Introduction

During the past nearly three decades, the People’s Republic of China (PRC) has experienced tremendous economic growth, at an average rate close to 10 percent. Real GDP expanded by 11 times from 1978 to 2005. The size of the PRC’s economy surpassed both the UK and France in 2005, becoming the fourth largest economy in the world.

Although the PRC’s general economic performance is strong, economic development among its regions has diverged. Growth has been faster in the more developed east coast provinces than in the less developed inland provinces, and has been particularly slow in the least developed western provinces during the past two decades. Regional disparities are large and growing. Per capital GDP (now renamed Gross Regional Product, or DRP, for provinces in Chinese statistics) in Shanghai, the most developed city at the provincial level, was 51,474 Yuan (about 6,434 US dollars) in 2005, whereas in the least developed province, Guizhou, it was only 5,052 Yuan, (or 631 dollars), less than 1/10 of that in Shanghai (NBS, 2006).

In earlier studies, Cai and Du (2000) found an economic divergence between the eastern, central and western regions but a convergence within these regions in the 1990s. Wang and Fan found that per capita GDP in the western provinces, as a percentage of that in the east coast provinces, decreased from 53% to 39% during the period of 1980-2002. They also found that the flow of capital and human capital from the central and western regions to the eastern region contributed to the regional divergence, but that the flow of labor in the same direction moderated this tendency (Wang and Fan, 2003, 2004).

Other studies found that regional disparities in the PRC were the result of a combination of geographic location, economic policy, and other factors such as infrastructural conditions (e.g., Demurger et al., 2002). One study also confirmed that market-oriented institutional change in the PRC had made a positive contribution to the PRC’s total factor productivity growth at the provincial level (Chen and Fan, 2004), although TFP growth in the less developed central and western regions was lower than in the eastern region. In recent years, economic growth and total factor productivity growth were found to have accelerated in some central and western provinces, although there has been no clear evidence for regional convergence (Jefferson, Rawski and Zhang, 2007).

Partially as a result of regional disparities, income inequality in the PRC increased rapidly after the middle of the 1980s. The Gini coefficient of income increased from 0.26 in 1984 to 0.45 in 2001 (WIDER, 2000; World Bank, 2005). In addition to inequality among regions, the increasing rural-urban income gap and inequality among different resident groups were also responsible for the high Gini coefficient.

In the 1980s and 1990s, the central government focused mostly on economic development, and especially on growth. The economic growth rates in provinces, municipalities, and even counties and towns were used as important references for assessing the administration performance of local governments and major local officials. However, this did not change the diverging trend in regional development, but resulted in negative effects, i.e., the fabrication and exaggeration of local growth performance, ignoring social needs, heavier environment pollution, massive government investment at low efficiency, and unnecessary government intervention.

There have been changes during the past few years in the new century, as the central government has come to realize that high income inequality, poor public services in health care and education, heavy environment pollution, and the low efficiency of investment and energy consumption, etc., have become major constraints to economic development, as well as causes of social instability. The government is now making greater efforts to resolve these urgent problems.

However, incentive mechanisms have not been changed, and the central effort has received a limited response from local governments. While the central government has increased expenditures on education, health care and pollution control, some provincial and municipal governments still put most of their available resources into investment projects. Industrial pollution in some counties and towns is tacitly permitted by the local governments and their departments. Cultivated land is being rapidly reduced and converted into commercial sites, despite a major effort by the central government to protect land. The economic growth rate remains high, but it has been described as unsustainable growth or “extensive growth patterns" (meaning growth driven by massive inputs with pollution and high energy consumption and little productivity growth), not only by economists, but also by government leaders (see Premier Wen Jiabao, 2006).

In addition, institutional development towards a market oriented and law-based society has been slow. Corruption, low transparency and inefficiencies characterize the government sector, undermining economic development and social justice in the future.

All these problems need to be solved. However, the current incentive systems for government at various administrative levels still strongly encourage economic growth, not only because growth performance is valued by higher authorities, but also because of the existence of tax revenues and other benefits. While more complete institutional and legal frameworks are required, there is also a need for an assessment system for the achievements of administrative regions (e.g., provinces) from an overall economic and social development perspective. Unlike measures to promote economic growth, this assessment system should provide a correct incentive mechanism for a balanced pattern of regional development.

Some assessment systems for the PRC’s regional development have been in the literature, but they mainly focus on one particular aspect of development. The World Bank recently published a report assessing the competitiveness of 120 of the PRC’s cities based on survey data (World Bank, 2006). This study mainly emphases the investment climate, but also contains useful information on other issues, including government effectiveness and “social harmony." Nevertheless, more issues should be covered in an overall assessment system on development.

The United Nations (2003) lists Millennium Development Goals (MDG) indicators for countries including the PRC. It lists a number of basic variables on human development, including poverty reduction, education, gender equity, health, and environment protection. However, the MDG do not assess economic development and institutional changes, and do not contain country information at the provincial level.

UNDP and CDRF jointly published China Human Development Report (2005). They constructed a Human Development Index at the provincial level, which provides some useful information on life expectation and education.

The National Economic Research Institute in Beijing regularly publishes a Marketization Index for China’s Provinces, which gauges the achievements of provinces in marketization (Fan, Wang and Zhu, various years). This is also an important part of the context of development. However, assessing overall development is not the target of this study.

There is also a Regional Analysis & Planning System (CD-ROM) for the PRC’s regional development (Heilig, G., 2004). It measures development in the PRC at the provincial level using a large number of statistical indicators, covering six areas: human development, natural resources, economic development, infrastructure, research and technology, and administrative efficiencies. It is a quite comprehensive study on the PRC’s regional development, although a few important fields are not covered, e.g., social equity, public services, and institutional development. There are also some serious shortcomings.¹

In light of these existing studies, the author aims to establish a regional development index for the PRC’s provinces that can function as an assessment system for overall achievement in regional development. It is expected that a balanced assessment will be able to provide correct incentives to local governments, in order to extricate them from the purely growth-oriented incentive mechanism. This index system is also expected to provide useful information for researchers, investors, and others interested in regional development in the PRC.

In Section II of this paper, the framework of the index system is established. In Section III, the methodologies used to construct the index are described. Section IV presents the overall index and field indices for the development of each province, with scores and ranks, using the most recent available statistical data. Section V is a short summary of some interesting points from the outcome of the study.

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