China’s economic miracle has a secret ingredient hiding in plain sight: unbalanced growth
- Like the US, China’s economic dynamism rests on the imbalance between the runaway successes of its coastal provinces and the laggards along its northern rust belt. The crucial difference? Beijing redistributes the fruits of economic success
In the late 1970s, the economic development of Greater China was highly unbalanced – Hong Kong and Taiwan being much more prosperous than the mainland. That very imbalance provided the basis for China to kick off its growth.
Leveraging on the capital, know-how and international networks of its compatriots, China’s growth naturally concentrated on its southeastern coast, with the closer clan and dialect affinities with Hong Kong and Taiwan.
More open policies along the coast also played a role. Importantly, China allowed limited migration – to work but not to settle – so that migrant workers could move to more affluent regions to help drive growth.
Shaped by historical, geographical, cultural and institutional factors, unbalanced growth is the natural order of things – it can be leveraged, exploited, even somewhat balanced but never resisted nor reversed.
China’s economic resilience springs from its internal dynamism. From 700AD, Chinese cities dominated the world’s stage for a thousand years: from Changan (Xian) to Kafeng, then from Hangzhou to Nanjing, and finally to Beijing.
Which will be China’s next leading city? The Yangtze River Delta, already a leading economic region, is returning to its historical eminence. And Shanghai, whose population exceeds Beijing’s, has glamour. But all its glitter is just that without its hinterlands of Zhejiang and Jiangsu.
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Conversely, what hope would there be for China if it were to focus on its northeastern rust belt and agricultural regions instead?
Yet this strategy appears to be happening in the US – driven by electoral politics. For all his rhetoric, President Donald Trump is focusing on his voter base, the red states that largely represent America’s past, when the future lies with the blue states on the coast.
The US federal government – notwithstanding pork-barrel politics – has limited levers to shape economic development. Declining regions, in the US as elsewhere, can only recover through structural transformation rather than by holding on to the past.
The dynamism in both the US and Chinese economies is shaped by unbalanced growth but the two governments differ markedly in their abilities to manage these imbalances. Unbalanced development is often more effective as a growth driver but balanced growth is sometimes needed to spread the fruits of economic development.
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Notwithstanding its well-recognised problems, China’s system delivers and balances economic growth. For all the strengths of its market-driven economy, the US government cannot effectively address the regional declines and growing disparities that come with economic transformation.
Thus, it seems deluded for the US to seek to tell China what it can and cannot do when managing its growth strategy.
Winston Mok, a private investor, was previously a private equity investor
