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China’s growth is hurt by economic disparity

Xi Jinping

The regional disparities in China are growing faster even as the Beijing government brings attention to the country’s massive economic growth and prosperity. Over one-third of Chinese provinces are poor and not being able to meet the national growth targets. And now the Covid-led disruptions have made the problem worse. The widening economic gap shows the structural vulnerabilities of China’s economy, which would continue to affect its future growth.

The eastern (costal) and southern provinces are prosperous, and house gleaming skylines there subtly keep the lagging development in inland provinces hidden from the global public view. The share of northern China in the national economy decreased by around 20 percent in a decade to 35.2 percent in 2021. On other hand, the reforms brought by the Beijing government ended up benefitting more eastern provinces. Those in the central and north have become the victims of regional inequality. The widening regional economic gap is going to have huge implications for growth, debt and policy-making, feared Nomura Holdings.

A report by China’s central bank revealed that cash from China’s financial system flowed mainly to the affluent provinces such as Guangdong, Beijing, Jiangsu, and Zhejiang—all from wealthy coastal and southern China. However, funding for poor and rust-belt provinces has dried up, leading to a huge regional economic imbalance. Per capita gross domestic product (GDP) of Beijing and Jiangsu provinces was CNY 190,313 and CNY 144,390 in 2022 respectively. However, it was just restricted to CNY 51,096 and CNY 55,347 for Heilongjiang and Jilin provinces.

The past global experiences suggest these disparities can aggravate socio- political tensions and affect the long-term growth of China.The northern and inland provinces are witnessing sluggish growth due to slowing government investments. Besides capital expenditures, there has been a growing disparity when it comes to China’s spending on research and development (R&D). In 2016, it increased to 68 percent in prosperous provinces but fell to just 4 percent for poor provinces.“ The gap in R&D input growth and R&D intensity between the south and north echoed the differentiation in the economic development of the south and north,” said Xie Liangbing, president of the Standard Ranking City Institute.

Some reports blame a shift in policy by the Xi Jinping government for the growing disparity among Chinese provinces. Also, the different strategies adopted by successive communist governments are responsible for the growing disparity. “In particular, the heavy industry-led development strategy played a key role in forming the enormous rural–urban gap in the planned economic era while openness and decentralization have contributed to the rapid increase in inland–coastal disparity in the recent period,” reads a report prepared by London-based Africagrowth Institute.

The north-eastern provinces of Heilongjiang, Jilin, and Liaoning, which lie in the Manchuria region, were rich a few decades ago. However, lack of performance by state-owned enterprises and poor investment climate led to the lagging growth in this region, said Asian Development Bank. These provinces are witnessing lower than the national average economic growth since 2014, which has led to high employment.

The unemployment rate in China has not come down despite the tremendous economic growth in recent years, thanks to regional disparities. “ While in some regions that are primarily characterized by the subsistence sector unemployment rates are close to zero, other regions are suffering from persistent unemployment with unemployment rates above 15 percent,” finds a study by the Tokyo-based Institute of Social Science.

Unemployment has forced millions of Chinese people to migrate to wealthy southern and eastern (coastal) provinces. The provincial disparity was exacerbated by the covid-pandemic, and people in backward provinces felt the heat. Their livelihoods were at considerable risk. United Nations Development Programme (UNDP) surveyed Hubei, Henan, Sichuan, Hunan, and Gansu– five poor provinces, to gauge the impact of Covid. It found that Covid had affected their economies, caused employment pressures and aggravated fiscal pressure.  North-eastern states were badly hit. Liaoning Ministry of Rural Revitalisation acknowledged “The complexity and difficulty of pandemic prevention and control in our province have had extremely adverse effects on rural production, labour migration, and agricultur