Li Shantong，HouYongzhi& Feng Jie, Department of Development Strategy and Regional Economy of DRC Research Report No. 040, 2005

I. The Three Relationships that Should Be Well Handled in Formulating the Strategy and Policies for a Coordinated Regional Development

Coordinated regional development is determined by various factors. The following five points should be considered in formulating strategy and policy to achieve this goal:

First, China has joined the WTO. The grace period will be over during the 11th Five-Year Plan. As globalization and China’s integration with world economy are being deepened, it is still the most important task to raise the overall competitiveness of the country. Therefore, we should, first, encourage (at least not prevent) the concentration of resources and elements towards advantageous regions so as to form several regions with internationally strong or fairly strong competitiveness – this is a realistic choice that should be made against the current background; second, during the 11th Five-Year Plan or in a fairly long period of time, there could not be abundant resources to be used to solve the regional gap as China will still be at a fairly low level of development.

Second, as the buyer’s market is formed and domestic and international competition is tenser, regional cooperation will gain additional impetus. If the regional cooperation in the past was mainly aimed at ensuring resource supply, future regional cooperation will target the goal of exploring the market, dividing industries and seeking win-win or all-win scenarios.

Third, the various phenomena, which usually run against regional development, occur during the transitional period, partly due to special system background. But the system was not the only factor leading to these phenomena. To a certain extent, historical and natural factors could be the main causes.

Fourth, to eliminate the phenomena that impair regional development and realize coordinated regional development, we should push for market-oriented reforms and pursue strategy and policies on the basis of the new system. But we should not pin all hopes on the market. We should take active measures, but should not ignore actual conditions and set unrealistic goals. Nor should we formulate radical policies that may bring about new problems.

Fifth, as the country is gradually merged into the global economy, the regional industrial division would take on a more complicated pattern. A region could have close socio-economic links with other domestic regions as well as trade and investment relations with other countries (regions).

On the basis of the above analysis, we believe that the following three major relationships should be well handled in making and implementing regional development strategies and policies:

1. The relationship between quickening the pace of narrowing the regional gap and raising the country’s overall strength and competitiveness

The regional gap has aroused widespread concern and been regarded as one of the three gaps that affect harmonious social development. Starting from now, we should pay great attention to the gap and the social impact from it. We should take all possible measures to curb the widening of the gap.

However, we should note that the regional gap was in a way caused by policy orientation, but it was also to a great extent related to natural factors. Narrowing this gap cannot be realized within a short period of time. In fact, it is inevitable that a regional gap should exist in such a big and populous country. A regional gap can also be found in one way or the other in the most developed economies.

It should also be noted that regional economic development is also facing this problem: the developed regions are not competitive enough to cope with international competition, so they do not have sufficient strength to bring along the less developed regions.

Therefore, during the 11th Five-Year Plan and even the whole period of building the well-off society, we must properly handle the relationship between curbing the expanding of the regional gap and raising the country’s overall strength and competitiveness.

To narrow the regional gap, the central government must be asked to provide more policy measures and fund resources in the less developed regions. The scale of the investment should be proper. Proper investment will be helpful to the development and increase of demand in the developed regions, and eventually to the improvement of the competitiveness of developed regions and the central government’s ability to coordinate regional development. Excessive investment may help narrow the regional gap in a short term, but in the long run, it will affect the upgrading of competitiveness and fortune creation ability of the developed regions, thus having a negative impact on the central government’s ability to coordinate regional development. It is eventually not conducive to narrowing the regional difference. In a word, regional policy during the 11th Five-Year Plan should take into consideration the less developed regions and the developed regions as well. It should not only encourage the transfer of productive elements to less developed regions, but also bolster the competitiveness of developed regions.

Against this background, the regional gap will continue to exist and may further expand from a mid-term and long-term point of view. What the central government should do is to offer the less developed regions more public products and take proper measures to promote the development of their social welfare so that the residents in these regions would gradually enjoy similar or the same welfare with those in the developed regions.

2. The relationship between using the market as the basic means to allocate resources and properly playing the role of government

Under a market economy, the market is a basic means to allocate resources. The allocation of production elements in space should be interest-oriented. In the planned economy period, the government used administrative means to force the elements to flow without following the economic law or considering the elements’ demand for return.

But the international and domestic experience indicated that under a market economy, the government, especially the central government, has a huge room to play its role for regional economic development. It can offer cross-regional basic facilities, guide rational industrial division, promote regional cooperation, support the less-developed regions to increase the ability to provide products and encourage the developed regions to bring along the development of less developed regions. The government may guide the productive elements to flow to the target areas of the regional policies by formulating and implementing the plans or using economic or legal means. It can also use financial transfer payments to back up the social welfare development in the target regions of the regional policies.

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*This report is one of the series of research papers on "Guiding Principles for the 11th Five-Year Plan and the Long-Term Goals by 2020".