A sense of deja vu comes over me when I read the Chinese government’s proposals for the development of China’s western, or hinterland, provinces.
These regions have fallen behind, both economically and politically, as the coastal provinces power ahead on the capitalist engine started up in 1978 by Deng Xiaoping. Deng’s drive for reform and opening up triggered the movement of people and money to the areas best placed to respond to market opportunities, i.e., the coastal provinces, especially those in the south with good connections to Hong Kong and Taiwan. The interior regions became relatively and, in many cases absolutely, worse off as productivity fell. Only the old state-owned enterprises, which had been moved to the hinterland in the Cold War era, stayed on. Subsidies to agriculture kept those provinces’ economies afloat.
Now that the SOEs are being reformed and agricultural protection reduced, the growing numbers of workers who have been made redundant and farmers who have lost their incomes have become a potent source of discontent.
It is not generally realized outside China just how stringent conditions are for many people living in the hinterland provinces. While some of the big cities like Xian, Chingqing, Chengdu and Kunming show signs of the benefits flowing from the reform process, in the rural areas and more remote cities and towns, where most people live, if the quality of life has changed at all it is for the worse.
The social-welfare system of the prereform era has all but disappeared in these areas. The “barefoot doctors” long ago put on shoes and left for the cities; health care is either nonexistent or inadequate. And education has been effectively privatized, putting it beyond the reach of poorer families.
All of this is happening at a time when corruption is widespread and getting worse. In many rural areas, party and government officials are not only above the law, they are the law, and as such impose many “taxes” and fees on the poor workers and farmers. The real-income gap between the hinterland and coastal provinces is getting wider, but so is the gap between the income of the average citizen in the hinterland and the income of people who have been able to make the system work in their favor.
Party leaders have belatedly realized that this hinterland powder keg is the biggest single threat to their grip on power, and they have instructed the central government to undertake a massive program of works to stimulate development in those provinces.
The problem is that it won’t work.
Few Chinese economists believe that this grand program to develop the hinterland provinces will have any real effect on the country’s underlying problems. The basis of the government’s new plans for the hinterland is: (1) encouraging industry to invest there and (2) lavishing vast expenditures on infrastructure.
Neither foreign nor Chinese investors, however, have found the hinterland provinces sensible places to invest in. The physical and social infrastructure is inadequate; remoteness makes transport costs high; commercial support services are either nonexistent or primitive; the people are poor and do not provide much of a market; and educational and health standards are on the whole low.
The government points to the hinterland attractions of extensive natural resources and cheap labor, but labor is not cheap if productivity is low; it is only one of the factors of production, and if the others are not there or are expensive, then workers can produce nothing useful. And natural resources have no value unless there is a market, but the markets are in the coastal provinces. Exploitation of natural resources cannot create magnets of growth without links to the local economy, but there are no associated industries that could be efficiently located at points of extraction in either the western or northeastern provinces. Meanwhile, the desert is expanding, and the exploitation of one natural resource, timber, is making this worse and causing flooding in the east. Farmers are being taken off the land to make way for reforestation schemes, thus joining the ranks of the socially disaffected.
The government’s plans for infrastructure development call for massive investment in roads, railways, airports and telecommunications, all to be financed by loans and central-government grants based on bond sales in the coastal provinces. But infrastructure improvements cannot on their own create development if the conditions needed to spark and sustain that development are absent. Africa is a case in point.
Some officials and economists in China are recommending that the enormous resources being poured into this infrastructure wasteland be diverted to move industry and surplus population to the coastal provinces. This wise advice is likely to go unheeded. The growing numbers of unhappy people in the west will then be joined by growing numbers of people in the east who are unhappy at the increasing cost to them of financing the Great Leap West.
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