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Guangdong Pilots The Next Phase Of China’s Development

There is more to Guangdong than the export workshop to the world. Away from the prosperous Pearl River Delta along the coasts to east and west and particularly in the mountainous north of the province, poverty is deeper, income inequality greater, job opportunities fewer and social services more meager. In that sense it provides a microcosm of the development issues facing the country as a whole. Just as Guangdong was in the vanguard of the economic reforms and opening of the country over the past three decades, so it is being put forward as a pilot for the next stage of China’s development redressing growing inequalities.

For the past couple of years, and despite the trials of the global economic crisis that hit the Pearl River Delta’s manufacturers hard, Guangdong provincial authorities and the World Bank have been taking an unprecedented deep dive into Guangdong’s economic disparities. The result is a newly published study* which lays out a blueprint for tackling the issues of inequality that has become one of the top challenges of China’s development agenda.

The report is book length — more than 350 pages — and detailed, but worth the time of anyone who wants a glimpse at one way that China nationally could meet the aspirations of the Party over the next decade to transform the economic basis of the country into something more socially harmonious between rich and poor and urban and rural and focused on domestic consumption rather than export and infrastructure investment driven growth.

The approach suggested is three pronged: reduce absolute poverty through direct social assistance; reduce income inequality by promoting non-farm industry in rural areas; and contain the inequality of outcomes via taxation and public finance reform to ensure the equal provision of social services. The report makes specific policy recommendations concerning the relocation of industries and labor, vocational training, developing rural financial services, reforming the rural land system, improving basic education and medical services in rural areas, and, most intriguingly, pairing poor villages and households with agencies and enterprises in the richer parts of the province so each village and household will get a customized development plan. The aim is to equalize the provision of public services between urban and rural areas of Guangdong by 2020. Even more ambitious is to change fundamentally the situation of the province’s 3,400 poor villages and lift its 700,000 poor households out of poverty within three years.

Achieving those goals will be no easy matter, and particularly not by those deadlines. It is simply a huge undertaking, as the report acknowledges, although none the less necessary for that. Beyond the reordering and expansion of the provision of public services, it will require a reordering of the bureaucracy, whose officials have been judged and rewarded on their ability to promote local industry and infrastructure development, not the provision of public services, and of the public finances. China’s local government at all levels is a monumental supertanker to turn.

The other huge challenge is the other side of that coin: striking the appropriate balance between the role of government and the role of the market. Policymakers can decree that capital and labor has to relocate to poor rural areas, but they can’t decree that the resulting businesses will be a success. Guangdong officials say they will follow a principle of “government guidance and market-led operation” and obey the fundamental rules of the market when it comes to increasing employment opportunities for rural residents. But that is easier said than implemented.

The need to address these development challenges is urgent.  As the report says:

Experience suggests that inequality, which tends to constrain domestic consumption, may ultimately hurt economic growth. As a result, GDP growth is forced to follow an unbalanced path, with an increasingly high reliance on investment and exports, until it becomes unsustainable.

The province and the World Bank have provided a play-book for what may be China’s most crucial pilot scheme in economic development. Now they have to execute it, we hope, successfully.

*Reducing Inequality for Shared Growth in China, Strategy and Policy Options for Guangdong Province, The World Bank. ISBN 978-0-8213-8484-8.

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