In February 2000, the Government of the People’s Republic of China (PRC) adopted a long-term strategy for the development of the Western Region, which it defined as comprising five autonomous regions, six provinces, and one municipality with the status of a province. In 1999, this region contained 28.8 percent of the PRC’s population but accounted for only 15.8 percent of its gross domestic product.

This report examines specific policies in the context of the State Council’s long-term strategy. The policy areas fall into four main groups:

• Strategic or macro-level policies (Part I of the report)
• Policies to strengthen the competitiveness of the Western Region (Part II)
• Policies to increase employment (Part III)
• Policies to strengthen the capability of local governments (Part IV)

To reflect the social, economic, and environmental diversity of the region, it is divided in the report into two: the northwest (Xinjiang, Gansu, Inner Mongolia, Qinghai, Ningxia, and Shaanxi) and the southwest (Tibet, Sichuan, Yunnan, Guizhou, Guangxi, and Chongqing).

The macroeconomy (Chapter 1)
The Western Region cannot achieve the economic growth rates of the Eastern Region, even over a long period. The northwest is especially disadvantaged in factor endowment. But even if such economic growth could be achieved, its desirability has been deemed doubtful, in view of the likely effects on the natural environment. Hence, the economic planning objective for the Western Region should be to reduce the income differential with the Eastern Region. A combination of outward labor migration, investment, and increased total factor productivity can achieve this outcome.

The Government also needs to progressively allow market forces to allocate resources in the best possible way.

The fiscal system (Chapter 2)
Reforms in the fiscal system benefit the whole country. Fiscal and government finance policies should support the basic objectives of good public finance, and cover tax assignment, government transfer payments, and government bond financing. The tax system needs to be made more transparent and equitable in its application across firms and individuals, with fewer arbitrary interpretations of tax laws and regulations. A direct lump-sum subsidy, proportionate to the total investment volume, would be more effective in attracting investment than the preferential tax system.

A transparent and accountable lump-sum subsidy system for local government is desirable. To design an optimal system of intergovernment transfers, the roles and structures of national health and social assistance programs must first be defined. Instead of the present five channels of government transfer, there should be a regular transfer payment and a special subsidy. The regular transfer payment would balance regional fiscal capabilities, while the special subsidy would be for unusual items such as industry-specific measures to correct market failure and measures to alleviate the effects of major natural disasters. To improve the efficiency and effectiveness of its bond financing, the Government should strengthen control over the quality of each project and the management of funds.

The financial system (Chapter 3)
The financial system has developed more slowly than the economy, particularly in the Western Region. The Government should continue to encourage commercial financial institutions, develop financial markets, and allow the entry of foreign financial institutions. Financial reforms will benefit the national economy as a whole, but measures that would be particularly helpful to the Western Region include establishing a comprehensive legal framework for banks and nonbank financial institutions, providing lending incentives to commercial banks, using the resources of the policy banks, reviving rural credit cooperatives, setting up a postal savings bank, promoting and regulating informal financial markets, optimizing international development assistance, and opening up markets to attract foreign direct investment. ...
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2002 Asian Development Bank.

Contents

List of Tables and Figures, Preface, Abbreviations, Glossary, References, Contributors, and Summary

Part I: Strategic Directions
Chapter 1: The Macroeconomy 
    The Western Development Strategy
    History of Efforts to Promote the Development of the Western Region
    The Economy of the Western Region Today
    Implications for Macroeconomic Growth in the Western Region
    Strategic Considerations in the Development of the Western Region

Chapter 2: The Fiscal System 
    Fiscal System
    Major Challenges Facing the Public Finance System
    Policy Implications for the Fiscal System

    Chapter 3: The Financial System 
    Financial System
    Financial System in the Western Region
    Implications for Financial Policies

    Chapter 4: Agriculture and Natural Resources 
    Role of Government in Developing and Managing Natural Resources
    Natural Resources and Environmental Issues
    Problems in Agriculture and Forestry
    Implications for Policies for Agriculture and Natural Resources

    Chapter 5: Social Conditions 
    Demographic Context
    Incidence of Poverty
    Burden of Disease
    Government Health and Welfare Programs
    Implications for Government Policies

    PART II: Strengthening the Competitiveness of the Western Region

    Chapter 6: Transport Policies 
    Transport in the Western Region
    Demand for Transport Services in the Western Region
    Cross-border and Subregional Transport Issues
    Implications for Transport Policies

    Chapter 7: Energy Policies and Strategies 
    National Energy Profile
    Energy Consumption in the Western Region
    Energy Balance Analysis for the PRC and the Western Region
    Energy Policies and Related Issues
    Case Studies in Regional Development and Energy Sector Finance
    Implications for Energy Policies

    Chapter 8: Technology Policy 
    Role of Technology in Regional Economic Development
    Recent Institutional Reforms and their Applicability to the Western Region
    Biotechnology
    Information and Communication Technology
    Implications for Policies to Promote Technological Innovation

    Chapter 9: Competition Policy 
    Role of Government in Promoting Competition
    Obstacles to Competition
    Subregional Issues
    Implications for Competition Policy

    PART III: Creating Employment Opportunities

    Chapter 10: Industrial Policy 
    History of Industrial Policy
    Industrial Structure of the Western Region
    Constraints on Adjusting the Industrial Structure
    Role of Industrial Policy in Economic Development
    International Experiences in Industrial Policy
    Competitive Advantages in the Western Region
    Implications for Industrial Policies

    Chapter 11: Human resources Policies 
    Size, Skills,and Knowledge of the Labor Force
    Employment
    The Labor Market
    Implications for Labor and Social Security Policies

    Chapter 12: Women 
    Background of Government Policy
    Economic and Social Position of Women
    Implications for Policies

    Chapter 13: Minorities 
    Regional Autonomy for Minorities
    Social and Economic Conditions of Minorities
    Participation of Minorities in Decision Making
    Language Policies as Inhibitors of Upward Mobility
    Implications for Policies on Minorities

    PART IV: Enhancing Local Capabilities

    Chapter 14: Cross-border Cooperation 
    Russia and Mongolia
    The Central Asian Union
    The Association of Southeast Asian Nations
    Afghanistan and the South Asian Association for Regional Cooperation
    Implications for Cross-border Economic Cooperation Policies

    Chapter 15: Local Government 
    Structure of Local Government
    Critical Governance Issues for the Western Region
    Future Role of Local Government

    Chapter 16: Water Resources Management 
    Water Resources
    Use of Water Resources
    Future Water Requirements
    Water Resource Planning and Management Options
    Implications for Policy Directions

    Chapter 17: Environmental Conservation and Pollution Control 
    Institutional Arrangements
    Information, Monitoring, and Reporting
    Environmental Planning
    Pollution Control
    Nature Reserve Management
    Ecological Remediation
    Ecological Research and Development
    Implications for Environmental Protection and Pollution Control

    Chapter 18: Urban Development 
    Urban Land Management
    Urban Infrastructure
    Housing
    Financing Urban Development
    Implications for Policies for Urban Development

    Chapter 19: Rural Development 
    Rural Infrastructure
    Food for Work Programs
    Microcredit
    Assessment of Priorities and Implications for Policies

    Appendixes

       1. Comments from Meghnad Desai
       2. Comments from Carl Riskin
       3. Comments from Keijiro Otsuka

    Policy Directions

       1. The Macroeconomy
       2. The Fiscal System
       3. The Financial System
       4. Agriculture and Natural Resources
       5. Social Conditions
       6. Transport Policies
       7. Energy Policies
       8. Technology Policy
       9. Competition Policy
      10. Industry Policy
      11. Human Resources
      12. Women
      13. Minorities
      14. Cross-border Cooperation
      15. Local Government
      16. Water Resources Management
      17. Environmental Conservation and Pollution Control
      18. Urban Development
      19. Rural Development

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Preface:

The People’s Republic of China (PRC) has been the fastest growing economy in the world during the past two decades. This rapid economic growth, and targeted poverty reduction programs, has resulted in the incidence of poverty being halved from the 1990 level. Per capita income has almost doubled during the last 15 years. Life expectancy and adult literacy are up significantly and infant and maternal mortality have been reduced. These are remarkable achievements by any standards.

However, not all regions have benefited equally from these developments. Substantial disparities in regional living standards have developed. The coastal region benefited more from economic liberalization and the opening up process and captured most of the foreign direct investment made. During the 1990s, GDP per capita grew more slowly in the western region than elsewhere in PRC. Per capita GDP in the western region is about two thirds of the national average and only 40% of that in the eastern coastal region.

Regional disparities are also reflected in other socio-economic indicators. Poverty is more widespread in the western region than elsewhere and is particularly pronounced among minorities living in border areas. Many of the poor live on degraded land.

Ecological issues such as land degradation, desertification, erosion and water resource management problems are more severe in western PRC than in the eastern region. People living in the western region, particularly the poor, have less access to health and education facilities and the educational attainments of the labor force in the western region are lower than elsewhere in PRC. There is also a wide gap in the development of physical infrastructure including roads, railway, power, telecommunications and water supply between the poor interior provinces and the eastern region. A recent survey found that 40% of the foreign companies operating in PRC would not consider expanding their operations in the interior provinces. Infrastructure constraints and the lack of a consumer markets were the most commonly cited reasons for not expanding into the poorer interior provinces.

The Government is aware of the need to accelerate development in the poorer interior provinces. In 2000, the National People’s Congress endorsed the “go west” policy, a proactive strategy to promote growth and development in western PRC. The Tenth Five-Year Plan (2001 – 2005) also reflects this strategy.

The Asian Development Bank (ADB) provided a technical assistance grant to help the Government formulate a strategy for the long-term development of the western region.

Monash International Pty Ltd, an Australian company owned by Monash University, associated with a team of domestic consultants to conduct the study under the supervision of the State Development Planning Commission (SDPC) and ADB.

Masaaki Nagata, Principal Programs Officer supervised this study on behalf of ADB. The guidance and support at various stages of the study provided by the SDPC was essential for the successful completion of the study. Special thanks are given to Mr. Cao Yushu, Director General of Department of Policy, Law and Regulations of SDPC for his guidance and support provided throughout the study. The contributions of Wang Fei, Division Chief, Wu Yuetao, Division Chief, Qu Yongguan of SDPC are also appreciated.

International Consultant Team Leader, who provided the overall direction for the study was John Freeman of Monash International Pty Ltd. Other members of the international team were Heling Shi, Marika Vicziany, Philip Chang, Keith Trace, David Mitchell, Warwick Forrest and Ming Yang.

Mr. Dong Furen, a Professor of Beijing University was the team leader of the domestic experts. The other domestic experts, each of who prepared independent research papers, were Gui Shiyong, Wei Ligun, Fang Weizhong, Shang Yong, Xie Ping, Liu Jun, Pan Shengzhou, Sun Jian, Wang Jian, Ju Songdong, Tang Renwu, Wu Xinmu, Liu Jianming, Wang Lusheng and Huang Shunjiang.

The report also benefited from the comments of three external reviewers: (i) Lord Meghnad Desai of the London School of Economics: (ii) Dr. Carl Riskin of Queens College and Columbia University; and (iii) Dr. Kenijiro Otsuka of the Foundation of Advanced Studies on International Development in Japan.

Work began on the Study in January 2001 and the findings of the study are presented in this book. Part I summarizes the strategic directions, covering macroeconomic issues, the fiscal and financial systems, agriculture and natural resources and social conditions.

Part II identifies ways of strengthening the competitiveness of the western region by examining transport policies, energy policies and strategies, technology policies and competition policy. Part III examines opportunities to create employment and covers industrial policies, human resource policies, women and minorities. Part IV discusses ways to enhance local capabilities by addressing issues related to cross-border cooperation, local government, water resources management, environmental conservation and pollution control, urban development and rural development.

The report concludes with a summary of the major policy directions and recommendations.

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