By Sun Zhiyan

Research Report Vol.21 No.5, 2019

Recently, due to the new technology revolution, the deep-going adjustment of global division of labor and the digital transformation of industries, China’s regional disparity shows a new round of expansion, and the characteristics of unbalanced development have undergone more complex changes in terms of economic growth and spatial distribution of capital and labor; structural imbalances in regional development capacity become more salient. The report observes and analyzes the main characteristics of China’s regional development disparity from the perspective of labor productivity, economic growth drivers, spatial flow of factors, development capacity and so on. It aims to dig into the internal mechanism of regional development disparity so that more targeted and effective policies and measures can be applied for more balanced development among regions.

I. Main Characteristics of the Current Regional Development Disparity

1. Productivity relative to the level of GDP per capita has shown greater differentiation among regions, with significant differences in economic growth vitality

China’s regional disparity shows a new round of expansion after 2014. At the provincial level, the ratio of the highest to the lowest GDP per capita increased from 3.9 in 2014 to 4.5 in 2017. The productivity gap between regions grows even wider and lasts longer. The report estimates the labor productivity in provinces based on a survey of the employed population (including those working with urban units and private enterprises and individual workers). The relative gap in labor productivity between regions in China has become apparent since the 2008 financial crisis, with the ratio of the highest to the lowest at the provincial level increasing from 2.5 in 2008 to 3.8 in 2017. Productivity in relatively backward regions grew very slowly between 2008 and 2017, below the average annual growth rate of GDP per capita, and the growth was negative in Inner Mongolia Autonomous Region and Gansu Province and other relatively backward regions. One of the important reasons for the differentiation of labor productivity is the lack of economic growth momentum in some regions. According to the proportion of newly added businesses from all regions in China of the national total, more than 30% concentrate in the relatively developed eastern regions such as Jiangsu, Guangdong and Shandong provinces, while the sum of the 12 western provinces accounts for less than 20%. The growing disparity inevitably widens the gap in income and local financial capacity among regions.

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2. With visible disparities in income and welfare levels among regions, structural imbalances in local fiscal expenditures widen the gap in development capacity

Between 2013 and 2017, the absolute gap between the max and min per capita disposable income of residents in China’s different regions expanded by 1.4 times, with the min roughly equivalent to 1/4 of the max. The widening gap in economic development has also led to structural differentiation in local fiscal expenditures for public services. In terms of the level of per capita fiscal expenditure on general public services, education, health care, culture, social security and employment, the largest gap is seen in the cultural sector, with the max approximately 9.5 times the min. The second is in the field of social security and employment, with the ratio of the highest to the lowest being approximately 4.5. The overall trend is that the higher the level of economic development, the higher the proportion of per capita fiscal expenditure for education, culture and social security, while in the relatively backward regions people spend primarily on general public services and health care. To some extent, it reflects a serious imbalance in the basic capacity of regions to support economic development, such as human capital and infrastructure investment.

In the case of Internet infrastructure (see Figure 2), the Internet penetration rate in the developed regions such as Guangdong Province, Shanghai and Beijing exceeded 70% in 2017, while that in Yunnan, Gansu and Guizhou provinces was about 40%. The backwardness of information infrastructure has become a bottleneck for economic transformation and growth in underdeveloped regions against the rapid progress of digital economy.

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3. Geographically unbalanced flow of population, capital and other factors intensifies and the two-way polarization of “becoming old before getting rich” and “cumulative agglomeration” in underdeveloped regions grows

As population aging intensifies and industrial digital transformation accelerates, the spatial flow and distribution of population and capital in China have changed significantly. First of all, according to the population structure of different regions, in 2017, Chongqing had the highest dependency ratio of the elderly population, at 20.6%, while Guangdong Province the lowest at 10.2% (excluding Tibet). In the period 2005-2017, regional disparities were more pronounced, with the highest old-age dependency ratio nearly doubling the lowest (see Figure 3). The dependency ratio of the elderly population in Anhui, Sichuan and Hunan provinces all exceeded 17%; the phenomenon of “becoming old before getting rich” is increasingly prominent in some regions.

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According to the general spatial flow of capital investment, from 2010 to 2017, nearly 25% of the newly increased fixed asset investment went to Shandong, Jiangsu and Henan provinces, while the total investment of fixed assets in Liaoning and Shanxi provinces decreased in absolute amount. Speaking from the proportion of the newly increased investment in fixed assets in the whole country, the total of the provinces in the bottom 10 places was less than 10%. It indicates that the spatial agglomeration of capital is increasing and first-mover regions still have obvious strengths in factor agglomeration.

II. Analysis on the Internal Dynamic Mechanism of the Current Regional Development Disparity in China

With the support of digital technology, significant changes have been seen in the spatial mobility, allocation means and organization patterns of factors. Consequently, the internal dynamic mechanism of regional development disparities in China is significantly different from that in the previous stage of development, mainly due to three points.

1. The new-generation of technology leads to an increase in agglomeration scale effect of factor space

The new generation of technology with information network technology at its core has the most significant impact on the spatial layout of factors by greatly reducing the costs of cross-region flow and spatial aggregation, and virtual integration of factors in different geographical spaces has been realized through functional connectivity. It has resulted in the expanded spatial agglomeration of resource factors, especially high-quality resource factors.

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