Even Xi Jinping is struggling to fix regional inequality
Will China’s vast hinterland ever catch up with its wealthy coast?
TO UNDERSTAND WHAT China’s leaders care about, look at where they travel. Earlier this month Li Qiang, the prime minister, spent three days in Xinjiang, a poor area in western China where he ordered local authorities to boost incomes and employment. At the same time Mr Li’s deputy, Ding Xuexiang, went to Shenyang, a city in China’s north-eastern rustbelt. Mr Ding called for the region’s “revitalisation”. Two weeks before all that, the supreme leader, Xi Jinping, presided over a symposium in the city of Chongqing where he heralded a “new chapter” in the development of China’s western region.
China’s leaders are trying to fix a problem that has dogged the country for decades: how to spread wealth more evenly. GDP per person in the west and north-east, which make up most of China’s land mass and hold a third of its population, is 70,870 yuan ($9,800) and 60,400 yuan, respectively. Along the coast it is 124,800 yuan. China’s richest provincial-level unit, Beijing, is four times wealthier than its poorest, Gansu (see map). And the richest areas are pulling further ahead.
China is hardly the only country struggling with regional inequality. India’s economy is driven by its relatively rich southern and western regions, which leave parts of the north and east in the dust. British politicians talk of “levelling up” neglected areas. China’s leaders, though, have unique concerns. They worry about the security and stability of the hinterland, which contains most of China’s natural resources. And they are embarrassed that such gaping inequality exists in their socialist country. Mr Xi, after all, has promised to create a more egalitarian society under the banner of “common prosperity”.
Today’s uneven picture dates back to the reforms of Deng Xiaoping in the late 1970s. China’s former leader set up special economic zones along the coast that were free to experiment with market activity. The policy was a resounding success and expanded to other parts of the coast. “Let some people and some regions get rich first,” said Deng. He promised that the rest of China would catch up eventually.
As the years went on, the coast became prosperous by making cheap goods and shipping them abroad. But China’s hinterland remained poor. Some worried that the growing disparity could lead to unrest. One influential scholar, Hu Angang, wrote that China might go the way of Yugoslavia, a socialist country that had broken up in the early 1990s. So in 2000 China launched the “go west” strategy to help its western provinces. In 2003 a similar plan was unveiled to revitalise the north-east.
At the heart of the campaigns were big infrastructure projects. Since the go-west strategy was introduced, some 40,000km of railways have been laid in western China, more than the total length of track in Japan. Officials also built roads, bridges and airports. Many of these efforts were tied to the Belt and Road Initiative, an ambitious attempt to recreate the ancient Silk Road trade route that linked China with Central Asia and Europe.
Officials have given inland areas cash as well as concrete. Whereas coastal provinces largely rely on taxes they raise themselves, those in the west and north-east are showered with funds from the central government. Last year they received 5trn yuan, making up over half of the budget in some provinces. Wealthy cities have been paired with poor inland ones and told to assist them directly. For example, some food-processing companies in Shanghai are pressed to buy agricultural goods from Zunyi, 1,700km to the west.
For a time these policies helped to bridge the gap between regions. In the 15 years after the go-west plan was put in place, GDP per person in western provinces rose from just 35% of coastal levels to 54%. In the north-east, it rose from 62% to 71%. Abject poverty is now rare in the hinterlands. But in the past ten years regional inequality has remained sticky—or got worse. Today residents of western provinces earn about 57% as much as those on the coast. North-easterners earn 48% as much. Many locals seem to have given up on the north-east. Its population shrank by 10% between 2010 and 2020 because of low birth rates and emigration.
Provinces in the landlocked interior cannot trade their way to riches as easily as those on the coast did. China’s poor neighbours—such as Mongolia, Kazakhstan and Kyrgyzstan—have relatively little demand for its goods. For all the talk of reviving the Silk Road, it is still cheaper to send products to Europe by container ship than by train. So most exporters would rather invest in factories near ports.
The situation inside China does not help. Tongwei, a dusty county in Gansu province, has had a high-speed railway station linking it to the coast since 2017. But the railway does not bring in new business, explains Li Hongwei, who sells refrigerators and televisions in the county seat. Instead, he says, young people use it to travel to find jobs in eastern cities. A study from 2020 backs him up. Researchers at the Nanjing University of Finance and Economics and the University of Cambridge looked at 285 cities with high-speed rail connections in China. It found that, while big cities benefited because the railways brought in more workers, small cities saw “insignificant” economic effects.
That is not to say that China’s spending on infrastructure has been a complete waste. The country’s inland areas were in need of public investment when the go-west policy was introduced. But the government has also ignored market signals, squandering money on vanity projects. Some 200km north-west of Tongwei, city planners have spent over a decade constructing Lanzhou New Area. Its skyscrapers and factories are built on bulldozed hills and supplied with water from three reservoirs dug for the purpose. It features a replica of the Parthenon. Officials insist people are flocking to the city. But many flats are still empty, say locals.
Put your Han up
All this worries China’s leaders, who—like over 90% of the population—belong to the Han ethnic group. Most members of ethnic-minority groups live in the country’s hinterland. Officials doubt their loyalty and fear they may try to secede. Economic development, the officials reckon, will keep them happy and bind them to Beijing. But the government’s cultural and security policies often alienate minority groups. And even its development efforts risk generating more anger than gratitude. For example, nomads on the Tibetan plateau have been forcibly settled in villages. Mongols have been turfed off northern grasslands to make way for mines. And the government has encouraged Han citizens to migrate to the interior. That’s good for development, but one suspected aim is to dilute minority populations.
A clear goal is to make China’s 22,000km of land borders more secure. To this end the government has encouraged people to settle in areas around the borders, which are generally poor. Many of the families living in these places were exempted from the “one-child policy” (which was rolled back in 2016) and given cash subsidies. Border towns have been ordered to build more industrial parks, tourist attractions and libraries.
China’s inland areas are important not just because of the risks they pose, but because of the riches they hold. Most of the country’s rare-earth elements are dug up in the north-east. Oil and coal is found in the west. Parts of that region also offer strong winds, dependable sunlight and swift rivers that can generate power. China has built the world’s biggest network of ultra-high-voltage energy lines to transport electricity from the west to the east.
But all this natural wealth may actually be holding inland regions back. Some places are suffering from a kind of “resource curse”, says Andrew Batson of Gavekal Dragonomics, a research firm. Their economies have become so dependent on digging things up that too little capital and labour have flowed to higher-value sectors, such as manufacturing or services. Part of the problem is that the state-owned firms leading the development push tend to focus on resource-intensive industries.
Experts suggest doing more to tempt private firms to invest in the west and north-east: not always easy, because local governments there tend to be more bureaucratic and corrupt than those on the coast. China could also focus less on hard infrastructure and more on the softer sort. Government spending per high-school student in the west is just 60% of that in the east. Of China’s top 100 universities, only 16 are in the west. The predictable result is less dynamism. China’s eastern provinces and cities have five times as many high-tech firms as the hinterland.
The risk to Mr Xi and the Communist Party is that as economic growth slows, poor areas will be hit hardest and regional inequality will rise even faster. So the government has continued to pour resources into western and north-eastern provinces. Two decades ago such efforts were compared to “making water flow uphill”, according to the memoir of a former official. That has not discouraged party leaders, says David Goodman of the University of Sydney. “Communist parties thrive on the belief they can change nature.” ■
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ChinaThis article appeared in the China section of the print edition under the headline “A tale of two Chinas”