"Will rapid industrial development in the less-developed centre and west reduce these inequalities in the next two decades?
This question permits an optimistic response: ‘yes, it is possible’. Recent analysis indicates the glory days of the east’s industrial dominance could be coming to an end, with the region no longer performing above the average across the broad spectrum of industrial sectors. In addition, there is evidence of rising costs in the east, which will provide the impetus for industrial upgrading there. In this context, a serious and committed pro-west (or at least non-pro-east) regional policy with substantial funding well spent on infrastructure and education could play a positive role in triggering self-sustaining industrial development outside the eastern region. Rising incomes in the east could provide a crucial source of demand for non-eastern products, with the east possibly becoming for western China what the industrialised world has been for the eastern region during its own industrial take-off – a stable consumer market.
However, for this to translate into a reduction in regional income inequalities would require the western region to grow faster than the east by at least 2 percentage points. It is unlikely that changing patterns of industrial development in response to market forces and the current set of regional policies will be sufficient for achieving this objective . Even when taking other non-industrial factors into account, such as the potential for out-migration and resource rents to raise the per capita incomes of those who remain in the western region, it is unlikely that the speed of growth in western China will drive Chinese regional incomes towards equality.
The pessimistic response is that; ‘no, industrial development in the less-developed centre and west cannot possibly reduce these inequalities in the next two decades’. Even if rising costs in labour-intensive manufacturing in the east produced industrial upgrading there, industry would relocate outwards to competitor nations such as India and Vietnam. Western China would then be characterised by substantial pockets of poverty and underdevelopment. The east would become increasingly integrated into the global economy, while the west would remain isolated from the rest of the world.
This outcome would pose a serious threat to the legitimacy of the Chinese Communist Party, especially if it fails to implement policies effectively that reverse the situation.
What, then, is the most likely outcome?
The balance of evidence suggests an outcome somewhere in between these two extremes. The next two decades are likely to witness limited improvements in the distribution of regional per capita incomes underpinned partially by limited re-distribution of industry towards some but not all of China’s non-coastal provinces. Thus regional inequality between the west and the rest of China is likely to be diminished marginally at best."
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