China Gene H Chang U of Toledo The World Asia China

ChinaChina

Gene H ChangGene H Chang

U of ToledoU of Toledo

The World

Asia

China

China

Potential photoPotential photo

Population: 1.3 billion, the most populous country in the world accounting for 20% of the world population

US and China: Important RelationshipBush and Hu discussing on trade and currency in the APEC meeting

GeographyGeography

• China is a large country with a vast territory of China is a large country with a vast territory of 9.6 million square kilometers, stretching from 9.6 million square kilometers, stretching from the temperate to sub-tropical zones. the temperate to sub-tropical zones.

• It is similar in size and climate to the United It is similar in size and climate to the United States but its topography is quite different. States but its topography is quite different. China is mountainous and hilly. China is mountainous and hilly.

• Plains at less than 500m elevation make up Plains at less than 500m elevation make up only 12 percent of the total land, while only 12 percent of the total land, while mountains and plateaus account for 60 mountains and plateaus account for 60 percent.percent.

GeographyGeography

• This topographic feature implies an This topographic feature implies an unfavorable natural condition for unfavorable natural condition for economic development because of economic development because of the higher costs of transportation the higher costs of transportation and infrastructure construction. and infrastructure construction.

GeographyGeography

• The topographical featureThe topographical feature

• A three-step staircase stepping down from A three-step staircase stepping down from west to east. west to east.

• Qinghai-Tibet Plateau of 4,000m in Qinghai-Tibet Plateau of 4,000m in elevation in the southwest. elevation in the southwest.

• The central regions: highlands and basins The central regions: highlands and basins mostly from 2000 to 1000 meters above mostly from 2000 to 1000 meters above the sea level. the sea level.

• Descends eastward to hilly regions and Descends eastward to hilly regions and plains below 1000 meters. plains below 1000 meters.

GeographyGeography

• The eastern regions have more The eastern regions have more favorable natural conditions for favorable natural conditions for farming and trade. farming and trade.

• They are close to the coastline and They are close to the coastline and seaports, and most of their land is seaports, and most of their land is flat plain. flat plain.

• Thus the transportation costs are Thus the transportation costs are lower and contact with overseas lower and contact with overseas countries is easier. countries is easier.

GeographyGeography

• They also have higher precipitation levels and They also have higher precipitation levels and a warmer climate. Thus the nation's a warmer climate. Thus the nation's economy and population concentrate on the economy and population concentrate on the eastern region. eastern region.

• The interior regions are mountainous and The interior regions are mountainous and poor. The rich mineral resources the regions poor. The rich mineral resources the regions endow with are very costly to extract and endow with are very costly to extract and transport. transport.

• The western region with the highest The western region with the highest elevation, the Qinghai-Tibet Plateau, was elevation, the Qinghai-Tibet Plateau, was traditionally the poorest.traditionally the poorest.

HistoryHistory• The location of the economic center of The location of the economic center of

China has not been fixed throughout China has not been fixed throughout history. history.

• It had a tendency of moving eastwards It had a tendency of moving eastwards from the northwest region. The from the northwest region. The Chinese civilization started in the Loess Chinese civilization started in the Loess Plateau and the Yellow River Valley in Plateau and the Yellow River Valley in 2000 BC, which was considered to be 2000 BC, which was considered to be the northwest part of China proper and the northwest part of China proper and is about 1000 kilometers away from the is about 1000 kilometers away from the coast. coast.

HistoryHistory• The reason for this location was common The reason for this location was common

during the ancient period, when the during the ancient period, when the civilization centered in the area with high civilization centered in the area with high agricultural productivity rather than a coast agricultural productivity rather than a coast that was more convenient for overseas that was more convenient for overseas contact. contact.

• For most of the history of China prior to the For most of the history of China prior to the ninth century, the capitals of the country ninth century, the capitals of the country were Yuncheng, Anyang, Xi'an, Xianyang, were Yuncheng, Anyang, Xi'an, Xianyang, Luoyang, all located in the interior provinces Luoyang, all located in the interior provinces of Shaanxi and Henan, about eight hundred of Shaanxi and Henan, about eight hundred kilometers from the coastline.kilometers from the coastline.

ChinaChina’’s Northwest s Northwest XinjiangXinjiang

“Stone Forest” in Yunnan

SouthwestSouthwest


Three Gorge of the Yangtze River in the central west of China


Three Gorge of the Yangtze River in the central west of China

Tibet and Himalaya

Nature scenary in Dalian

EastEast

Great Wall

China’s China’s mountainsmountains

Construction Construction everywhereeverywhere

Night Night Scene in Scene in

ShanghaiShanghai

Traditional housingTraditional housing

Village in East ChinaVillage in East China

GeographyGeography• The southeast coastal regions, where The southeast coastal regions, where

contemporarily the most economically dynamic contemporarily the most economically dynamic provinces including Guangdong (Canton) and Fujian provinces including Guangdong (Canton) and Fujian are located, largely remained uncultivated and are located, largely remained uncultivated and sparsely populated in the early Chinese history. sparsely populated in the early Chinese history.

• Although the natural conditions were favorable for Although the natural conditions were favorable for agriculture, farming was undeveloped because the agriculture, farming was undeveloped because the climate was not favorable for inhabitation and climate was not favorable for inhabitation and human activities. human activities.

• Malaria (what was called ``Zhangqi'' in Chinese) Malaria (what was called ``Zhangqi'' in Chinese) and other diseases in the subtropical areas and other diseases in the subtropical areas checked population growth, and high temperature checked population growth, and high temperature exhausted human energy thus lowered labor exhausted human energy thus lowered labor productivity. productivity.

GeographyGeography

• In ancient times, Guangdong was In ancient times, Guangdong was considered an uninhabitable place. considered an uninhabitable place.

• A great Chinese poet of the 11th A great Chinese poet of the 11th Century, Su Shi, who was banished by Century, Su Shi, who was banished by the emperor to Canton, wrote a poem the emperor to Canton, wrote a poem to amuse himself by saying that he to amuse himself by saying that he did not mind living in Guangdong only did not mind living in Guangdong only because he could eat many litchis because he could eat many litchis (Guangdong produced litchis).(Guangdong produced litchis).

Economic geographyEconomic geography• Things gradually changed. Under the pressure of Things gradually changed. Under the pressure of

expanding population and the frequent wars in expanding population and the frequent wars in the northern region, more of the population the northern region, more of the population moved to the southeast region. moved to the southeast region.

• Humans also gradually adapted to the climate Humans also gradually adapted to the climate there. The Yangtze River Valley became densely there. The Yangtze River Valley became densely populated in the 12th century. populated in the 12th century.

• The development was driven mainly by the The development was driven mainly by the farming condition, as contact with the rest of the farming condition, as contact with the rest of the world by ocean navigation was unimportant and world by ocean navigation was unimportant and very limited. very limited.

• At that time, China's contact with the West was At that time, China's contact with the West was mainly through the Silk Road, which went through mainly through the Silk Road, which went through the northwest region.the northwest region.

Modern historyModern history• The role of the southeast region in The role of the southeast region in

the national economy changed the national economy changed dramatically in the period after the dramatically in the period after the Opium War in 1840. Opium War in 1840.

• Western powers forced China to open Western powers forced China to open coastal ports. They made footholds coastal ports. They made footholds in Hong Kong, Shanghai, Ningbo, etc. in Hong Kong, Shanghai, Ningbo, etc.

Modern historyModern history• Along with the military invasion, Western Along with the military invasion, Western

powers also brought capital and modern powers also brought capital and modern technology into the ports and neighboring technology into the ports and neighboring areas. areas.

• Trade with the rest of the world developed Trade with the rest of the world developed and economy grew in these areas. and economy grew in these areas.

• The economic importance of the country The economic importance of the country shifted from the traditional central area to shifted from the traditional central area to the coastal regions. the coastal regions.

• Meanwhile, local entrepreneurs emerged Meanwhile, local entrepreneurs emerged in the coastal regions. in the coastal regions.

Communist regimeCommunist regime• 1949, the development of a modern 1949, the development of a modern

capitalist economy in the coastal regions capitalist economy in the coastal regions stopped when the Communists took power stopped when the Communists took power in 1949. in 1949.

• In early 1950s, China received aid from In early 1950s, China received aid from the Soviet Union and developed a centrally the Soviet Union and developed a centrally planning system.planning system.

• Collectivization started in 1955.Collectivization started in 1955.• In 1958, Mao started the Great Leap In 1958, Mao started the Great Leap

Forward and People’s Communes.Forward and People’s Communes.• It is an economic disaster. It caused a It is an economic disaster. It caused a

great famine and millions of peopled died great famine and millions of peopled died of starvation.of starvation.

Communist regimeCommunist regime• Mao was isolated. The country was under Mao was isolated. The country was under

the doctrine of self-reliance. the doctrine of self-reliance. • Mao was preparing a military confrontation Mao was preparing a military confrontation

with the U.S. and its allies, thus, the with the U.S. and its allies, thus, the coastal region would be the frontier in coastal region would be the frontier in such a war. such a war.

• 1966-1976, the Cultural Revolution period.1966-1976, the Cultural Revolution period.• It is another economic disaster.It is another economic disaster.• He restricted investment in the coastal He restricted investment in the coastal

region and further relocated many region and further relocated many factories from coastal regions to the factories from coastal regions to the hinterland during the 1960s and 1970s. hinterland during the 1960s and 1970s.

GeographyGeography• Although the coastal region was still Although the coastal region was still

the major source of the central the major source of the central government's revenue, these regions government's revenue, these regions received very little funds from the state received very little funds from the state for re-investment, which often could for re-investment, which often could not cover the depreciation of their not cover the depreciation of their capital stock.capital stock.

• During the Cultural Revolution period, During the Cultural Revolution period, Shanghai provided more 40 percent of Shanghai provided more 40 percent of the state revenue, but could not retain the state revenue, but could not retain enough money to cover depreciation.enough money to cover depreciation.

Economy under MaoEconomy under Mao

• The relocation of factories along with huge The relocation of factories along with huge capital investment into the hinterland by capital investment into the hinterland by Mao was economically ridiculous. Mao was economically ridiculous.

• Many companies in Shanghai and other Many companies in Shanghai and other coastal regions were relocated to the coastal regions were relocated to the mountains in Guizhou, Sichuan, Hubeimountains in Guizhou, Sichuan, Hubei

• where highways and railroads were deficient where highways and railroads were deficient or non-existent, water and electricity were in or non-existent, water and electricity were in shortage, and the markets of raw material shortage, and the markets of raw material and products were distant. and products were distant.


• These factories often could not These factories often could not produce anything many years after produce anything many years after the relocation, letting the equipment the relocation, letting the equipment become rusty and unusable. become rusty and unusable.

• Only a small fraction of relocated Only a small fraction of relocated firms eventually managed to produce firms eventually managed to produce goods, but often limited to military goods, but often limited to military products and at a huge economic products and at a huge economic cost. cost.


• One example was the Second One example was the Second Automobile Company. It was built by Automobile Company. It was built by Mao in mountains in Hubei. Mao in mountains in Hubei.

• The part and assembly plants were The part and assembly plants were scattered among mountains, and scattered among mountains, and transportation among the plants transportation among the plants were very inconvenient and costly. were very inconvenient and costly.

• The plants were distant from any The plants were distant from any major markets and input suppliers. major markets and input suppliers.

Economy under MaoEconomy under Mao• During Mao's period, the nation's income During Mao's period, the nation's income

inequality, measured by the Gini coefficient, was inequality, measured by the Gini coefficient, was mainly explained by the urban-rural gap, rather mainly explained by the urban-rural gap, rather than the provincial gap. than the provincial gap.

• Although coastal regions were still somewhat Although coastal regions were still somewhat richer and more urbanized, it was simply because richer and more urbanized, it was simply because of their better economic foundations inherited of their better economic foundations inherited from the pre-revolution period, and the from the pre-revolution period, and the endowment of the more favorable natural endowment of the more favorable natural conditions for farming. conditions for farming.

• The income among the urban residents of various The income among the urban residents of various provinces was quite equal (World Bank, 1983) provinces was quite equal (World Bank, 1983) during the pre-reform period.during the pre-reform period.

Reform since 1978Reform since 1978• On the eve of reform in 1978, China was basically On the eve of reform in 1978, China was basically

an agricultural economy. Although some heavy an agricultural economy. Although some heavy industries developed during the early '50s with industries developed during the early '50s with assistance from the Russians and some others assistance from the Russians and some others built by the Chinese themselves in '60s and '70s. built by the Chinese themselves in '60s and '70s.

• These newer heavy industries were mainly These newer heavy industries were mainly located in Manchuria and some central regions. located in Manchuria and some central regions. The economic basis of the coastal regions The economic basis of the coastal regions remained basically unchanged from the pre-remained basically unchanged from the pre-revolution period. revolution period.

• The gap between the interior and coast regions The gap between the interior and coast regions was not substantial at that time. The economic was not substantial at that time. The economic basis and conditions of China on the eve of basis and conditions of China on the eve of reform were quite different from that of the reform were quite different from that of the Soviet Union or Eastern Europe.Soviet Union or Eastern Europe.

Reform since 1978Reform since 1978• In 1978, two years after Mao's death, In 1978, two years after Mao's death,

reform started. reform started. • 1978-1984: The first stage of the reform,, 1978-1984: The first stage of the reform,,

succeeded mainly in the agricultural succeeded mainly in the agricultural sector, as a result of the replacement of sector, as a result of the replacement of the Commune system with the household the Commune system with the household responsibility system. responsibility system.

• There was no obvious increase in regional There was no obvious increase in regional inequality during this period. The inequality during this period. The cumulative average growth rates of GDP cumulative average growth rates of GDP per capita from 1978 through 1984 were per capita from 1978 through 1984 were 165.5%, 165.3% and 156.2% for the 165.5%, 165.3% and 156.2% for the coastal, central and western provinces. coastal, central and western provinces.

Reform after 1992Reform after 1992

• After 1991, the gap between coastal After 1991, the gap between coastal regions and the two interior regions, regions and the two interior regions, grew rapidly.grew rapidly.

• By 1997, the same ratios were By 1997, the same ratios were 1.60:1.19:1.00, the coastal region's 1.60:1.19:1.00, the coastal region's growth was 60 percent higher than growth was 60 percent higher than the Western regionthe Western region

Openness since 1992Openness since 1992• Major changes started in 1992. Deng called for more Major changes started in 1992. Deng called for more

opening of China to the outside and for economic opening of China to the outside and for economic acceleration. acceleration.

• Many preferential policies, such as generous tax holidays Many preferential policies, such as generous tax holidays and credit matching, were given to foreign investors. and credit matching, were given to foreign investors.

• Foreign direct invest (FDI) surged to 11.3 billion U.S. dollars Foreign direct invest (FDI) surged to 11.3 billion U.S. dollars in 1992 from 4.6 billion the year before, representing a in 1992 from 4.6 billion the year before, representing a 140\% jump. 140\% jump.

• The coastal provinces, being spatially closer to overseas The coastal provinces, being spatially closer to overseas markets and topographically more convenient to transport markets and topographically more convenient to transport to, immediately gained momentum and took off. to, immediately gained momentum and took off.

• The Guangdong province alone absorbed more than 40 The Guangdong province alone absorbed more than 40 billion U.S. dollars of FDI during the period of 1992-1996, billion U.S. dollars of FDI during the period of 1992-1996, accounting for about 30 percent of the national total. Most accounting for about 30 percent of the national total. Most of the money came from Hong Kong, which is adjacent to of the money came from Hong Kong, which is adjacent to Guangdong. Guangdong.

Open since 1992Open since 1992

• Likewise, Fujian province, because it is close Likewise, Fujian province, because it is close to Taiwan and its residents speak the same to Taiwan and its residents speak the same dialect as Taiwan, absorbed 12 billion FDI. dialect as Taiwan, absorbed 12 billion FDI.

• Shanghai, Jiangsu and Zhejiang also Shanghai, Jiangsu and Zhejiang also received higher than the national average received higher than the national average investment from overseas Chinese and investment from overseas Chinese and foreign companies from Taiwan, Hong Kong, foreign companies from Taiwan, Hong Kong, Japan, and the U.S. because their coastal Japan, and the U.S. because their coastal location provided convenient access. location provided convenient access.

Open since 1992, FDIOpen since 1992, FDI

• FDI played a critical role in growth since FDI played a critical role in growth since 1992. During the period of 1992 through 1992. During the period of 1992 through 1997, China absorbed a total of 205 billion 1997, China absorbed a total of 205 billion dollars of FDI, which was roughly 50% of all dollars of FDI, which was roughly 50% of all FDI received by developing countries, and FDI received by developing countries, and ranked the second in the world after the ranked the second in the world after the U.S.U.S.

• Growth in this period was led by the coastal Growth in this period was led by the coastal regions. An overwhelming portion of the regions. An overwhelming portion of the foreign capital chose to go to the coastal foreign capital chose to go to the coastal regions, because of the advantages in regions, because of the advantages in location and transportation convenience. location and transportation convenience.

Open since 1992, labor Open since 1992, labor migrationmigration

• At the same time, higher wage rate and At the same time, higher wage rate and more job opportunities in the coastal more job opportunities in the coastal regions attracted tens of millions of migrant regions attracted tens of millions of migrant laborers from the hinterland. laborers from the hinterland.

• This flood of migrant workers, also termed This flood of migrant workers, also termed ``floating population'', is estimated to be ``floating population'', is estimated to be more than 60 million. more than 60 million.

• Guangdong alone received 15 million Guangdong alone received 15 million migrant workers and professionals from migrant workers and professionals from outside. Shanghai, which has 16 million outside. Shanghai, which has 16 million local residents, has 4 million migrant local residents, has 4 million migrant workers.workers.


• In 1990s, most foreign direct investment in In 1990s, most foreign direct investment in the coastal regions was engaged in the coastal regions was engaged in processing trade. They imported raw processing trade. They imported raw materials and parts, processed and materials and parts, processed and assembled them, and exported the final assembled them, and exported the final products for sale in the world market. products for sale in the world market.

• It is obvious that foreign investors choose It is obvious that foreign investors choose the coastal regions for their geographic the coastal regions for their geographic advantage and transportation and advantage and transportation and communication convenience.communication convenience.

Open since 1992Open since 1992• One characteristic of the period is that the large One characteristic of the period is that the large

amount of capital inflow did not depress the return of amount of capital inflow did not depress the return of capital in the regions, thus attracting even more capital in the regions, thus attracting even more capital from overseas, as well as from domestic capital from overseas, as well as from domestic sources. sources.

• The wage rate in the coastal areas was higher than The wage rate in the coastal areas was higher than that of the interior regions, thus attracting migrants. that of the interior regions, thus attracting migrants. Even years after the large influx of laborers, the Even years after the large influx of laborers, the differential in the real wage remained, largely differential in the real wage remained, largely because the rapid development of the modern firms because the rapid development of the modern firms in coastal areas kept the edge in productivity over the in coastal areas kept the edge in productivity over the hinterland. hinterland.

• The continuous capital and labor inflow sustained The continuous capital and labor inflow sustained growth after the initial take-off in the coastal regions. growth after the initial take-off in the coastal regions.

• The interior regions, especially the western regions, The interior regions, especially the western regions, lagged further behind in growth. lagged further behind in growth.

Open since 1992Open since 1992• The common characteristic for the coastal The common characteristic for the coastal

regions is the geographic factor. The coastal regions is the geographic factor. The coastal regions have spatial and topographic advantages. regions have spatial and topographic advantages.

• These advantages lowered the costs of These advantages lowered the costs of transportation and communication, thus raising transportation and communication, thus raising the return of investment and attracting more the return of investment and attracting more capital. capital.

• The investment served as the engine of growth, The investment served as the engine of growth, and was further sustained because of the and was further sustained because of the agglomeration effect in the coastal region and the agglomeration effect in the coastal region and the unlimited supply of labor from the Chinese rural unlimited supply of labor from the Chinese rural areas at a constant wage rate. areas at a constant wage rate.


• The geographic advantage of the coastal The geographic advantage of the coastal provinces was not realized during Mao's provinces was not realized during Mao's era, because the country was closed to the era, because the country was closed to the outside.outside.

• The reform made the potential The reform made the potential geographic advantage of the coastal geographic advantage of the coastal regions realized. Yet the interior regions, regions realized. Yet the interior regions, especially the western provinces, lacked especially the western provinces, lacked the advantages thus falling behind and the advantages thus falling behind and resulting divergence.resulting divergence.

Transition from .. toTransition from .. to• The Chinese reform has widely been The Chinese reform has widely been

regarded as a success. Since the reform regarded as a success. Since the reform started in 1978, the structure of the started in 1978, the structure of the economy has experienced a fundamental economy has experienced a fundamental change towards a market oriented system. change towards a market oriented system.

• By the end of 2008, state-owned By the end of 2008, state-owned enterprises accounted for only 30% of enterprises accounted for only 30% of output in industry, and the market output in industry, and the market determined the prices and output of more determined the prices and output of more than 95% of goods. than 95% of goods.

• During the same period in 1978-2008, the During the same period in 1978-2008, the economy has continuously grown at more economy has continuously grown at more than 10 percent average annual rate.than 10 percent average annual rate.

Tap the potential of the Chinese MarketTap the potential of the Chinese MarketOwns Corning Owns Corning

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China Gene H Chang U of Toledo The World Asia China