China's western regions are growing rapidly, but human capital is flowing to the east

Of the five regions with the highest growth rates last year - Chong-qing, Tianjin, Guizhou, Sichuan and Inner Mongolia - four are located in western China. By contrast, the five regions with the lowest growth rates - Beijing, Shanghai, Zhejiang, Guangdong and Shandong - are all on the east coast.

These regional growth variations will help to narrow the gap between east and west in China. In fact, per capita income in Shanghai (the highest in the country) was 9.2 times as high as that in Guizhou (the lowest) in 2005. This had dropped to five times in 2011, according to the National Bureau of Statistics.

Several factors have contributed to the better growth performance in western China. First, since the launch of the go-west campaign in 1999, massive resources have been diverted to the western regions. Empirical evidence shows that capital accumulation in western China has accelerated in recent years. This is a classic case of resource-driven economic growth.

The second factor is due to the relocation of manufacturing activities from the coastal areas to the inland and western regions. Data from the National Bureau of Statistics illustrate that western China accounted for 18.8 percent of national industrial value-added last year, while this figure was 13.9 percent in 2000, implying a gain of about 5 percentage points. This is a significant development.

During the same period, the six central provinces had also gained in terms of industrial-output share (from 19.1 percent to 21.3 percent). Thus, manufacturing activities are shifting westward probably because of rising wages and the subsequent shortage of labor in the coastal area.

Third, tourism is booming in western China. For example, Sichuan province recorded the highest growth among the 31 regions in 2011; domestic and foreign tourist arrivals in Sichuan grew by 67.7 percent and 51.7 percent, respectively. Significant growth was also observed in Chongqing, Gansu, Shaanxi, Tibet and Yunnan.

Meanwhile, traditional tourist destinations experienced stagnation or minor growth, such as a 9 percent fall in Shanghai, and an increase of only 6 percent in both Beijing and Guangdong.

These sharp differences may be due to two reasons. First, many Western countries' economies were in recession and thus foreign tourist arrivals in China declined. Second, Chinese household income has increased continuously. Many middle-income families can afford to take regular holidays, hence the constant increase in domestic tourist numbers. In particular, more tourists travel from the relatively affluent coastal regions to the inland and western areas.

While enjoying economic prosperity, governments in the western regions should think ahead and make sure that the current growth momentum is sustainable. In some fields, the western regions still lag behind the coastal areas.

For example, energy consumption per unit of output (energy intensity expressed as kg/100 yuan) in the western regions is on average much higher than that in the coastal provinces. Among the regions, Beijing and Guangdong recorded the lowest energy intensity (about 80kg/100 yuan) in 2011 while the highest intensity was observed in Ningxia (five times as high as the best performers) and Qinghai (four times).

Thus there is considerable scope for efficiency improvement in the western regions. Without efficiency changes, there would also be serious environmental consequences as manufacturing activities continue to expand in these regions.

To improve efficiency, governments should promote and spend more in research and development. The western regions are well behind the rest of the country in R&D investment. In 2011, the coastal regions spent, on average, more than 2 percent of their income on R&D; in the western regions the figure was about 0.5 percent.

Knowledge and technology are the key driving forces for sustainable growth in the future. The goal of the national 12th Five-Year Plan (2011-15) is to spend about 2.2 percent of China's GDP on R&D by 2015. The western regions as a group are not likely to meet this target.

Finally, while the western regions gain in economic power, they are losing out in terms of human capital. Statistics show that the population share in the western and central regions fell modestly during 2000-11 even though fertility and natural growth rates were high in these regions relative to the coastal area.

Thus, against the tide of westward economic movement, there is a shift of human capital from the inland and western regions to the coastal areas. In the long run, this phenomenon could have repercussions for economic development in China's inland areas. It needs more detailed investigations.

The author is a professor in economics at the University of Western Australia.

(China Daily 08/24/2012 page7)