San José State University
Department of Economics
& Tornado Alley
The major regional characteristic of the Chinese economy is the relative dominance of the coastal provinces compared to the inland provinces. There are three major regions of China; the eastern coastal zone, the middle zone and the western zone. The eastern coastal zone includes all of the provinces along China's 18,000 km (11,000 mile) coast from the border with Korea to Hainan Island in the south. The western zone is largely arid and undeveloped. The middle zone contains the north, what used to called Manchuria, and the provinces to the west of the coastal zone. The big problem in delineating these regions is where to classify Sichuan. Some writers put Sichuan in the western zone and others in the middle zone. It is in the west but it has a robust economy with a population of over 100 million people and has little in common with the other areas of the west zone.
The other dominant characteristic of the Chinese economy is the distinction between the rural and the urban areas. In the past when the population of China was 1 billion it was said that there were two Chinas, one of 200 million people of the cities of the coastal area and Sichuan and the other the 800 million peasants that lived largely by subsistence agriculture in a way of life that had not changed for centuries. The only China that the outside world heard about was the 200 million China.
During the era of the Cultural Revolution (1966-76) Mao Zedong promoted a regional investment strategy of building up a defensive heartland in the south middle zone in anticipation of a major war. This was called the Third Line and involved building manufacturing plants in mountain areas, if possible in caves, where they would be invulnerable to air attach. This turned out to very foolish, not just because no war came, but because these plants in isolated areas could not be made productive so the investment was simply wasted. Thus the more viable coastal region was starved of capital to promote an impossible scheme.
After Mao's death in 1976, Deng Xiaoping announced a modernization program in 1978 which ended the Third Line program and opened up the coastal provinces to economic growth. Special Economic Zones (SEZs) were created in the south near Hong Kong to encourage foreign investment. Other cities such as Shanghai objected to the preferential treatment to the south China SEZs so Shanghai was declared an open city, in effect an SEZ. Soon all of the coastal cities were declared open cities and more SEZs were created. The result was a renaissance of the coastal economy with growth rates reaching world records.
Not only did Deng's policy involve a shift of emphasis from the middle zone to the eastern zone but it also involved a change from a goal of promoting economic self-sufficiency of the provinces to an encouragement to utilize provincial comparative advantages to develop trade, both internationally and domestically. The State's role then became one of developing the transportation system, railroads, highways and waterways to make this trade feasible.
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