Direct foreign investment and inter-regional economic disparity in China

International Journal of Social Economics 25,2/3/4 424 Direct foreign investment and inter-regional economic disparity in China Haishun Sun Deakin Un...
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International Journal of Social Economics 25,2/3/4 424

Direct foreign investment and inter-regional economic disparity in China Haishun Sun Deakin University, Australia, and

Joseph Chai The University of Queensland, Australia

International Journal of Social Economics, Vol. 25 No. 2/3/4, 1998, pp. 424-447, © MCB University Press, 0306-8293

1. Introduction During the reform era since 1979, the Chinese economy has been characterised by rapid growth and increasing inter-regional disparity. The economic growth in the eastern (coastal) region has been faster than that in the western region[1]. During the period from 1980 to 1994, the real GDP of the eastern region grew at an annual rate of 11.5 percent on average, compared to 9.4 percent in the western region (SSB: SYOC, 1981-1995), resulting in a widening inter-regional economic gap between the two regions. This disparity can be attributed to many factors such as economic reforms and open-door policy in favour of the eastern region, the different economic structure and resource conditions, coastoriented regional policy and direct foreign investment. Several studies have examined the influence of economic reforms and regional policy on regional economic development in China. These include Cannon (1990), Chai (1994), Chai and Leung (1985), Falkentheim (1985), Jia and Tisdell (1993), Kueh (1992), Lo (1989, 1990), Pannell (1987), Rothenberg (1987), Tisdell (1993), Tsui (1991) and Yang (1990). Fan (1992) examined the regional impact of foreign trade in China for the period 1984 to 1989 using the expansion approach (see Casetti, 1972). He found that the effect of foreign trade on economic growth in the eastern region was stronger than in the western region. Sun (1995) investigated the impact of direct foreign investment (DFI) on regional economic development in China, with a special focus on the differential influences of DFI on economic growth in the eastern and western regions of China. It was found that DFI played a distinguishing role in the two Regions. DFI contributed significantly to the eastern region’s economic growth whereas its impact in the western region was negligible. This paper is an expansion of Sun’s previous study. It presents an investigation of the impact of DFI on inter-regional economic disparity at both the macro-regional and intra-provincial levels. It is hypothesised that the impact of DFI on economic growth varies from one region to another – more specifically that it is stronger in the eastern region (the coastal region) and weaker in the western region. By promoting capital formation, technology upgrading and exports, DFI contributed significantly to the economic growth of the eastern region, while it had little influence on the western region. As a

result, the economic disparity between the two regions has been reinforced by coast-oriented DFI. At the same time, DFI played an important role in exacerbating intra-provincial economic inequality. This has been demonstrated by the experience of Guangdong Province. An empirical investigation of this issue using the case study of Guangdong Province is presented in this paper. This paper is organised as follows. Section 2 discusses the pattern of the regional distribution of DFI in the context of the open-door policy and regional difference in investment environment. Section 3 presents a regression analysis on the effects of DFI on the economic growth in the eastern and western regions, using pooled time-series and cross-section data for 16 provinces over a sevenyear period (1986-1992). Section 4 discusses other important factors influencing regional economic development including rural industry development, differential growth of fixed capital investment and exports and domestic capital flow from the western region to the eastern region. In Section 5, a case study of the effect of DFI on the intra-provincial economic inequality in Guangdong Province is presented. This study is complementary to the investigation of macro-regional economic disparity. Finally, some conclusions and policy implications will be drawn in Section 6. 2. The regional pattern of DFI distribution in China 1979-1993 The regional distribution of DFI in China is primarily determined by the investment environment and return on capital in the different regions. The investment environment in a region is affected by a number of social and economic factors, which in the theory of international investment are termed location-specific factors. These include infrastructure, transportation, economic structure and development level, economic policy, legal system and resource endowment. In the case of China, the location-specific factors differ considerably between the eastern and western regions. In general, the eastern region is more developed economically and culturally. The eastern region has a better infrastructure, especially in transportation and communication systems, as well as a more developed economic structure and financial system. Traditionally, all economic centres of China as well as major seaports and airports are concentrated in the eastern coastal region. In addition, the better service facilities and human resources make the investment environment in the eastern region superior to that of the western. In terms of economic structure, the share of manufacturing industry in GDP of the eastern region is significantly higher with 52.5 percent in the ten eastern provinces in 1985, compared to 40.7 percent in nine western provinces[2]. These traditional advantages of the eastern region over the western region in economic development and investment environment were reinforced by the coast-oriented economic reforms and open door policy since the early 1980s. The Chinese government committed a large amount of capital to the eastern region to improve infrastructure such as transportation, communication, public utilities and service facilities. Furthermore, the government granted a package of preferential policies to the eastern region, including favourable policies on

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taxation, foreign trade and investment and more autonomy in economic decision making, all of which resulted in a better investment environment. In particular, the open-door policy has been pursued with a remarkable spatial dimension. In 1979, the Chinese government initiated the open-door policy by establishing four special economic zones (SEZs) in the south-east coastal region. These SEZs were initially designed as laboratories for use of foreign investment, where special economic policies were adopted. The spatial proximity to Hong Kong where about 80 percent of total DFI in China comes from was important. In the initial stage, DFI was highly concentrated in the four SEZs (Shenzhen, Zhuhai, Shantou and Xiamen) and during the period from 1979 to 1983, about 80 percent of total DFI projects was located in the four SEZs. However, as the government used administrative regulations to isolate the SEZs economically from the rest of the country, the SEZs in essence became foreign enclaves with little economic linkages with other regions. In 1984, 14 coastal cities were opened to foreign investment. As in the SEZs, a series of special economic policies were practised in these open coastal cities (OCCs). This helped DFI to diffuse spatially from the SEZs to the 14 OCCs across ten coastal provinces. Consequently, the contracted DFI in the 14 OCCs exceeded that in the SEZs. Since 1986 DFI has gradually spread to the other regions including the other coastal areas and the vast inland regions. In 1990, the new emphasis of open policy shifted to Shanghai Pudong New Area, Changjiang (Yangtse River) Delta and Minnan Delta. This was followed by a rapid expansion of DFI to the inland regions after Deng Xiaoping’s “south tour” in early 1992. As a result, DFI diffused quickly to the inland regions and scattered widely across the country. However, as the investment environment in the eastern region is more favourable for foreign investors, DFI has been concentrated in the eastern region since the beginning of the open-door policy. As Table I shows, during the period of 1983-1993, 89.7 percent of the realised DFI in China was located in the coastal region, with 6.9 percent and 3.4 percent in the central inland and the western inland regions respectively. Although DFI has spread to the inland regions since the mid-1980s, the eastern region is still the primary location of foreign investment. For example, Guangdong Province is the single largest recipient of DFI, amounting to US$19.6 billion, which accounted for 34.6 percent of the national total for the period from 1983 to 1993. In the initial stage (19831985), 61 percent of total DFI flowed into Guangdong. Since the mid-1980s Guangdong has maintained the most important location for DFI although its share in the national total has declined. Fujian Province is second only to Guangdong, with DFI amounting to US$5.8 billion during the period from 1983 to 1993, accounting for 10 percent of the national total. At the other end, however, both the central and western regions got a very small share of DFI. The sum of the DFI in these two inland regions was less than 30 percent of the DFI in Guangdong for the period 1983 to 1993. The DFI which flowed into the western region (nine provinces) was only equal to 10 percent of the DFI in Guangdong Province over the same period. Therefore, the regional distribution of DFI in China was highly unbalanced.

0.5 1.4 1.5 3.1 3.4

14.4

39.2

41.1

86.2

95.7

455.6

390.7

250.9

339.7

57.9

216.6

1,056.5

261.2

123.3

141.3

571.9

3,440.0

7,651.7

1986-89

5.4

4.6

3.0

4.0

0.7

2.5

12.4

2.6

12.0

3.1

1.5

1.7

6.7

40.5

90.0

100.0

Percent

1,361.3

3,421.9

1,438.5

2,371.7

593.4

815.9

1,538.6

3,176.9

3,973.1

4,643.4

1,411.6

1,108.0

5,047.4

14,482.0

40,575.2

45,387.0

Value

1990-93

3.0

7.5

3.2

5.2

1.3

1.8

3.4

7.0

8.8

10.2

3.1

2.4

11.1

31.9

89.4

100.0

Percent

4.9 3.1 6.9 3.4

2,750.6 1,730.5 3,898.8 1,912.6

9.1

5,150.3

1.2

8.8

4,967.3

665.7

2.8

1,571.9

1.9

2.3

1,308.9

1,103.1

10.2

5,840.8

6.1

34.6

19,623.4

4.9

89.7

50,800.4

3,437.3

100.0

56,664.7

2,795.0

Percent

1983-93 Value

Source: Almanac of China’s Foreign Economic Relations and Trade, 1984-1994; Statistical Yearbook of China 1991-1994; and China Foreign Economic Statistics 1979-1992

Notes: The figures for 1983-85 include direct foreign investment and other forms of investment such as compensation trade, processing assembly and international leasing. The figures for 1986 and after refer only direct foreign investment.

Western inland

Central inland

Hainan

Laioning

Hebei

Tianjin

Beijing

Shandong 2.5

5.8

160.6

Shanghai

70.6

217.6

2.3

62.7

Jiangsu 1.5

1.3

37.0

7.2

2.1

59.6

Zhejiang

Guangxi

42.8

6.7

185.5

Fujian

199.9

1,016.7

61.2

1,701.4

Guangdong

92.6

Coastal (east) region

8,497.7

100.0

2,779.8

2,573.7

All regions

Value

Percent

1983-85

Value

Region/province

Direct foreign investment in China 427

Table I. Regional distribution of direct foreign investment (utilised) in China 1983-93 (million US$)

International Journal of Social Economics 25,2/3/4 428

3. DFI and regional economic development: regression analysis 3.1. The approach, study period, spatial scope and data Because of the imbalance of the spatial distribution of DFI in China between the eastern region and the western region, the impacts of DFI on economic development of China should differ between the two regions. In order to investigate this difference, a regression analysis is performed. Prior to the mid-1980s, DFI was highly concentred in the coastal open areas, with little extension to the inland regions. For most of western provinces DFI started after 1986 when China began to spread the open-door policy to the inland regions. In order to make comparative analysis of the effect of DFI on economic growth between the eastern and western regions, the period covered in this study is from 1986 to 1992. The spatial scope of this study includes nine of the 11 eastern provinces and seven of the nine western provinces. In order to make the regions more comparable, Shanghai and Tianjin are excluded from the regression analysis. They are the two largest cities and commercial centres in the eastern region and are much different from other provinces in the economic structure and condition. Two western provinces, Qinghai and Tibet, are also excluded in this study because almost no DFI in these two provinces existed prior to 1992. The source of data are mainly provincial statistical yearbooks for each province and The Statistical Yearbook of China from 1986 to 1993. As this study covers 16 provinces over a seven-year period, the sample size is 112 observations for each variable. The regression model is based on the classical production function, which expresses output as a function of capital and labour. Capital includes domestic and foreign capital. Thus, the production function is: GDP = f(DK, DFI, L). In logarithmic form it is as follows: ln(GDP) = β0 + β1Ln(DK) + β2Ln(DFI) + β3ln(L) + u (1) where GDP = Gross domestic product; DK = Domestically financed fixed capital investment; DFI = Direct foreign investment; L = Labour force (the number of labour employed); and u = Stochastic error term. In this study, pooled time-series and cross-section data are employed. Because of this, some conventional methods and diagnoses tests that applied to time-series analysis lose efficiency. Instead of using conventional methods, a special approach (Pool), designed particularly for pooled time-series and cross-section data in the latest version of the Shazam econometrics computer program, is used. As this method applies the generalised least square (GLS) technique to pooled data, taking time-wise autocorrelation and cross sectional heteroskedasticity into account, it will produce a higher efficient regression estimation than that obtained by other methods like OLS (ordinary least square) and ILS (indirect least square). In order to remove the influence of inflation on the variables and their relations, GDP, DK and DFI are expressed in constant prices (1986 = 100). The

current values of GDP and DK are converted into real values using 1986 constant prices for each province. The values of DFI, originally expressed in current US dollar, are deflated using the US. GDP implicit price deflators published in Survey of Current Business (September 1994, p. 44). In addition, to eliminate the influence of annual fluctuations in DFI, which is highly subject to political events and policy change in China, the three-year moving average values are used. To measure the variation in the effect of DFI on the economy between the eastern and western regions, a dummy variable (D) is used. It takes the value 1 for the eastern region and 0 for the western region. Thus the regression formula is expressed as follows: ln GDP = β0 + β1D + β2ln DK + β3ln DK(D) + β4ln DFI + β5lnDFI(D) (2) + β6ln L + β7ln L(D) + u where β0 is the intercept for the western region; β1 is the differential intercept for the eastern region; β2, β4 and β6 are the estimated coefficients of DK, DFI and L for the western region, i.e. the elasticity of GDP with regard to DK, DFI and L respectively. β3, β5 and β7 are the differential coefficients of DK, DFI and L, for the eastern region, i.e. the elasticity of GDP with regard to DK, DFI and L respectively. If β3, β5 and β7 are significantly different from zero, the effects of DK, DFI and L on GDP are significantly different between the eastern and western regions. The extent to which the effects differentiate between the two regions depends on the level of the estimated coefficients, the relevant t-ratios and real growth rates of these three inputs. The regression can also be run separately for each region without a dummy variable; the results in this case should be the same as that obtained for the two regions using regional dummy variable. 4. Regression results and explanation The two sets of results are presented in Table II. The results indicate: (1) The effect of DFI on GDP is significantly different between the eastern region and the western region. It is stronger in the eastern region than in the western region. This supports the hypothesis raised at the beginning of this chapter. (2) There is no significant difference in the elasticities of GDP with regard to DK and L between the two regions. This indicates that the responsiveness of GDP to a unit change in the domestically financed fixed investment (DK) and labour force (L) is not significantly different between the two regions. Using the estimated elasticity coefficients of GDP with regard to DK, DFI and L, the relative contributions of these inputs (DK, DFI and L) to the output (GDP) in the two regions can be identified. During the period of 1986-1993, the average annual growth rate of GDP was 11.2 percent in the eastern region and the growth rates of DK, DFI and L are 17.02 percent, 47.13 percent and 2.26 percent respectively. During the same period, the GDP of the western region grew at 8.5 percent on the average. DK, DFI and L grew at annual rates of 12.0 percent, 40.82

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Variables

Estimated coefficient

Standard error

T-ratio

Partial correlation

ln DK ln DK(D) ln DFI ln DFI(D) ln L ln L(D) Constant Constant(D)

0.4618 –0.0492 0.0180 0.0543 0.5446 –0.0203 –0.5138 0.4152

0.0430 0.0633 0.0137 0.0178 0.0326 –0.0667 0.1677 0.3831

10.73** –0.777 1.315* 3.049* 16.70** –0.304 –3.065* 1.084

0.725 –0.076 0.128 0.286 0.853 –0.030 –0.288 0.106

Buse (1973) R2 = 0.9823, Buse (1979) R2 = 0.7517; dof = 104; F-statistics = 889.84 > F0.01 = 2.66 (for one-tailed test) The eastern region: ln DK 0.4126 ln DFI 0.0723 ln L 0.5243 Constant –0.0986

0.0476 0.0117 0.0597 0.3531

8.661** 6.176** 8.787** –0.279

0.748 0.627 0.753 –0.036

Buse (1973) R2 = 0.9325, Buse (1979) R2 = 0.7517; dof = 59; F-statistics = 271.83 > F0.01 = 3.65

Table II. Production function estimates for the eastern and western regions

The western region: ln DK 0.4618 ln DFI 0.0180 ln L 0.5446 Constant –0.5138

0.0435 0.0138 0.0329 0.1694

10.63** 1.302* 16.53** –3.033**

0.846 0.191 0.927 –0.412

Buse (1973) R2 = 0.978, Buse (1979) R2 = 0.7035; dof = 48; F-statistics = 715.304 > F0.01 = 3.72 **t-ratio is statistically significant at 1 percent level, *t-ratio is statistically significant at 10 percent level (for one-tailed test)

percent and 2.58 percent respectively (SSB, 1986-1993). Thus, the estimated GDP growth functions for the eastern and western regions can be expressed as: (1) For the eastern region: GDP* = 0.4126DK + 0.0723DFI + 0.52431L = (0.4126 × 17.12) + (0.0723 × 47.13) + (0.5243 × 2.26) = 7.022 + 3.407 + 1.185 = 11.6 GDPr/GDP* = 11.2/11.6 = 0.97 where GDPr is the real GDP growth rate and GDP* is the estimated growth rate. Therefore, the relative contributions of the three inputs (DK, DFI and L) to output (GDP) for the eastern region are respectively:

DK*/GDP* = 7.02/11.6 = 0.605, or 60.5 percent DFI*/GDP* = 3.41/11.6 = 0.294, or 29.4 percent L*/GDP* = 1.19/11.6 = 0.102, or 10.2 percent (2) For the western region: GDP* = 0.4618DK + 0.018DFI +0.5446L = (0.4618 × 12.0) + (0.018 × 40.82) + (0.5446 × 2.58) = 5.554 + 0.735 + 1.405 = 7.7 r * GDP /GDP = 8.5/7.7 = 1.104 Thus, the relative contributions of the three inputs to the output are: DK*/GDP* = 5.55/7.7 = 0.721 or 72.1 percent DFI*/GDP* = 0.74/7.7 = 0.96 or 9.6 percent L*/GDP* = 1.41/7.7 = 0.183 or 18.3 percent These results suggest that: • Domestically financed investment (DK) is the largest contributor to the economic growth in both the eastern and western regions. In the eastern region, 60.5 percent of GDP growth was accounted for by the increase in DK during the period from 1986 to 1993. In the western region, DK’s relative contribution to GDP growth was even larger (72.1 percent). This implies that the economic growth in the western region is more dependent on domestic investment than in the eastern region. • Direct foreign investment (DFI) has become the second largest contributor to the economic growth of the eastern region. About 30 percent of GDP growth in this region was generated by the increase in DFI during the period from 1986 to 1993. In comparison, the contribution of DFI to the economic growth of the western region is less significant. About 10 percent of the GDP growth in this region was brought by the increase of DFI during the same period. • Labour (L) increase contributes to economic growth in both regions at different levels of significance. In the eastern region, about 10 percent of GDP growth was generated by an increase in the labour force compared to 18.3 percent in the western region. This suggests that labour-intensive industries account for a larger share in the economic structure of the western region compared to that in eastern region. The above findings suggest that DFI has become an important dynamic force propelling economic growth in the eastern region. At the same time, however, DFI only contributed slightly to economic growth in the western region where DFI’s share is very small and its effect is insignificant. This is one of the primary reasons for the different rates of economic growth in the eastern and

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western regions. During the period from 1980 to 1993, the economy of the eastern region grew at 11.2 percent per year on the average, two percentage points higher than that of the western region (9.2 percent) (see Appendix 1). As a result, inter-regional economic disparity between the two regions has widened. This indicates that the coast-dominated DFI has played an appreciable role in reinforcing the existing inter-regional economic disparity. 5. Other relevant factors In practice, many factors contributed to the widened inter-regional disparity. DFI worked jointly with a number of other factors in accelerating the economic growth in the eastern region and enlarging the economic disparity with the western region. These other factors include the coast-oriented economic reforms and open policy, regional development strategy giving first priority to the coast, the decentralisation of fiscal power and decline in the central government’s ability to redistribute fiscal revenue between regions, the advantages of the East over the West in transportation facilities, well-developed industrial structure and more autonomy in decision making. These factors have been carefully discussed by other studies mentioned at the beginning of this Chapter. These factors together with DFI determined the disparity between the eastern and western regions in economic development. Owing to the divergence in the economic conditions and policy treatment, the two regions have experienced distinct economic achievements. Among the direct factors contributing to the inter-regional difference in economic performance, the rural industry development is one of importance. It has an explicit bearing on the widened inter-regional economic disparity, especially on the income per capita gap. This is because the rural industry provides one primary source of income for the rural population, which accounts for 80 percent of the total population of China. One principal indicator for the rural industry development is the growth of the sales of enterprises run by townships and villages. During the period from 1981 to 1992 the total sales of township and village enterprises (TVEs) in the eastern region grew at 23.1 percent per year on average, with the value increasing from 44.9 billion yuan to 750.1 billion yuan. The TVEs’ sales per capita in the eastern region increased from 121 yuan in 1981 to 1,750 yuan in 1992 (SSB, 1981-1993). In comparison, the TVEs’ development in the western region was relatively slow. During the same period, the total sales of TVEs of this region grew by 19.7 percent per year on average. The TVEs’ sales per capita increased from 25 yuan in 1981 to 273 yuan in 1992. The ratio of TVEs’ sales per capita of the eastern region to that of the western region increased from 4.84 in 1981 to 6.41 in 1992 (SSB, 1981-1993). This indicates that income per capita generated by the rural industry became more divergent between the two regions. Two other factors exacerbating the inter-regional economic disparity are the different investment rates and openness of the regional economies. During the period from 1982 to 1993, the fixed capital investment in the eastern region maintained a higher growth rate than that of the western region. The

investment/GDP ratio of the eastern region was 28.8 percent on average over this period, compared to 26.5 per cent in the western region. In addition, the economy of the eastern region is more open to the outside world. For instance, the export/GDP ratio of the eastern region was 23.1 percent in 1993, which was significantly higher than that of the western region (6.2 percent). In terms of exports per capita, the eastern region is far ahead of the western region, with the exports per capita in 1980 at US$44.8, compared to US$1.2 in the western region. By 1993 the exports per capita in the eastern region reached US$157.6, which was US$140 more than that of the western region (SSB, 1981-1993). DFI is an important contributor to both domestic investment and exports in the eastern region. In 1992 and 1993, the share of DFI in the total fixed capital investment was 13 percent and 17.5 percent respectively in this region, compared with 1.1 percent and 4 percent in the western region (SSB, 1981-1994). In the South-east coastal provinces, the contribution of DFI to the capital formation is more significant. For example, DFI accounted for 21.2 percent and 26.4 percent of the total fixed capital investment of Guangdong Province in 1992 and 1993 respectively (Guangdong Statistical Bureau, 1992, 1993, GSB, hereafter). In Fujian Province, DFI’s contribution was even larger. The ratio of DFI to the total fixed capital investment reached 39.6 percent and 44.5 percent in 1992 and 1993 respectively (Fujian Statistical Bureau, 1992, 1993. FSB, hereafter). Another important contribution of DFI to the economic growth is promoting exports. In 1992 and 1993 foreign-invested enterprises (FIEs) provided 20.4 percent and 27.5 percent respectively of the total exports of China (SSB, 1992, 1993). Since DFI was highly concentrated in the eastern region, most of the exports by FIEs occurred in this region. For instance, FIEs provided 41.6 percent of Guangdong’s total exports in 1991 and 44.3 percent in 1992 (GSB, 1992, 1993). Finally, the flow of economic resources from the western region to The eastern region is an influential factor for the inter-regional economic disparity. Since the mid-1980s, a large number of technicians, engineers, managers and other professional people have shifted from the inland regions to the coastal region, although they contributed significantly to the economic development of the eastern region. However, the economy of the western region has suffered from the lack of technical and management professionals, thereby from lower productivity and efficiency. Similarly, capital flow from the western region to the eastern region became noticeable in recent years. For example, the net capital outflow of Shaanxi Province amounted to 1,881 million yuan in 1990 and 3,019 million yuan in 1992. These two figures were equal to 18.1 percent and 22.6 percent of the total provincial fixed capital investment respectively in these two years (Shaanxi Province Statistical Bureau, 1994). Another example is Guizhou, the poorest province in the western region. Exports of capital from Guizhou in 1984 were estimated at over 700 million yuan, virtually equal to the fiscal subsidies from the central government (Yang, 1990, p. 255). Capital outflow also occurred in other inland provinces in various degrees. This phenomenon can be attributed

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to the better investment environment, favourable policy treatment and an attractive return to capital in the eastern region. The influence of the inter-regional capital outflow on the two regions is different. It further augmented capital supply, hence promoting investment and economic growth in the eastern region. At the same time, it impaired capital formation and hindered economic growth in the western region. In the case of Shaanxi Province, when a large amount of capital outflow occurred in 1990 and 1992, the GDP growth rate was only 2.9 percent and 6.3 percent respectively, remarkably lower than the national average (3.9 percent and 13.6 percent). As a result, the income per capita gap between Shaanxi and the national average increased from 301 yuan in 1988 to 524 yuan in 1992 (SSB, 1994 and Shaanxi Statistical Bureau, 1994). These factors collectively contributed to the widening inter-regional economic disparity and resulted in an enlarged income per capita gap between the two regions. Theoretically, the per capita income is determined by economic growth and population change. During the period from 1981 to 1992, the population in the western region grew by 1.28 percent per annum, slightly lower than the population growth rate (1.3 percent) of the eastern region (SSB, 1981-1993). This suggests that the relative change in population is not a factor leading to the increased income per capita gap. Therefore, the factors contributing to the differential economic growth of the two regions are the causes of the increased income per capita gap. This is demonstrated in Table III. As Table III shows, the east/west income per capita ratio displays a clear increasing trend. It is positively correlated with the east/west ratios in domestic investment per capita, DFI per capita, township and village enterprises’ sales income per capita and the divergence between the two regions in exports per capita. This suggests that the increased disparity between the eastern region and the western region in fixed capital investment, foreign investment, exports and in rural industry development are primary reasons for the growing income inequality. The increased inter-regional economic disparity reveals that the economic boom of the eastern region has not diffused efficiently to the western region. The diffusion of growth (or “trickle down effect”) from the eastern region to the western region has not happened or has not been empirically evidenced, as Chai (1994) and Rothenberg (1987) maintain. The major reason for the deficiency of the diffusion of growth is the lack of effective inter-regional industrial linkages and economic cooperation based on these linkages. Under the open-door policy, the eastern region has been encouraged to be more involved in the international markets for both exports and imported materials. This development strategy was formally confirmed at the 13th Congress of Chinese Communist Party in 1987. As a result, the economy of the eastern region has become more foreign market-oriented. This is particularly the case in Guangdong and Fujian provinces. The economic integration between the Guangdong, Fujian, Hong Kong and Taiwan has rapidly developed. It is the most important characteristic and cause of economic development of the south-east region of China. However, as the coastal region

Year (I) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 Correlation

East/West income ratio (II) 1.595 1.595 1.625 1.729 1.789 1.820 1.990 1.933 1.884 1.933 2.098 1.000

East/West DFI ratio (III)

East/West investment ratio (IV)

East/West TVE sales ratio (V)

East/West export divergence (VI)

N/A 7.857 8.095 8.398 9.671 6.292 9.267 14.669 22.127 35.321 30.951 0.666

1.701 1.689 1.709 1.784 2.094 2.253 2.372 2.205 2.158 2.163 2.410 0.736

4.895 4.896 5.012 5.073 5.345 5.734 6.277 6.146 6.074 6.194 6.415 0.968

42.6 57.8 45.1 47.3 43.8 54.5 61.9 66.3 77.5 88.3 109.5 0.790

Notes: Column II is the East/West per-capita income ratio. Column III is the East/West percapita DFI ratio. the figures for 1983-1985 refer to total foreign investment (utilised) including DFI and other foreign investment. they refer to DFI only after 1986. Column IV is the East/West ratio of the fixed capital investment per capita. Column V is East/West ratio of township and village enterprises (TVEs’) sales income per capita. Column VI is the difference of exports per capita between the East and the West. the unit is US$. The correlation coefficients listed on the bottom line are the correlations coefficients between column I and each of other columns Sources: The figures for 1982-1991 in column II are cited from Chai (1994. Table I). The figures for 1992 in column II are calculated based on Statistical Yearbook of China 1994. The figures in other columns are calculated from Statistical Yearbook of China 1982-1993 and China Foreign Economic Statistics 1979-1991 and also provincial statistic yearbooks for nine eastern and eight western provinces over 1988-1993

has increasingly shifted to overseas markets, the economic linkages between the coastal region with inland regions including the western region have weakened. In addition, the less-developed domestic market is an important reason for the lack of effective regional economic linkages. Since the early 1980s, the Chinese economy has been undergoing a transformation from the traditional centrally-planned system to a market economy. The market-oriented reforms are more progressive and far-reaching in the eastern region than in the western region. The regionally unbalanced reform progress impedes the formation and development of the integrated domestic market and restrains the economic linkage and cooperation between the two regions. As a result, economic growth in the eastern region can not effectively diffuse to the western region, as the “dualism” theory expects. Consequently, the inter-regional economic disparity increased.

Direct foreign investment in China 435

Table III. East/West income per capita ratios 1982-1992

International Journal of Social Economics 25,2/3/4 436

6. Intra-provincial economic disparity: case study of Guangdong This section discusses the impact of DFI on intra-provincial economic disparity using Guangdong Province’s data. Guangdong is the province that was opened to foreign investment earlier than other provinces and well ahead of them in terms of economic growth in the past 15 years. Rapid economic growth and foreign investment have brought about a far-reaching impact on Guangdong’s economic life. Income per capita of Guangdong increased from 419 yuan in 1980 to 2,795 yuan in 1992. The share of Guangdong’s GDP in the national total nearly doubled, from 5.5 percent in 1980 to 10.3 percent in 1992 (GSB, 1993). The major driving forces for Guangdong’s rapid growth are direct foreign investment and export expansion. However, the benefit from fast economic development was not evenly shared by all regions within Guangdong Province. The three SEZs and the Pearl River Delta are the centre of economic growth and principal beneficiaries. Taking advantage of the favourable policy granted by the Government and of the proximity to Hong Kong and Macao, this region (SEZs and the Delta) has made great strides in using foreign investment. As of 1992, there were 21,430 foreigninvested enterprises in this region, accounting for 81.3 percent of the total number of FIEs in Guangdong (the same source as Table IV). In terms of realised DFI, this region is even more impressive. As Table IV shows, the three SEZs and the Pearl River Delta accounted for 90 percent of the realised DFI of Guangdong Province from 1987 to 1991. Although the share of the other regions in the realised DFI increased to 21 percent in 1992, the three SEZs and the Delta still accounted for an overwhelming share. DFI contributed significantly to the economic boom in the SEZs and the Pearl River Delta. First, DFI led export growth in this region, as most of DFI in Guangdong, especially those in the Pearl River Delta, are export-oriented using cheap labour. During the period from 1984 to 1992, FIEs’ exports increased by 80.2 percent

SEZs Shenzhen Zhuhai Shantou Pearl River Delta Other regions Provincial total Table IV. Regional distribution of realised DFI in Guangdong Province

1987

1988

3.07 2.65 0.24 1.77 2.26 0.61 5.94

3.17 2.59 0.36 0.23 4.92 1.10 9.19

(US$ 100 million) 1989 1990 3.73 2.71 0.43 0.59 6.35 1.48 11.56

4.73 3.49 0.62 0.61 8.28 1.59 14.60

1991

1992

5.61 3.35 1.21 1.05 10.63 1.99 18.23

8.68 4.49 1.99 2.20 20.08 7.76 35.52

Notes: The Pearl River Delta includes Guangzhou (city area) and 28 cities and counties. Geographically, Shenzhen SEZ and Zhuhai SEZ are also included in the Pearl River Delta which covers 47,1512kms, but in statistics, the two SEZs are excluded from the Delta Source: Statistical Materials on Foreign Economic Relations of Guangdong Province (Guangdong Sheng Duiwai Jingji Tongji Ziliao), 1987-1992

per year in Guangdong while the provincial total exports increased by 29.9 percent per year. By 1992, FIEs’ share in the provincial total exports reached 42.0 percent. Since FIEs are concentrated in the SEZs and the Pearl River Delta, this region has dominated in the provincial total exports and FIEs’ exports. For example, in 1992 this region accounted for 86.9 percent of the provincial total exports and 87.7 percent of FIEs’ exports (see Table V). Thus, the contribution of DFI-led export expansion to Guangdong’s economic growth has materialised mainly in the three SEZs and Pearl River Delta. Second, DFI accelerated the industrial development in the SEZs and the Pearl River Delta. Since DFI involves capital inflow, technology transfer and investment goods importation, it can help upgrade technology and improve management efficiency in FIEs. As DFI increased, FIEs’ contribution to the industrial production became significant. During the period from 1989 to 1992, FIEs’ industrial output increased by 226.2 percent in the three SEZs. In 1992, the FIEs’ share in the total industrial output of the three SEZs reached 67 percent, compared to 32 percent of the provincial average. Of the three SEZs, Shenzhen is more remarkable, 72 percent of the total industrial output was produced by FIEs in 1992 (See Table V). Similarly, in the economic and technology development zones (ETDZs) in Guangzhou and Zhanjiang, FIEs also headed industrial production. They produced about 65 percent of the total industrial output in the past few years. Third, DFI played an important role in fixed capital investment in the Pearl River Delta, hence promoting significantly the economic growth. As Table V shows, the ratio of DFI to the total fixed capital investment was between 22 percent and 50 percent in this region for the past four years. Along with capital flowing into this region, the importation of advanced equipment and machinery increased substantially. This further stimulated capital formation in this region. Since DFI has been highly concentrated in the SEZs and the Pearl River Delta, its impact on Guangdong’s economy has been realised principally in this region. It speeded the economic development of this region, therefore, making this region the leading growth area. However, DFI exerted very little influence on the economy in the inland areas, especially in the mountain areas (covering 48 counties), which accounts for 64 percent in the area and 40 percent in the population of Guangdong Province. These areas were traditionally closed to the outside world and far behind the Pearl River Delta in economic development. Although their connections to the outside world have increased in the reform era, these inland counties (cities) are still disadvantaged compared to the Delta area in transportation, industrial facilities and the distance from Hong Kong and Macao. The difference in economic development conditions between the mountain area and the Delta was reinforced by the unbalanced DFI distribution. As a result, the economic disparity between the mountain area and the Delta within Guangdong has persisted and even increased. This can be displayed by a comparison of income per capita between the two regions. In 1980, the income per capita in the Pearl River Delta was 625 yuan which was 1.84 times that of the mountain area (340 yuan). In 1985 the income per capita in the Delta increased to 1,452 yuan, 2.5 times that in the mountain area (585 yuan). The income gap

Direct foreign investment in China 437

Table V. FIE’s role in industrial production and exports in SEZs and Pearl River Delta 101.5 84.9 10.7 5.9 163.2

20.3 43.5

157.9 116.1 32.9 8.9 1,320.6

61.6 347.3

0.33 0.13

0.64 0.73 0.33 0.66 0.12

0.47 0.48 0.46 0.41 0.30 0.28

F/T

73.3 372.6

221.7 161.3 45.4 15.1 1,491.0

3,552.2 2,784.2 348.6 419.5 3,494.2 10,560.2

Total

34.9 69.8

133.6 106.9 17.3 9.4 348.2

1,956.9 1,646.1 136.9 173.9 1,513.6 3,723.8

1990 FIEs

0.48 0.19

0.60 0.66 0.38 0.63 0.23

0.55 0.59 0.39 0.42 0.43 0.35

F/T

160.8 478.2

426.0 255.2 92.6 78.2 2,071.8

4,420.0 3,179.6 655.7 584.7 5,291.0 13,687.9

Total

49.8 97.0

250.3 174.0 44.0 32.3 559.4

2,435.4 1,847.9 326.5 261.0 2,559.6 5,327.5

1991 FIEs

0.31 0.20

0.59 0.68 0.48 0.41 0.27

0.55 0.58 0.50 0.45 0.48 0.39

F/T

654.1 921.8

497.8 357.0 140.8 N/A 2,769.1

7,126.7 4,787.3 894.9 1,444.0 16,898.8 19,439.5

Total

144.9 195.7

331.1 256.2 74.9 N/A 882.1

3,825.3 2,988.9 487.2 349.2 7,155.7 8,159.1

1992 FIEs

0.22 0.21

0.67 0.72 0.53 N/A 0.32

0.54 0.62 0.54 0.24 0.42 0.42

F/T

Sources: The export data is from the Statistical Materials on the Foreign Economic Relations of Guangdong Province (Guangdong Duiwai Jingji Tongji Ziliao) 1989-1992. The three SEZs’ industrial output data is from the Statistical Yearbook of China’s SEZs and Coastal Economic and Technology Development Zones, 1990-1992, pp. 653-5 and 1993, p. 363-5; Guangdong’s industrial output data is from Statistical Yearbook of Guangdong Province, 1993, p. 185. The data on fixed capital investment in Pearl River Delta is from the Statistical Materials on the Foreign Economic Relations of Guangdong, 1989-1992; the provincial data is from Guangdong Statistical Yearbook 1991-1993

Notes: 1. The statistics for Pearl River Delta in 1991 and before included 28 counties and cities, but in 1992 the statistics included these 28 counties (or cities) and Shenzhen, Zhuhai and Guangzhou 2. The administrative boundary of Shantou SEZ was changed in 1992 from 52.6 sq. kms. to 234 sq. kms 3. FIE’s exports do not include compensation trade and processing exports of imported materials

1,227.9 985.1 120.1 122.7 683.2 2,276.7

2,631.2 2,069.2 262.6 299.4 2,277.3 8,167.7

1989 FIEs

438

Exports (million US$) SEZs Shenzhen Zhuhai Shantou Pearl River Delta Guangdong Province Industrial output (100 million yuan) SEZs Shenzhen Zhuhai Shantou Guangdong Province Fixed capital investment (100 million vuan) Pearl River Delta Guangdong Province

Total

International Journal of Social Economics 25,2/3/4

became larger in 1992. The income per capita in the Delta reached 4,673 yuan compared to 1,566 yuan in the mountain area, the former being nearly three times that of the latter. The difference between the SEZs and the mountain area is even larger. In 1992, income per capita in Shenzhen was 8,122 yuan, 4.2 times higher than that in the mountain area. This is compared to the income ratio of 2.1:1between them in 1980. Therefore, the income gap became much larger in the last decade (see Table VI). In the context of individual city (or county), the income gap also shows a growing trend. For example, Meizhou, a typical mountain region, is unfavourably compared with some cities in the Pearl River Delta. During the period from 1984 to 1992, the per capita income in Meizhou increased from 312 yuan to 1,182 yuan, whereas the increase in per capita income of the following three cities in the Delta was much more than that: Jiangmen – from 652 yuan to 3,423 yuan; Zhongshan – from 1,110 yuan to 5,306 yuan; Feshan – from 1,222 yuan to 7495 yuan (Sawada, 1992, p. 10 and Guangdong Statistical Yearbook 1993, p. 93). These facts indicate that the intra-provincial economic disparity in Guangdong has been enlarged since the early 1980s. Although the geo-economic factors are one basic reason for the persistent difference in economic development between the Pearl River Delta and the mountain area, the unbalanced distribution of DFI and DFI-led export expansion played an important role in causing a larger economic disparity between the two regions in the last 15 years. Income per capita

1980

1985

1989

1990

1991

1992

SEZs Shenzhen Zhuhai Shantou Pearl River Delta Mountain area Provincial average

650 698 – – 625 340 419

2,100 2,111 2,069 – 1,452 585 830

4,957 5,059 3,607 4,103 2,610 1,068 1,718

6,157 6,905 3,848 4,357 2,729 1,141 1,842

7,211 7,886 5,396 5,202 3,321 1,291 2,188

7,225 8,122 5,800 4,298 4,673 1,566 2,795

Direct foreign investment in China 439

Notes: 1. Data for Shantou in 1980 and 1985 is not available 2. Since Shantou changed its administrative boundary in 1992, the data is not comparable with other years 3. The income per capita is calculated by dividing the total national income by total population. It includes registered permanent residents and external population, the ratio between them in Shenzhen was 1:2.8 in 1989; 1:2.56 in 1990 and 1:2.25 in 1992 4. The mountain area in this table includes Meizhou, Heyuan, Shaoguan and Qingyuan only Source: The data for 1989-1992 is prepared from Statistical Yearbook of Guangdong (SYG) 1990, 1991, 1992 and 1993; and Statistical Materials on Foreign Economic Relations of Guangdong Province, 1989, 1990, 1991 and 1992. The data for 1980 and 1985 is from SYG 1987, Table VI. and Statistical Yearbook of China’s SEZs and Economic and Technology Development Zones, Intra-provincial income 1990-1992 inequality in Guangdong

International Journal of Social Economics 25,2/3/4 440

7. Conclusion and policy implications Throughout the reform era of 1979 to 1995, the Chinese economy has experienced rapid growth and a widened inter-regional disparity, with many factors contributing to this. Economic structure and resource conditions, economic reforms and open-door policy with emphasis on the eastern region increased the divergence between the eastern and western regions in the economic growth conditions. As a result of the divergent economic environments, both DFI and domestic investment witnessed a different growth in the two regions, leading to economic disparity. This chapter investigated the impact of DFI on the regional economic development and inter-regional disparity using regression analysis and the case study. The regression analysis indicates that the effect of DFI on the economic growth was stronger in the eastern region, significantly promoting exports and capital formation and very weak in the western region. Consequently, the inter-regional economic inequality has been reinforced. Other factors like the rural industry development and domestic capital flow from the western provinces to the eastern provinces also accounted for the enlarged inter-regional economic differences. The increased disparity is also closely related to the regional policy of the Chinese government. Basically, the regional policy throughout the reform era was based on regional comparative advantages. Under this policy, the coastal region, owing to its superior geographic location and factor endowment, has been given a pivotal role as “growth pole” or “engine of growth”. To promote the growth of this growth, the central government pursued a special economic policy and committed a large amount of capital to improve infrastructure in this region. As a result, the investment environment in the coastal region was much better than in the inland. Domestic and foreign capital therefore flowed into the coastal region, accelerating its regional economic growth. Owing to the lack of effective inter-regional industrial linkages and a well-functioning domestic market, the economic boom in the coastal region has not noticeably diffused to the inland, resulting in a widening inter-regional economic disparity. Some implications can be drawn from the Chinese experience with rapid growth and inter-regional disparity. First, inter-regional disparity is unavoidable in the process of economic development, especially for a developing country, since the conditions for development in each region are different and the regional policy based on comparative advantages tends to reinforce the existing regional difference. Thus, regional “equality” and “efficiency” of development are two primary issues faced by a government. In the initial stage of development, a government may place priority on coastal (well established) regions which can result in overall national economic growth. Second, a government should pay particular attention to the growing interregional disparity. In order to facilitate the diffusion of growth from the growth region to a relatively stagnant region, inter-regional economic linkages should be promoted through a series of policy tools and encouragement of inter-regional economic cooperation. All the artificial barriers to inter-regional economic linkage and integration should be removed. In the Chinese context, some regulations which isolate the SEZs or other coastal areas from the inland regions should be eliminated. At the same time, the bilateral trade, investment and other

linkages between the coastal and the inland regions should be promoted, rather than the coastal region being encouraged to rely more on foreign markets. Another important point for a less-developed market economy or one undergoing the transformation from a central planning system to a market economy, is the enhancement of the market mechanism. As a well-developed market can allocate resources efficiently, the overall efficiency of an economy can be significantly improved. However, since market forces could result in regional inequality in the first stage of economic development, a suitable regional policy which can foster market efficiency and domestic market integration and facilitate economic linkages and cooperation between regions is critical. Third, at present, it is important that the Chinese government standardises the open policy in all regions and eliminates the prevailing policy differences which discriminate against the western region. The coast-oriented open policy is one of the most important causes of the widened economic gap between the western and the eastern regions. When the eastern region is efficiently involved in the world economy, the open policy should be extended as much as possible to the vast inland regions where a huge potential for development exists. The differences in policy treatment between the western and the eastern regions would then be eliminated, enabling the western region to greatly improve development potential. Fourth, improvement in transportation links between the eastern region and the western region is essential for enhancing the inter-regional linkages. The central government should allocate fiscal funds to finance some important transportation projects and should also encourage local capital to invest in infrastructure so as to improve the local investment environment. To this end, some special programs stimulating investment in the western region are necessary. Notes 1. China consists of three macro-regions. The eastern (coastal) region includes 11 provinces and cities: Guangdong, Fujian, Jiangsu, Zhejiang, Shanghai, Shandong, Hebei, Beijing, Tianjin, Liaoning and Hainan. The Central (inland) Region contains nine provinces: Heilongjiang, Jilin, Inner Mongolia, Shanxi, Henan, Hubei, Hunan, Jiangxi and Anhui. The western (far inland) region includes nine provinces: Shaanxi, Sichuan, Gansu, Qinghai, Xinjiang, Ningxia, Guizhou, Yunnan and Tibet. Although this study included brief references to the Central Region, it focuses on the eastern and western regions. 2. Calculated from provincial statistical yearbooks of 19 provinces (and cities), including ten coastal provinces (Hainan and Guangxi are excluded) and nine western inland provinces (Tibet is excluded). References Cannon, T. (1990), “Regions, spatial inequality and regional policy”, in Cannon, T. and Jenkins, A. (Eds), The Geography of Contemporary of China: The Impact of DengXiaoping’s Decade, Routledge, London and New York, NY. Casetti, E. (1972), “Generating models by the expansion method: applications to geographical research”, Geographical Analysis, Vol. 4 No. 1. Chai, J.C.H. (1994), “East-West regional income gap: problems of divergent regional development in China”, in Cassel, D. and Herrmann-Phillath, C. (Eds), The East, The West and China’s Growth: Challenge and Response, Nomos Verlagsgesellschaft, Baden-Baden, Band 6, Germany.

Direct foreign investment in China 441

International Journal of Social Economics 25,2/3/4 442

Chai, J.C.H. and Leung, C.-K. (1985), “The economic and spatial dimensions of development in China”, in Chai, J.C.H. and Leung, C.-K. (Eds), Development and Distribution in China, The University of Hong Kong, Hong Kong. Falkentheim, V.C. (1985), “Spatial inequalities in China’s modernisation program: some politicaladministrative determinants”, in Chai, J.C.H. and Leung, C.-K. (Eds), Development and Urbanisation in China, University of Hong Kong, Hong Kong, pp. 149-72. Fan, C.C. (1992), “Regional impacts of foreign trade in China, 1984-1989”, Growth and Change: A Journal of Urban Regional Policy, Vol. 23 No. 2, Spring, pp. 129-59. FSB (Fujian Statistical Bureau), Fujian Statistical Yearbook 1988-1993. GSB (Guangdong Statistical Bureau), Guangdong Statistical Yearbook 1985-1993,Guangdong Sheng Duiwai Jingji Tongji Ziliao (The Statistical Materials of Guangdong’s Foreign Economic Relations) 1983-1992 and Annual Statistical Report of Guangdong’s Industry 1992-1993. Jia, L. and Tisdell, C. (1993), “Resources redistribution and regional inequality in China”, Economics Discussion Paper, No. 9318, University of Otago. Kueh, Y.Y. (1992), “Foreign investment and economic change in China”, The China Quarterly, pp. 637-90. Lakshmanan, T.R. and Hua, C.-I. (1987), “Regional disparities in China”, International Regional Science Reviews, Vol. 11 No. 1, pp. 97-104. Leung, C. K. (1990), “Locational characteristics of foreign equity joint venture investment in China, 1979-1985”, Professional Geographer, Vol. 42, pp. 403-21. Lo, C.-P. (1989), “Recent spatial restructuring in Zhujiang Delta, South China: a study of socialist regional development strategy”, Annuals of Association of American Geographers, Vol. 79, pp. 239-308. Lo, C.-P. (1990), “The geography of rural regional inequality in mainland China”, Transactions (The Institute of British Geographers), Vol. 15, pp. 466-86. MOFTEC (Ministry of Foreign Trade and Economic Cooperation of China), Almanac of China’s Foreign Economic Relations and Trade, 1984-1994; Annual Statistical Report of China’s Foreign Trade (Zhongguo Waimao Tongji Nianbao) 1987-1993. Pannell, C.W. (1987), “Economic reforms and readjustment in the people’s Republic of China and some geographic consequences”, Studies in Comparative International Development, Vol. 22 No. 4, pp. 54-73. Pannell, C.W. (1988), “Regional shifts in China’s industrial output”, The Professional Geographer, Vol. 40 No. 1, February, pp. 19-32. Phillips, D.R. and Yeh, A.G.-O. (1990), “Foreign investment and trade: impact on spatial structure of the economy”, in Cannon, T. and Jenkins, A. (Eds), The Geography of Contemporary China, Routledge, London and New York, NY. Rothenberg, J. (1987), “Space, interregional economic relations and structural reform in China”, International Regional Science Reviews, Vol. 11 No. 1, pp. 5-22. Sawada, Y. (1992), “Reform and economic growth bring far-reaching changes to Guangdong Province”, East Asian Executive Reports, Hong Kong, pp. 12-17. Shaanxi Statistical Bureau (1992 and 1993), “Shaanxi statistical yearbook and the balance table of inter-provincial capital flows” (unpublished). Shan, W. (1991), “Environmental risks and joint venture sharing arrangements”, Journal of International Business Studies, No. 4, pp. 555-78. SSB (State Statistical Bureau of China), Statistical Yearbook of China (SYOC), 1982-1995; Zhongguo Guding Zichan Touzi Tongji Zilao (Statistical Materials on China’s Fixed-Asset Investment) 1951-1985; China’s Foreign Economic Statistics 1979-1991 and 1994, The Statistical Publishing House, Beijing. Sun, H. (1995), “Foreign investment and regional economic development in China”, Australasian Journal of Regional Studies, Vol. 1 No. 2, pp. 133-48.

Tisdell, C. (1993), Economic Development in the Context of China: Policy Issues and Analysis, The Macmillan Press, London. Tsui, K.Y. (1991), “China’s regional inequality, 1952-1985”, Journal of Comparative Economics, Vol. 15, pp. 1-21. Walker, K.R. (1989), “40 years on: provincial contrasts in China’s rural economic development”, The China Quarterly, Vol. 119, pp. 448-80. Yang, D. (1990), “Patterns of China’s regional development strategy”, The China Quarterly, June, No. 22, pp. 231-57.

Direct foreign investment in China 443

Appendix 1. Real GDP and growth rates in different regions of China (in 1980 constant price)

Regions The East Guangdong Fujian Jiangsu Zhejiang Shanghai Shandong Hebei Beijing Tianjin Liaoning Hainan The West Shaanxi Sichuan Qinghai Yunnan Guizhou Ningxia Gansu Xinjiang

1980 2,187.5 245.7 85.9 319.8 179.7 311.9 301.2 219.2 139.1 103.5 281.5 N/A 725.1 95.2 322.0 18.3 84.3 60.3 15.1 73.9 53.0

Real GDP (100 million yuan) 1985 1992 1993 3,708.0 436.1 147.9 568.3 357.5 466.8 509.3 355.4 230.4 161.5 432.5 42.3 1,179.5 159.8 507.8 28.1 147.2 107.8 25.7 106.2 96.9

7,177.4 1,125.4 310.2 1,177.8 707.1 780.9 1,035.9 655.7 421.2 246.8 702.4 92.5 2,039.6 272.9 830.7 40.8 272.1 178.8 41.9 210.7 191.7

8,666.8 1,376.4 390.0 1,414.5 888.8 897.2 1,266.9 763.3 472.2 276.7 805.6 115.2 2,287.8 309.2 945.3 44.7 300.9 196.5 46.2 235.1 209.9

GDP growth rate percent 1981-1985 1986-1993 1981-1993 11.1 12.2 11.5 12.2 14.7 8.4 11.1 10.1 10.6 9.3 9.0 N/A 10.2 10.9 9.5 8.9 11.8 12.3 11.2 7.5 12.8

11.2 15.5 12.9 12.1 12.1 8.5 12.1 10.0 9.3 7.0 8.1 13.3 8.6 8.6 8.1 6.0 9.3 7.8 7.6 10.4 10.1

11.2 14.2 12.3 12.1 13.1 8.5 11.7 10.1 9.8 7.9 8.4 N/A 9.2 9.5 8.6 7.1 8.6 9.5 9.0 9.3 11.1

Notes: 1. Since the data for Guangxi and Tibet are incomplete, they are excluded in the East and West s respectively 2. With the exception of Beijing, the deflators used in calculating the real GDP of all other provinces are their provincial deflators for each year. The national deflators are used in calculating the real GDP of Beijing since its local deflators are not available in its statistical yearbook or other materials Source: The statistical yearbooks of all the province listed above for period from 1986-1993 and Statistical Yearbook of China 1994

Table AI.

International Journal of Social Economics 25,2/3/4

Appendix 2. Original data for regression analysis GDP = Gross domestic product; DK = Domestically financed fixed capital investment; DFI = Direct foreign investment; DFIA= Three-year moving average of DFI;

444

L

= Number of labour force.

GDP, DK are in constant price (1986 = 100) for each province. DFI is in constant US dollar (1986 = 100). The deflator for US dollar are: 1987 = 103.2, 1988 = 106.4, 1989 = 112.0, 1990 = 116.8, 1991 = 121.4, 1992 = 124.8, 1993 = 127.5 (see Survey of Current Business, September, 1994, p. 44) The unit of GDP and DK is 100 million RMB yuan, DFI is in million US dollars. The regression analysis covers the period from 1986 to 1992, including nine eastern provinces and seven western provinces. Shanghai and Tianjin are included in this regression analysis. DFIA are calculated from DFI data from 1985 to 1993.

Year Guangdong 1986 1987 1988 1989 1990 1991 1992 1993 Fujian 1986 1987 1988 1989 1990 1991 1992 1993 Jiangsu 1986 1987 1988 1989 1990 1991 1992 1993 Table AII.

GDP

DK

DFI

DFIA

L

685.4 806.7 932.3 997.4 1,110.1 1,302.1 1,588.6 1,942.9

191.0 210.0 271.3 236.3 247.0 317.6 600.6 976.7

643.9 575.6 863.8 1,032.5 1,249.8 1,501.6 2,845.8 5,880.8

578.3 694.4 823.9 1,048.7 1,261.3 1,865.7 3,409.4

2,813 2,911 2,995 3,041 3,118 3,259 3,367 3,480

210.7 236.2 268.3 285.7 305.7 350.6 423.5 532.3

58.4 69.3 65.0 55.0 66.0 78.6 109.7 187.2

61.3 49.8 122.4 293.6 248.3 530.9 1,134.9 2,249.0

76.3 77.8 155.3 221.4 357.6 637.9 1,304.9

1,190 1,239 1,281 1,302 1,348 1,437 1,490 1,521

774.9 866.3 979.8 1,001.0 1,045.0 1,117.1 1,409.8 1,693.2

228.5 293.0 296.1 236.9 263.0 311.3 473.5 680.1

18.1 48.1 96.8 84.5 120.8 192.1 1,124.1 2,230.4

26.0 54.3 76.5 100.7 132.5 479.0 1,182.2

3,350 3,430 3,503 3,520 3,569 3,600 3,614 3,743 (Continued )

Year

DK

DFI

DFIA

L

479.8 536.4 597.0 593.4 616.5 711.4 845.9 1,063.3

126.2 143.3 152.2 128.8 131.9 164.7 240.6 495.8

18.5 22.7 27.8 46.8 41.4 75.5 235.6 809.3

19.2 23.0 32.4 38.7 54.6 117.5 373.5

2,386 2,445 2,503 2,523 2,554 2,579 2,600 2,659

Shanghai 1986 1987 1988 1989 1990 1991 1992 1993

490.8 527.6 580.9 598.3 619.2 662.5 761.2 874.6

126.6 142.4 180.3 152.8 160.0 171.3 228.1 372.1

147.6 205.4 342.3 376.9 151.7 144.4 633.0 2,478.7

153.5 231.8 308.2 290.3 224.3 309.7 1,085.4

766 771 772 764 767 774 776 740

Shandong 1986 1987 1988 1989 1990 1991 1992 1993

695.1 791.0 892.2 927.7 977.8 1,113.7 1,330.9 1,627.7

214.1 273.9 301.2 247.3 222.6 286.8 366.5 512.4

19.4 23.1 36.7 117.2 129.1 147.9 780.0 1,445.6

16.0 26.4 59.0 94.3 131.4 352.3 791.2

3,651 3,766 3,887 3,940 4,043 4,219 4,303 4,473

Hebei 1986 1987 1988 1989 1990 1991 1992 1993

436.7 487.4 546.9 570.4 597.2 650.9 741.4 863.0

129.9 139.1 170.7 133.9 116.6 155.5 207.9 240.5

6.9 7.2 15.7 24.0 33.7 36.6 143.8 311.0

6.0 9.9 15.6 24.5 31.4 71.4 163.8

2,626 2,726 2,808 2,858 2,955 3,040 3,106 3,241

Beijing 1986 1987 1988 1989 1990 1991 1992 1993

284.9 310.5 348.8 364.1 383.7 412.5 460.4 516.1

90.0 107.5 97.0 99.8 123.8 119.5 160.4 237.0

139.9 92.3 472.6 284.4 237.2 201.6 280.3 523.1

107.0 234.9 283.1 331.4 241.1 239.7 335.0

Zhejiang 1986 1987 1988 1989 1990 1991 1992 1993

GDP

573 580 603 594 627 634 649 659 (Continued )

Direct foreign investment in China 445

Table AII.

International Journal of Social Economics 25,2/3/4 446

Table AII.

Year

GDP

DK

DFI

DFIA

L

Tianjin 1986 1987 1988 1989 1990 1991 1992 1993

194.1 208.9 221.0 224.6 236.7 250.9 280.3 314.2

59.4 58.2 48.5 40.8 43.9 46.5 53.6 88.3

42.9 53.2 22.6 72.6 71.2 77.3 185.4 424.3

46.7 39.6 49.5 55.5 73.7 111.3 229.0

467 471 465 469 470 480 486 478

Liaoning 1986 1987 1988 1989 1990 1991 1992 1993

578.9 642.0 714.5 730.9 733.1 773.4 863.9 990.9

168.0 193.9 212.7 181.9 184.3 209.2 280.7 384.0

33.0 62.4 85.1 97.2 212.6 258.3 351.9 990.4

37.0 60.2 81.6 131.6 189.4 274.3 533.5

1,799 1,835 1,859 1,875 1,897 1,938 1,958 1,952

Hainan 1986 1987 1988 1989 1990 1991 1992 1993

46.7 52.5 57.8 61.0 66.8 75.0 92.5 115.2

15.1 14.2 14.6 17.8 21.3 29.2 46.9 77.8

30.7 8.6 107.3 95.7 86.1 145.1 361.9 554.6

25.8 48.9 70.5 96.4 108.9 197.7 353.9

273 280 291 298 304 316 321 322

Shaanxi 1986 1987 1988 1989 1990 1991 1992 1993

206.8 225.6 259.9 262.8 274.1 304.0 330.4 374.3

60.1 71.3 73.6 69.9 85.9 103.3 107.9 153.6

37.2 70.1 105.0 86.8 35.9 26.0 36.7 183.8

41.2 70.8 87.3 75.9 49.6 32.9 82.2

1,409 1,449 1,494 1,529 1,576 1,640 1,672 1,718

Sichuan 1986 1987 1988 1989 1990 1991 1992 1993

654.6 718.8 781.3 802.4 832.1 896.2 1006.4 1,145.3

152.0 177.4 170.1 160.1 151.0 182.9 263.7 332.0

15.2 20.5 22.2 10.1 13.3 20.1 81.7 439.1

21.5 19.3 17.6 15.2 14.5 38.4 180.3

5,311 5,422 5,586 5,764 5,872 6,075 6,203 6,221 (Continued )

Year

GDP

DK

DFI

Yunnan 1986 1987 1988 1989 1990 1991 1992 1993

178.5 200.5 232.6 246.1 267.5 283.6 314.5 347.8

48.4 49.9 56.8 50.5 48.1 60.3 83.6 139.7

3.5 4.7 2.9 6.6 2.2 2.5 18.5 76.1

3.3 3.7 4.7 3.9 3.9 7.7 32.4

1,732 1,778 1,827 1,881 1,923 1,989 2,032 2,106

Guizhou 1986 1987 1988 1989 1990 1991 1992 1993

139.6 154.7 168.0 175.6 183.2 201.0 219.3 241.0

31.0 31.8 40.4 32.2 35.7 39.4 50.8 60.6

2.2 0.2 4.1 6.7 4.0 6.0 15.9 33.6

4.1 2.2 3.7 4.9 5.6 8.8 18.5

1,383 1,436 1,501 1,517 1,652 1,701 1,720 1,770

Gansu 1986 1987 1988 1989 1990 1991 1992 1993

140.7 151.7 162.5 176.8 186.7 198.8 218.1 243.4

39.8 45.0 50.0 40.9 46.2 52.4 60.4 64.9

5.9 5.2 8.2 0.2 4.0 0.5 0.3 9.4

4.8 6.4 4.5 4.1 1.6 1.6 3.4

1,099 1,140 1,179 1,214 1,292 1,303 1,313 1,331

Ningxia 1986 1987 1988 1989 1990 1991 1992 1993

33.6 36.0 40.4 43.8 45.5 47.4 51.0 56.3

16.2 17.8 15.2 13.0 14.7 17.7 24.0 24.5

0.1 0.03 0.3 1.1 0.9 0.9 2.8 9.3

0.10 0.13 0.48 0.77 0.97 1.53 4.33

Xinjiang 1986 1987 1988 1989 1990 1991 1992 1993

126.0 138.1 152.2 161.2 176.0 200.5 226.8 248.3

48.4 47.0 49.7 49.1 57.9 73.8 84.9 97.0

12.8 17.0 8.3 0.3 6.1 3.4 8.2 41.6

DFIA

13.6 12.7 8.5 4.9 3.3 5.9 17.7

L

Direct foreign investment in China 447

183 191 197 204 211 219 226 230 575 585 594 600 620 638 647 646

Table AII.