Regional Inequality in China

This thesis reviews China's state policies, reforms, and public investment patterns—over the last fifty years—as a major cause of regional disparities in growth rates and income distribution. During the pre-reform period—under the central planning system—state policies and investments favored an urban industrial development strategy. Thus, under the pre-reform period income inequality was primarily defined in terms of urban-rural disparities. After 1978 and with the initiation of market-oriented reforms, public investment favored coastal areas as a means to develop an international export oriented economy. Disparities in growth and income shifted—the gap between coastal and interior areas primarily defined regional inequalities during the post-reform period. State reforms of the fiscal system after 1978 also impacted regional inequality. Poor interior provinces were no longer supported by the transfer system. Furthermore, their poor local economies often failed to provide a sufficient tax base to support local investment for much needed development projects. In an extensive review of relevant literature—this thesis found that targeted public investment in rural education, agricultural R&D, and rural infrastructure would have the most favorable impact on the interior region's income and growth rates. In addition, reforms to the present household registration system or hukou system are needed. Currently, this system maintains strict restrictions on migration from rural areas to urban areas. The hukou system also links one's access to social benefits to their place of residence. Thus, reforms to the present hukou system would allow a natural flow of labor from isolated and geographically disadvantaged areas to the thriving coastal industrial areas—in which migrants could have equal access to social benefits such as healthcare and education.