Chinese spatial inequalities have expanded in phases of industrial expansion and contracted in phases favourable to agriculture. Since 1985 real per capita disposable income and real per capita expenditure have increased rapidly in all parts of China. The increases were however much greater (1) in areas on the east coast than in the centre, northeast and west creating widening macroterritorial inequalities, (2) in some provinces rather than others increasing inter provincial inequalities and (3) in urban areas rather than rural areas. These imbalances have seen the adoption of a succession of policies designed initially to promote a more equilibrated model of co ordinated national development and more recently a more sustainable and more equitable development path consistent

2 with the more recent emphasis on the goal of harmonious development. This paper examines the evolution and impact of these trends in inequality and policy initiatives paying attention to a variety of geographical scales. Introduction: the nature, causes and consequences of regional and other geographical inequalities in China For more than thirty years the Chinese economy has grown at some 9.5% per year. Growth has however come with increases in inequality. Greater inequality arises from letting some people and some places get rich first and is consistent with Vernon s inverted U shaped relationship between development and inequality, although the risk is that inequalities can become entrenched preventing the ultimate reduction in inequality that Vernon anticipated. The aim of this paper is identify and interpret recent trends in Chinese spatial inequalities, to consider the role of measures adopted by the Chinese government to reduce them and, distinctively, to consider explicitly the relationships between inequalities at different geographical scales (see also Lee, 2000; Jones, Li and Owen, 2003; Yao, Zhang and Feng, 2005; Yingru and Wei, 2010). The starting point is the view that spatial inequalities area result of the relative weight of equalizing and unequalizing forces (Dunford and Greco, 2006). In the case of China many recent studies have documented trends in the direction of greater inequality. Kanbur and Zhang (2005) measured real per capita consumption in the rural and urban areas of 28 Chinese provinces (Figure 2) and noted that inter provincial and ruralurban inequalities increased strongly after This increase in inequality was attributed to the adoption of a strategy of reform and opening up to international investment and trade in 1978 and greater political decentralization. Earlier increases in inequality were associated with the Great Leap Forward and the Great Famine ( ) and the Cultural Revolution ( ). Conversely decreases in inequality coincided with three phases in which agriculture was prioritised: revolution and land reform ( ); recovery from the Great Famine ( ); and establishment in the countryside of the household responsibility system and township and village enterprises ( ).

3 Figure 1 Spatial inequality in China, Source: elaborated from Kanbur and Zhang (2005) The main aim of this paper is to qualify and deepen this account of spatial disparities in China in a number of ways. In particular we shall examine Chinese disparities at three geographical scales (macroregions, provinces 1 and rural and urban areas) and for a range of geographical classifications (coastal and inland areas). Along with Kanbur and Zhang (2005) we shall emphasize the significance of ruralurban disparities, but we shall also show that Gross Domestic Product indicators tell a different story from the one portrayed in Figure 1 in that contemporary spatial inequalities are in some ways smaller than in the past, while in recent years macro territorial and inter provincial disparities have started to decline (see also Fan and Sun, 2009). More specifically in section 2 we shall document trends in underlying rural urban disparities. In section 3 we shall deal with disparities at a provincial scale. In the final two sections we shall deal with the trajectories of several macro regions, and we shall consider some of the reasons for them, paying attention to recent spatial development policies. 2 Rural urban inequality in China and the three farm problems Figure 1 records the evolution of rural urban disparities in consumption and income per capita since The income indicator reveals very strong overall increases in disparities after a decrease at the 1 In the provincial series Chongqing which was a prefecture in Sichuan until its establishment as a provincial level municipality in 1997 was combined with Sichuan Province for the period from 1997 till Hainan was excluded due to data unavailability for the pre 1978 period.

4 start of the reform period and small decreases in the mid 1990s and in The consumption gap also increases yet much less rapidly in part due to the significance of production for use in the countryside. Figure 2 Rural urban inequalities. Source: elaborated from a database constructed from NBS (various years) Ratio of urban rural per capita consumption in constant prices Ratio of urban rural per capita income in constant prices These rural urban differences are the main driver of China's regional differences and an important cause of discontent (National Bureau of Statistics, 2007). The data for four arbitrarily chosen provinces in Table 1 is quite eloquent: Shanghai's Gross Regional Product per capita figure is distorted by the noncoincidence of the workforce and the resident population. In Shanghai and Guangdong the rural urban gap is large (2.2 or 3.2 to 1 in the case of per capita income). In the three western provinces the gap is as large or larger (3.1 in Kunming City and Sichuan or 4.6 to 1 in Guizhou). Strikingly in the provincial capitals urban incomes lie well ahead of the regional averages. As we shall show the west is less developed than the east. Many western cities are however very modernized suggesting that western underdevelopment is closely related to the relative under development of rural areas. Table 1 China's rural urban inequalities Gross regional product per capita (Yuan) Rural household per capita net income (Yuan) Rural household per capita expenditure (Yuan) Urban household disposable income (Yuan) Urban household living expenditure (Yuan)

5 Guizhou Guiyang City Shanghai Yunnan Kunming City Nujianj Lisu A.P Guangdong Sichuan Chengdu City China s rural urban differences go deeper than these numbers suggest due to relatively more favourable government treatment of urban as compared with rural residents: government expenditure on water, transport and energy infrastructures per capita is lower in rural areas; rural welfare benefits are fewer than urban benefits as not enough was done to put the former on a new footing after the replacement of the communes; the separate residential status of the rural and urban populations limits the access of rural urban migrants to welfare services; while the prices at which the government purchases farm output are relatively unfavourable. In many cases local officials seeking to increase economic and urban development to augment local fiscal resources and to advance their own careers have appropriated land contracted to farming households paying farmers inadequate compensation. In the past farmers were also not paid or not paid on time for work done and suffered from the imposition of illegal levies and charges. The Chinese government has recognised these and other problems. It refers to them as the san nong (three farm) problems: the problem of (1) farming, (2) rural areas and (3) farmers. It has also recognised that some of these problems are connected with a 1994 financial reform which increased the proportion of government revenue paid to central government (22% in 1993 to 55.7% in 2004) at the expense of provincial and local governments. The shortage of fiscal resources was made more acute as a result of the central government's assignment to local government of responsibility for providing nine years of compulsory education and improved healthcare. In 2005 the central government decided to abolish all taxes on farmers. In a series of rural development measures were introduced. Subsequently called constructing a new socialist countryside (she hui zhuyi xin nong cun jian she), these measures included increased investment in rural infrastructure, a national support system for agriculture and farmers, a streamlining the responsibilities of the tiers of the multi level government system, and environmentally friendly village planning. Of particular importance for regional development was the proposal first to reform and then eliminate

6 within five years the operational functions of township governments and to place the finance of counties under the direct control of provincial governments. Designed to remove the right of county and township level local government to raise taxes and thereby to reduce the possibilities for officials to act corruptly or in unpopular ways, these steps (which may well encounter resistance unless subprovincial responsibilities are preserved and financed in new ways) seem to increase significantly the importance of the provincial level. 3 The structure and evolution of provincial disparities in China These rural urban differences exist alongside and are connected with wide inter provincial disparities. As Figure 3 which records provincial disparities in Gross Domestic product (GDP) shows, in 2007 there was a large gap between much of western China and a number of east coast provinces, with most provinces in the centre of China plus Sichuan in the west occupying intermediate positions. GDP in Guangdong in the southeast along with Shanghai, Tianjin and Beijing stands at more the twice the national average (total GDP divided by the number of provinces) compared with less than one half in Xin Jiang, Tibet, Qinghai, Gansu, Ningxia, Guizhou and Chongqing. Figure 3 Provincial GDP in Source: elaborated from a database constructed from NBS (various years)

7 The geography of GDP is in part a reflection of the fact that the population of China is largely concentrated on the eastern plains rather than in the mountain, hill and desert dominated west. Disparities in GDP per capita are however also wide (Figure 4). These disparities in part reflect the underlying urban or rural character of China provincial economies. The highest levels of GDP per capita in 2007 were recorded in three of the four cities that have provincial status (Beijing, Tianjin and Shanghai). All have a GDP per capita in excess of 200% of the national average. A second tier with a GDP per capita in excess of 150% is made up of three coastal provinces (Guangdong, Zhejiang and Jiangsu). The coastal provinces of Fujian and Shandong lie between 100 and 150%, but are characterised by wide internal disparities, as is Liaoning whose industrial growth dates from the Japanese occupation of Manchuria. The relatively high score for Inner Mongolia is a reflection of the development of natural resources and energy based industries. The three poorest provinces are Yunnan, Gansu and Guizhou, although a part of north east China and most of central and western China lie beneath the national average.

8 Figure 4 Provincial GDP per capita in China in Source: elaborated from a database constructed from NBS (various years) 4 Macro regional disparities and their relation to provincial disparities In China particular attention is paid to disparities at a much larger geographical scale. A case in point is the division between the three (east coast, central and western) economic belts in the Seventh National Plan (see Figure 5). Figure 5 Chinese provinces and the three economic belts

9 As Figure 6 shows, disparities between these three macro regions have increased since the mid 1960s and especially since China embarked on its economic reform programme in 1978: the ratio of East Centre West per capita real GDP was 1.71:1.23: 1 in 1979, 2.03:1.15:1 in 1992 and 2.98: 1.56:1 in Macro regional and provincial per capita GDP disparities display different trends. In 1990 to 2004 there were strong increases in provincial disparities. The 2004 peak was however lower than earlier peaks recorded in 1959 at the end of the Great Leap Forward and in 1975 towards the end of the Cultural Revolution. Moreover the trends recorded in Figure 6 differ from those reported by Kanbur and Zhang (2005). The explanation lies in part in the evolution of intra macro region inequality. The decline in macroregion inequality from 1978 is almost entirely due to a decline in intra regional inequality in the east of China. In the Centre and West intra macro region disparities have diminished slowly but steadily, whereas in the east they declined sharply from 1973 until Until 1978 Shanghai in particular along with industrialized Liaoning province made very large positive contributions to intra east coast disparities. The adoption of the policy of reform and opening up altered this situation quite radically by

10 promoting rapid economic growth in a number of until then relatively under developed eastern provinces. The most striking case was Guangdong where coastal Special Economic Zones (SEZs) were established at Shantou, Shenzhen and Zhuhai. These areas were advantaged by their proximity to Macau and Hong Kong and their immediate access to seaports and to the global markets that have played a central role in China's export driven development model. So successful was Guangdong that it went from the sixth largest province in terms of GDP in 1978 to the largest in 2004, and from tenth in terms of per capita GDP to fifth. Other per capita GDP increases were yet more striking. Zhejiang went from sixteenth to fourth. Fujian, where a SEZ was established at Xiamen, opposite Taiwan and which is the ancestral home of overseas Chinese, went from twenty first to ninth. Shandong rose from eighteenth to seventh. Alongside these SEZs the establishment of 14 Open Cities was another driver of eastern growth (see section 5). Figure 6 Evolution of Theil index 2 provincial and macro region disparities in China, Source: elaborated from a database constructed from NBS (various years) 2 The Theil index is defined as: I Theil I (int er) ( Yi / Y) Ii(intra) I (int er) ( Yi / Y) log[( Yi / Y) /( P / P)] i I i(int ra) ( y j / Y ) log[( y i j / Y ) /( p i j / P )] i where y j is the GDP of the jth province, Yi is aggregated GDP of the ith group.y is total GDP, p j is the population of jth province, P i is the aggregated population of i th group and P is the total population.

11 Intra macroregion inequality Inter macroregion inequality (East Centre West inequality) Overall Inequality (Inter provincial inequality) Coast inland inequality As for the contrast with the results of Kanbur and Zhang (2005), the high degree of spatial inequality in GDP per capita in the 1950s and 1970s reflects the fact that at that time China was overwhelmingly a rural society. Agriculture was not commercialised: some food was purchased by the state to supply urban areas, and the rest provided subsistence goods for the rural population. Agricultural output, while substantial, accounted for a very small share of GDP. Industrial production and in particular industrial output growth which GDP estimates do measure was conversely concentrated in a relatively small number of places, accounting for the wide disparities in GDP per head and the strong increases in inequalities in phases of industrial expansion.

12 Figure 7 Decomposing the intra east Theil index of inequality, Source: elaborated from NBS (various years) Bejing Tianjin Heibei Liaoning Shanghai Jiangsu Zhejiang Fujian Shandong Guangdong Guangxi In the last few years, finally, macro regional and inter provincial disparities have started to diminish even though rural urban disparities have continued to increase. One of the reasons why is a strengthening of a set of policy measures designed to encourage more equilibrated territorial development. 5 Spatial disparities and government spatial policies in China The increase in Chinese regional inequality has had a number of very important consequences and policy implications. First, regional inequality is a cause of massive inter regional migration towards the Chinese coast. This movement of people has made an important contribution to eastern growth and has permitted some transfers of income to the areas from which migrants come. Nonetheless this migration also occurs at the expense of economic, social (the existence of a large floating population, urban poverty, unemployment and crime) and environmental pressures that the densely populated coastal areas struggle to deal with. Second, less developed areas are short of educated and skilled young people to develop their own economies, exacerbating the east inland divide at least until a

13 turnaround in their development occurs so that some of those who left and who acquired important skills return. A concern with regional imbalances is not a new phenomenon in modern China. In the 1950s the main priority for the government of the People s Republic was economic recovery after a century of colonial domination, conflict and war. In the 1960s however China s relations with the Soviet Union continued to deteriorate, and China was afraid of a geographical extension of United States military intervention in Vietnam and South east Asia. In 1964 the Chinese government accordingly embarked on the construction of a Third Frontier. The first frontier comprised the eastern coast and northeast China, while the rest of the country including Inner Mongolia, Xinjiang and Tibet comprised the second frontier. The fundamental reason for Third Frontier construction was that this area was distant from the coast and Manchuria (Northeast China) which were considered vulnerable to foreign attack. This programme involved the establishment of rail infrastructures and strategic industries in remote areas in south western and western China (with an emphasis upon areas in Sichuan, Guizhou and the west of Henan, Hubei and Hunan). As a result of this strategic shift of development support from the coast to inland China, a vast number of industrial production projects were established with a view to creating independent local industrial systems. During the period from 1966 to 1970 (the Third Five Year Plan), infrastructure investment in inland areas amounted to 66.8% of the total, of which the Third Frontier accounted for 78.9% (Chinese Regional Report, 1997). As a result Third frontier construction significantly increased the development of inland areas and helped counterbalance the earlier disproportionally dynamic economic growth of coastal areas. The situation started to change in the early 1970s when China s relations with the United States started to improve. The adoption in the late 1970s of a model of export oriented growth saw a strong emphasis on the growth of east coast cities. This change reflected so called ladder step (tidu) differences in the economic potential of different parts of China with the east coast well endowed with the capital and human resources and established economic centres required for manufacturing industries and the west well endowed with raw materials, energy and natural resources (Fan, 1995). The reform and opening up policy was officially launched in In 1979 four SEZs were established (Shenzhen, Zhuhai, Shantou and Xiamen). These four zones were followed by Hainan province in 1988 and Pudong New Area in Shanghai in A review of the experiences of the first four SEZs saw the progressive expansion of opening up policies to fourteen open coastal cities (Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Nantong, Shanghai, Ningbo, Wenzhou, Fuzhou, Guangzhou,

14 Zhanjiang and Beihai) between 1984 and In addition open coastal regions were established in Liaodong peninsula (the eastern part of Liaoning province), Shandong Peninsula, Pearl River Delta, Yangtze River Delta and coastal area in the south of Fujian province from early 1985 to late Figure 8 Major regional policies since late 1990s. Source: elaborated from NBS data (various years) An important consequence was the strong increase in coastal inland disparities (Figure 6). As these imbalances grew, the Chinese government paid more attention to more equilibrated regional development strategies, starting with the adoption of the Ninth Plan ( ) which called for a coordinated regional development strategy rather than the 1980s strategy which gave priority to coastal development. The specific aims of these policies were to raise living standards more rapidly in the poorest parts of the country and to reduce differentials in growth rates without reducing the dynamism of the east of China. In subsequent years four main areas came to be recognised: the west (twelve provinces and the municipality of Chongqing), the north east (due to the presence of State Owned Enterprises in rust belt industries), the centre and the east whose continued dynamism remains important. In addition attention was paid to supporting the development of old revolutionary bases (the areas from where

15 the Chinese Communist Party and the Red Army drew its strength in the period from the start of the Long March in 1934 to the Communist victory in 1948), ethnic minority areas and border areas. 3 As China s economy grew, the west of China suffered from increasingly serious negative consequences in the shape of a widening east west gap and environmental damage in ecologically vulnerable areas. As a result, in late 1999, the State Council launched the Western Development Strategy (xi bu da kai fa). Covering six provinces (Gansu, Guizhou, Qinghai, Shaanxi, Sichuan and Yunnan), five autonomous regions (Guangxi, Inner Mongolia, Ningxia, Tibet and Xinjiang) and one municipality (Chongqing), with a total land area of 6.38 million square kilometres, this zone accounts for 71% of the national territory, and, in 2007, 28% of the population and more than 80% of minority peoples. Strategic emphasis has been placed on five fields: (1)the construction of infrastructure including roads, railway, airports, gas pipelines and telecommunications; (2) the restoration and protection of the ecological environment including reforestation to address water and soil erosion and desertification, measures to enhance the protection of natural forests in the upper middle reaches of Yangtze River and Yellow River, planned steps to return certain steeply sloping farmland to forest and grassland, and integrated measures to enforce the Grain For Green project initiated in the light of earlier successes in improving the adequacy of grain reserves; (3) the development of industries drawing on local economic assets as well as high technology sectors where appropriate; (4) the enhancement of technological progress to increase productivity and of education to improve the quality of labour; and (5) the expansion of international trade and international operations through improvements in the local investment environment designed to bring in foreign capital, technology and managerial expertise. These measures saw growth accelerate in 2000 to 2005 (the period of the Tenth Five Year Plan). GDP grew at an average annual rate of 10.6%. Annual government per capita revenue grew at 15.7%. 3 Chinese regional development policies involve several types of action: (1) an investment policy under which for example the central government provides 29% of resources for drinking water projects in the east and 63% in the west; (2) a tax policy under which corporate income tax stands at 15% in the west and 30% in the east with until recently 15% for multinational and other companies in Special Economic Zones) and where there are special Value Added Tax arrangements for north east China and selected cities in central China; (3) a credit/loan policy under which disadvantaged areas get more long term credit; and a tax transfer policy under which some formula driven elements operate to the advantage of disadvantaged areas. The tax policy and investment policy area classifications differ.

16 Central government funding included a 460 billion RMB central construction fund, and over 500 billion RMB of financial transfers/ subsidies. Government support for western China accounted for more than one third of long term Treasury Bond issues. Nonetheless, short term efforts are far from adequate in the face of the development problems of the west which include the san nong problems, environmental destruction as well as a healthcare and education system which still falls well behind those in available in the eastern areas of China. In 2003 the Revitalization of the Old Northeast Industrial Bases strategy (dong bei lao gongye ji di zhen xing) was adopted comprising a major plank of China s national coordinated development strategy. During the First Five Year Plan ( ) Northeast China received massive industrial investment receiving 58 out of 156 national production projects. Subsequently it was the focus of much further industrial development. The subsequent transition from a planned to a market economy and changes in the relative importance of different industrial sectors generated a range of economic difficulties for Northeast China, as it was left with an industrial structure dominated by so called rust belt industries, obsolete production equipment and outdated technologies. These structural difficulties were compounded by difficulties associated with the dominant role of State Owned Enterprises (SOEs) whose modes of enterprise governance adversely affected industrial competitiveness in a market system. In addition a number of resource based cities faced problems associated with the depletion of natural resources. These difficulties were further associated with problems of dereliction and regeneration on the one hand and social tensions relating to social security and reemployment on the other. The key issues facing northeastern revitalization relate to the sustainability of its industrial development. The policy regime therefore paid special attention to restructuring and upgrading technological capabilities (to move from an investment oriented to an innovation oriented strategy of development and to move downstream into equipment good industries) and reducing pollution. Considerable attention was also paid to a reform of SOEs introduced in This reform removed debt, enabled workers to be laid off and reduced enterprise welfare obligations via a reform of social safety nets, while seeing significant private sector growth. In addition measures were adopted to transform resource based cities. To date this set of policy measures has succeeded in bringing to an end the relative decline of northeastern industries. The gap between the northeast and the coastal provinces nevertheless remains large and the problems of structural upgrading and related social tensions remain large.

17 A third element of the coordinated development strategy framework comprises policies for uplifting central China (zhong bu jue qi) adopted in The aim of this set of measures was to stop the tendency for Central China to sink in a situation in which economic growth is led by coastal areas and the development of the Northeast and West is supported. This policy covers six provinces including Shanxi, Anhui, Henan, Hubei, Hunan and Jiangxi. These areas play strategically important roles in the national economy as major grain production areas, exchange centres for materials and products and transport hubs. This new policy provides special support to enhance those roles by means of reinforcing the construction of an integrated transport system and energy and strategic material base, expanding markets in central China and strengthening competitive manufacturing and high technology industries. Table 2 Economic indicators for China s main policy regions in Source: elaborated from NBS data (various years) Region West Northeast Central East National Policies Western Developm ent Strategy Revitalizing the Northeast and Other Old Industrial Bases Uplifting of Central China Leading modernizat ion Coordinate d developme nt GDP per capita Rural income per capita Urban income per capita Governme nt revenue per capita A policy in favour of eastern development was initially put forward in the 11th Five Year Plan ( ). The aim was to encourage the east coast take the lead to develop with a view to enhancing its

18 capability of independent innovation, achieving structural upgrading and shifting from capital and resource driven to innovation driven growth, pushing forward its social and economic institutional transition, improving the socialist market economy, and driving central and western development. This policy indicates that the central government has set the east a higher goal of pioneering fulfillment of the third step in the three step strategy for China's modernization originally put forward by Deng Xiaoping. 4 Special attention will be paid to the role of the four initial SEZs along with the Pudong New Area, the Binhai District in Tianjin and the West Coast of the Taiwan Straits identified as a dynamic area for cooperation with Taiwan. Emphasis will also be placed on regional integration through metropolitan area development and urban agglomeration in the Pearl River Delta, Yangtze River Delta and Beijing Tianjin Hebei (Jing jin Ji) area. The Eleventh Five Year Plan saw the Chinese government add a growth centre strategy. A growth centre strategy is an alternative to a carpet type regional development strategy. The aim is to support metropolitan areas that can act as engines of regional growth (Chongqing in the south west as well as Shanghai in the Yangtze Delta and cities in the other east coast growth poles). The development of clusters of cities can be particularly effective. What is more access to urban cores is an important driver of the relative development of rural areas. In the west of China therefore there is a strong case for encouraging the development of provincial capitals such as Chongqing, Chengdu, Xi an, Lanzhou, Urumqi, Kunming and Nanning as counterbalancing metropolitan areas and the improvement of inter provincial communications. One consequence would be a reduction in the need for long distance migration. This departure raises however important further questions concerning (1) the regional division of China as a growth centre strategy would revolve around the identification of a planning for functional urban areas combining cities with their rural hinterland and (2) the governance of regional development in a system of multi level governance. 4 The Three Step Development Strategy is a national plan set out in 1987 to promote economic development by achieving three strategic goals progressively over three stages. Step One aimed at doubling 1980 GDP and ensuring that the people could meet their basic needs for food and clothing ( wen bao ) by the end of 1980s. Step Two involved quadrupling 1980 GDP by the end of the 20th century. Step Three was to increase GDP per capita to the level of the medium developed countries by the mid 21st century, at which point, the Chinese people would be fairly well off ( xiao kang ) and economic modernization would be realized.

19 Alongside successive regional development strategies spatial poverty reduction programmes were put in place. In poverty counties were identified. A 2001 revision also identified 592 poverty counties (plus all 73 counties in Tibet) removing poverty counties in 8 eastern provinces. These areas receive earmarked funds for enterprise support, construction and preferential loans and are given preferential treatment in the allocation of investment subsidies. In addition a partnership system pairs each western province (except Tibet which is paired with all provinces) with an eastern province which is required to support poverty reduction programmes. 6 Growth centres, functional areas and sustainable development The regional policies adopted after China embarked on socialist market reform in 1978 were essentially designed to achieve more equilibrated economic growth. The main indicators used to monitor and evaluate the impact of these policies and to judge political achievements in the fields of regional and industrial development were the GDP growth rate and other economic indicators. In addition GDP growth was a major driver of tax revenues. As a result sub national administrations had a strong interest in the development of tax generating and GDP increasing economic activities. The pursuit of these priorities generated a number of serious environmental problems particularly in environmentally fragile areas. Sometimes these environmental problems generated large externalities and were responsible for spillover effects in other parts of China. In addition these priorities sometimes placed pressure on critical resources (agricultural land, clean air, water and energy) whose limited availability placed strong constraints on Chinese economic growth. In 2006 these considerations led the State Council to approve general proposals for functional zoning put forward initially in the 11th Five Year Plan. The adoption of this strategy reflected a value reorientation towards a Scientific Approach To Development (ke xue fa zhan guan) and involved a significant change from the earlier focus on narrow conceptions of regional economic performance to a wider concern with the carrying capacity of the environment, the sustainability of development and an equalization of the provision of public services (with implications for the distribution of fiscal resources). With the adoption of this strategic framework, the Chinese government embarked on the establishment of priority development zones also referred to as functional areas. Four types of area were to be identified:

20 (1) Optimized development zones (you hua kai fa qu): regions with high density land development and a declining resource and environmental carrying capacity; (2) Prioritized development zones (zhong dian kai fa qu): regions with relatively strong resource endowment and environmental carrying capacity as well as favourable conditions for the agglomeration of economic activities and people; (3) Restricted development zones (xian zhi kai fa qu): regions with weak resource endowment and environmental carrying capacity, poor conditions for the agglomeration of economic activities and people, and which are crucial to wider regional or national ecological security; and (4) Prohibited development zones (jin zhi kai fa qu): legally established nature reserves. These zones were to be identified through area classification exercises conducted first at a national level and subsequently at a provincial level. A classification of this kind crosses the traditional administrative territorial divisions used to implement regional policies. In addition it raises other issues to do with: the relocation of people ant the impact on their livelihoods; the household registration (hukou) system; the development of non polluting industries in optimized, restricted and forbidden development areas; the use of clean technologies and the development of ecologically sustainable models of development; investment; different environmental regulations in different areas; and not least public finance. On this last front measures to restrict development were to prove extremely controversial due to the negative impact that they would have on sub national government revenues in an period in which central government was asking sub national administrations to invest more in health and education. Conclusions In this paper we have shown that inequalities expanded therefore in phases of industrial expansion and contracted in phases favourable to agriculture, although much economic output contributed little to GDP in predominantly subsistence economies. Since 1985 real per capita disposable income and real per capita expenditure have increased in all parts of China. The increases were however much greater (1) in areas on the east coast than in the centre, northeast and west creating widening macro territorial inequalities, (2) in some provinces rather than others increasing inter provincial inequalities and (3) in urban areas rather than rural areas (increasing at 7.4% per year in the former in and 5.5%

21 per year in the latter). In spite of these remarkable achievements the fact that relative incomes in some parts of the country and in rural areas have declined is a source of considerable concern in an economic world in which most goods and services are bought and sold in the market place, especially as it is associated with significant manifestations of social and political discontent. These imbalances and the consequent social and political tensions have seen the adoption of a succession of policies designed initially to promote a more equilibrated model of co ordinated national development and more recently to move in the direction of a more sustainable and more equitable development path consistent with the recent emphasis on harmonious development understood as social harmony and harmony with nature. The resulting set of measures are wide in scope as they embrace spatial planning (development control and the allocation of land to different uses especially for reasons of environmental protection), the development of clusters of cities as engines of growth and the design of systems of public finance and financial equalization in a system of multi level governance, as well as the economic development goals of traditional regional policies. These recent developments have far reaching implications. A concentration on sustainable development implies changes in the ways in which the performance of administrators and administrations are judged. The removal of the tax raising activities of sub provincial government, and the establishment of functional zoning that will restrict the development of tax generating activities in some areas clearly implies that new mechanisms will have to be put in place to redistribute fiscal resources and to allocate regional development funds. A new balance will have to be struck between redistribution (which figures very strongly in government proposals to deal with the improved provision of public goods and restrictions on environmentally damaging activities) and support for the development of wealth generating economic activities. China s main ambitions remain the same: ensuring the integrity of the country and achieving the modernization of goals set out by Deng Xiaoping, although China s recent success will mean that China will also play a larger role on the international stage. Achieving China s goals while addressing the issues of inequality and sustainability as well as the issues raised by the recent global financial crisis (Dunford and Yeung, 2009) are challenges for China s concern with a more scientific and human centred approach to development. Meeting these challenges will see comprehensive and integrated regional development figure as a part of a model of growth that is higher in quality, more efficient in and sustainable in resource use and more oriented to the integration and expansion of the domestic market and domestic demand.

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