China: still ‘going west’?

Author: Tim Summers, Chatham House

The dominant idea in China’s regional policy since the beginning of the 2000s has been to close the development gaps between coastal and inland China.

Since around 2007, aggregate GDP and industrial growth rates in western and central China have pulled ahead of those on the coast, suggesting some modest shift westwards — though parts of coastal China clearly remain the most prosperous.

This year has seen the completion of China’s leadership transition, as well as an apparent shift to a slower pace of economic growth amid renewed efforts to rebalance, or change the structure of China’s economy. What impact will these developments have on regional political economy? Is China still ‘going west’?

The new leadership has demonstrated strong continuity in regional policy. Frameworks to develop the western regions, stimulate the northeast and old industrial base areas, and promote the rise of the central regions were reiterated in the 12th Five-Year Programme for 2011–15 and have since been restated under the new government during regional visits by Premier Li Keqiang and Vice Premier Zhang Gaoli. Li and Zhang recently took charge of the related State Council Leading Groups, suggesting continuity in bureaucratic structures. In the case of the northeast, a new 10-year policy framework was approved in April 2013, a decade after the launch of the original policy.

Although there is continuity in regional policy, there are implications for the regions in the government’s broader development policies. Inland China, especially parts of western China, benefited substantially from the surge in investment after 2008, a year that saw both the earthquake in western China’s Sichuan province and the major stimulus package launched by the government in response to the global economic crisis.

This highlights a feature of many inland provincial economies. They are less exposed to international trade and so suffer relatively little from any decline in global demand. But they are also more heavily dependent on investment, and on central government financial and fiscal support.

The current policy priorities of the central government could therefore squeeze the inland provincial economies. Shifting away from investment towards consumption is likely to find more fertile ground in coastal regions, and Li Keqiang has stated that eastern regions should be at the forefront of the desired shift towards domestic demand. Industrial policy which looks to clamp down on highly polluting and energy-intensive industries could also have a disproportionate impact on poorer inland provinces, such as Guizhou — though given that these provinces are coming from a lower base, their growth rates should still outperform those of places such as Guangdong or Zhejiang.

At the same time, there are several other structural trends which challenge us to think afresh about regional political economy in China.

The first is domestic. Plans to develop major urban clusters linked together by a network of road and rail transport arteries (including high-speed rail) bring coastal and inland China closer together, integrating urban markets in the process. As logistics improve, the gaps between regions will diminish, and the logic of thinking about western China as quite so remote and distant from central China — or central China from the coast — will become less obvious.

Secondly, these logistics linkages are not limited to road and rail. Quiet efforts to improve the logistics capability of inland waterways, in particular the Yangtze, have opened up other routes. Along with port facilities, and the trend for inland cities to develop bonded customs zones, this means that trade processing can to some extent shift to central and western China, whereas traditionally it has only been feasible on the coast. This is what might be called ‘bringing the coast inland’.

The third trend reflects a feature of the ‘new round’ of the ‘develop the west’ campaign, launched in July 2010 (and reiterated in the 12th Programme): the idea that western China should be opened up further to China’s west, across land borders to its Asian neighbours. This ‘bridgehead’ concept — which has been developed most fully in Yunnan — creates the space for new drivers of development in western border provinces, on the back of both transborder infrastructure development and rapid growth in trade and investment between China and many of the developing economies in Central, South or Southeast Asia. The recent agreement in principle between China and Pakistan to build an economic corridor linking the two countries is an example of the sort of development this might lead to.

Some of these networks are brought together by the long-distance train routes from cities in central or western China through Central Asia to Europe. Chongqing’s Eurasian train route kicked off this trend back in 2010 (one of the Bo Xilai legacies to survive), and has since been joined by routes from Chengdu, Sichuan, and more recently Zhengzhou in central China’s Henan province. It is too early to evaluate the impact of these routes, but the savings in cost and time — cutting the time to reach Europe from five weeks to three — give them the potential to change the longer-term structure of China’s international trade and investment links.

Finally, energy security has regional elements to it. The geographic distribution of new resources, such as shale gas or solar and wind energy, will have implications for regional political economy as they increase their share of China’s energy mix. Similarly, the growing geographic diversity of oil and gas imports will also have an impact: the impending import of oil and gas through pipelines from Myanmar’s coast to southwest China is the latest example.

In many of these regions, the most developed and dominant areas still remain parts of coastal China. But western and central areas are becoming less peripheral as the structure of China’s economic geography is transformed in a number of ways. In sum, China is still ‘going west’.

Tim Summers is Senior Consulting Fellow on the Asia Programme at Chatham House, and author of Yunnan — A Chinese Bridgehead to Asia (Chandos, 2013).

This article appeared in the most recent edition of the East Asia Forum Quarterly‘Leading China where?’