A view of Shenzhen from the observation deck of the Ping An Finance Centre on August 15. Shenzhen was one of the first special economic zones established in China in 1979, and has more than fulfilled its mission as a growth engine. Photo: Bloomberg
Winston Mok
Winston Mok

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
The People’s Republic of China, which recently celebrated its 70th anniversary, can look forward to becoming the world’s largest economy by its 80th. The trade war with the United States may have slowed China’s ascent but it will not stop it. What has enabled China’s spectacular economic development in the past four decades? Unbalanced growth.
China’s double-digit economic growth has masked the more dramatic expansion at growth engines such as Guangdong and Zhejiang. Within Guangdong, the unbalanced growth is driven by the Pearl River Delta.
If one digs down to the municipal level, such as the case of Shenzhen, the growth rates can be staggering. In China’s remarkable success story, the true heroes are regions, cities and free enterprises.
Contrary to what former premier Wen Jiabao once suggested, unbalanced growth is not necessarily a problem; it can be an effective strategy. After all, Deng Xiaoping started China’s economic reforms with special economic zones.

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.

Over time, Shenzhen has surpassed Hong Kong in both gross domestic product and technology. Taiwan’s economy, while still 10 per cent larger than Fujian’s, has been overtaken by seven other provincial economies, including Guangdong’s, which is 2.5 times the size of Taiwan’s economy.
Beyond historical ties, many reasons drive high growth along China’s coastal regions, including the ease of shipping and exports. Also, Zhejiang and Guangdong had vibrant commercial cultures before 1949 that were easily rekindled.

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.

Shenzhen is the quintessential migrants’ city where many did settle. Now, many more cities, from Wuhan to Xian, also want to attract an educated workforce to settle.
In time, as some regions mature, others become growth frontiers. Growth spreads. For political and social reasons, China has switched to a more balanced growth approach in the past decade. Despite the state’s strength, some regions remain laggards, resistant to 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.

In the current climate, where China must wean itself from dependence on US technologies, only its most advanced regions can shoulder the burden. Quality of growth is more important than mere expansion of GDP.
Thus, Beijing recently returned to an unbalanced growth strategy, looking to the Yangtze River Delta and Greater Bay Area to lead the nation into the next stage of technology-driven economic development.

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.

No, China’s leading “city” is arguably the Greater Bay Area, the integrated metropolis of 70 million people, unprecedented in human history, with financial, technology, commercial and trading centres all combined into one.

Greater Bay Area is a vision for modernising China

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.

Trump keeps taking aim at a China that no longer exists

China’s political system allows its leaders to mix these two strategies to balance economic, social and political ends. In contrast, the US political system is largely powerless to address regional declines.

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