Transcript Regional Development Strategies Joint Government of Russia and World Bank Workshop

Joint Government of Russia and World Bank Workshop
Regional Development Strategies
March 31, 2008
Regional Development Strategies
Lili Liu
Lead Economist
Economic Policy and Debt Department
World Bank
Outlines
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First present China’s regional development strategies
and experience since 1980
 Context for the regional development strategy
 Unbalanced growth strategy 1980 to late 1990s
 Balanced growth strategy since late 1990s
Then briefly introduce Chilean experience in regional
policy for extreme zones
Draw observations and thoughts from these experience
Map of China
Context for Regional Development Strategy
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1980-late 1990s
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Maximizing national growth as a key objective.
Trade opening and FDI.
From plan to market.
Fiscal decentralization.
Urbanization.
From balanced development (1950-1980) to
deliberate pursuit of an unbalanced growth
strategy (1980-1995).
Unbalanced Regional Development Strategy
1980-late 1990s
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Coastal regions were viewed as having the most potential to
gain from economic opening, due to proximity to key markets,
skilled labor force, and relatively stronger economic base.
Major infrastructure investments such as national highway
systems and airports.
Fiscal incentives related to corporate tax and tariff
exemptions.
Reduced fiscal transfers to inland provinces and interregional
fiscal transfers.
Central government transfers largely come from project
financing which provinces have to match with local funds,
which benefited more developed coastal regions.
Unbalanced Regional Development Strategy
1980 - late1990s
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Regional development strategy works through key
municipalities that serve as regional hubs.
Fiscal decentralization gave provinces/large
municipalities, starting with two coastal provinces,
unprecedented fiscal autonomy and room for innovation
and experimentation. Exploring the agglomeration of
urban economies.
Rapid national growth is accompanied by widening
regional disparities. Equally important and much less
recognized, however, is that lagging regions also grew
faster than the pre-reform period.
Gradual reform approach
Regional disparities in infrastructure development
Density of Road (km / 10000 km2 )
1999
1978
> 5000
3000-5000
1000-3000
< 1000
Economic centre & Periphery
Periphery
Economic
centre
More balanced regional development
Harmonious Society Era (since late 1990s)
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Multi-prone regional development strategy, as challenges differ
significantly across regions.
Coastal region: integration, supply chain linkages, agglomeration,
and moving up value chain.
Western region: infrastructure, urbanization, development of nonstate sector, etc.
Northeast: restructure the heavy industry and state oriented
enterprise base. The region has the longest history of command
and control. Heavy legacy of SOEs.
Central Region: launched last year and still being formulated,
involving a broader agenda of social, environmental and
economic development.
Coastal Region
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With success come new challenges
More efficient, sustainable and equitable growth
Similar challenges as experienced by more developed
economies: congestion, migration, employment opportunities,
income inequality, social stratification, and social security,
crime, etc.
Manufacturing is adjusting structure to move to high value
added, need to coordinate policies.
Urban renewal and more rapid urbanization.
Dual structure: more advanced areas (such as CBD) vis-à-vis
periphery areas.
Innovation, regional integration (e.g., Pearl river delta, Yangtze
river basin and bohai bay) and global competitiveness
Rationale for “Go West”
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Reducing regional inequality (e.g., per capita income was 2.5
times higher in the coastal region than the interior. The share of
national FDI was 86% for the coastal region, 13% for the central
region, and only 1% for the western region).
Stimulating domestic demand and consumption as a source for
sustained growth. Low domestic consumption (and income
level) in the western region.
Forging structural reform and the emergence of a dynamic
private sector in the west would lead to a more efficient domestic
internal market.
Rebalancing the national ecosystem, especially in controlling
soil erosion and desertification.
Tapping the rich natural resources in the western region to
contribute to national economic growth.
Go West: Priorities and Three Pillars
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Vastness of the underdeveloped interior (12 provinces
containing over 400 million population)
With fiscal resource constraint, the focus is on improving the
investment climate to attract private investment to the western
region and prioritizing the use of limited public funds.
Target key areas with relatively stronger economic base, high
population densities – close to transportation routes and hubs
or along the Eurasian corridor, the Yangtze, and the waterways
in the south-west with outlets to the ocean. Rural to urban
migrations are envisioned as a key way of reducing rural
poverty, complemented by social safety nets and investing in
education and health.
Three pillars: reliable infrastructure, favorable business
environment, and a qualified and hard working labor force.
Go West: Key Instruments
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Developing infrastructure
Structural reforms, including reforming SOEs.
Human capital and R&D. For example, higher wage and
compensation, waiving change in residence requirement.
FDI and trade: various measures to attract FDI to the interior
region including income tax incentives and reducing entry
barriers.
Give local government considerable autonomy in developing
local growth strategy, consistent with the fiscal decentralization
since the 1980s.
Examples of fiscal incentives: performance grants targeting poor
regions such as reward counties and towns which raise more
revenues (discretionary matching grants), and improve budgetary
efficiency (for example downsize and streamline civil services).
Northeast Challenges
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Three provinces with 107 million people
The longest history of planning, command and control
Large state-owned public enterprises with old technology, inwardlooking, lack of competitiveness in global market
Large fiscal burdens due to existing public pension and other
welfare commitments
Non-performing assets in financial sector due to its quasi-fiscal link
to SOEs
Rust-belt type of “lagging region”
 Losing domestic market share in industrial materials and capital
goods due to competition from imports
 Out-migration of skilled labor force to more dynamic coastal
regions
 Deteriorating urban infrastructure
 Skill mix cannot fit new market demands and structure
 Rising unemployment
Strategy for Northeast Revival
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Key elements similar to the strategy of successful revival
of rust-belt lagging regions, though more constraints due
to the sheer size of SOEs
 Restructuring SOEs with pension and social security
reforms as pre-requisites
 Openness and trade and integration with successful
coastal regions and global economy
 Develop dynamic comparative advantage
 Competitive private sector essential
 Skill reorientation to meet market demands
 Success of Dalian
Chile: Regional Policy of Extreme Zones
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Chile has long used regional policy instruments to integrate the lagging
extreme south and the north into the national economy, to ensure territorial
sovereignty, national integration, and effective administration of these
regions.
Region I in the north is a coastal desert while Region XII in the extreme
south is the glacial sub-Antarctic southern tip of the continent.
The accumulated package of special incentives (incentives for the Zonas
Extremas):
 Free trade zone incentives exempting enterprises from custom duties,
value-added taxes and corporate income taxes,
 Wage subsidies benefiting all private enterprises,
 Investment tax credits, investment subsidies, and sales subsidies.
 Intergovernmental transfers that favor the extreme zones, such as
regional investment financing and support to current social expenditures,
as well as higher salaries to civil servants to attract them to the lagging
extreme zones.
Chile: Regional Policy of Extreme Zones
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Policies viewed as successful, but fiscal costs are high.
Related to effective administration in Chile in general
Policies of special economic zones have mixed experience
internationally, issue of governance and transparency
The ultimate aim of the regional policy is to help these lagging
regions get onto a sustainable path so that subsidies are no
longer needed, by turning subsidized physical and social
infrastructure into agents that generate productive assets.
New direction of Chilean extreme zones policy: capitalizing the
strength of the North region as a natural global gateway to the
Pacific Rim, positioning itself as a Pacific portal and economic
nucleus for the cross-border economies of Peru and Bolivia and
even parts of Mercosur.
Observations from cross-country experience
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Unbalanced and balanced growth strategy
 China experience shows that a nation may pursue unbalanced
growth strategy at certain point of time as part of its overall
development strategy.
 Chile experience shows that economic efficiency is not the only
consideration by policymakers
 EU experience shows the motivation of social cohesion and
expanding markets
There is no one size-fit-all regional policy.
 China’s multi-prone regional development strategies (coastal,
west, central and northeast) shows that each region faces its own
unique set of challenges (e.g., geographical remoteness; rust
belt; well-endowed resources but require a new set of policy
framework)
Observations from cross-country experience
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However, successful regional development tends to align with
market forces, economies of scale and agglomeration.
Openness, trade, efficient internal and external markets are
central to sustained regional growth and development.
The Chilean experience shows that fiscal subsidies, special
incentives and infrastructure can work but can be fiscally
costly and would only work within a general environment of
competitive economic structure, efficient and transparent
governance structure.
The old regional policy tends to be top down centralized
decision making. The emerging paradigm of regional policy
focuses on developing local competitiveness, a transparent
and efficient regulatory framework for private investment, and
unleashing innovation by local agents of economic change.