China’s Great Migration

Of course, the government’s efforts alone cannot entice industrial investors to go West, because public infrastructure spending cannot overcome all problems. Without a road, you cannot transport resources and finished goods. But, even with a road, you still must pay for tolls, gasoline, fleet maintenance, and other costs – and it can still take five days to get your goods to the coast if you want to export.

The other traffic may, in some ways, be even more important. This is the labor that flows in the opposite direction, from west to east, promoting the only economic equality a country can ever achieve – equality of per capita income, not of GDP. A coastal city that produces more GDP and boasts higher productivity and wages will attract more people to share in its prosperity until marginal productivity decreases. As some people migrate to the coast, fewer people will share the interior regions’ resources, causing their per capita income to increase.

This is why mobility is so important to achieving greater social equality. Most developed countries underwent great domestic migrations as they modernized, with 80% of their populations eventually re-allocated to coastal regions. China is experiencing this process now. If China’s authorities continue to encourage domestic migration, the problem of regional disparities will eventually be solved.

The same could be said of the global North-South disparity. Some people used to argue that as long as one factor of production – i.e., capital – could move freely, the world could be equalized. But I believe that other factors are also essential One-factor mobility may work well in a theoretical model, but in the dynamic real world, if the income gap cannot be narrowed rapidly enough, conditions that serve to enlarge the gap – such as unfavorable geography – may come to dominate. This will sustain, if not deepen, global disparities, especially given northern countries’ unwillingness to allow free international migration.

The good news for China now is that the new national Five-Year Plan for 2010-2015 calls for the government not only to encourage domestic migration between regions, but also to improve the conditions for rural people to move and settle in the cities. The infamous Hukou system (the resident registration system that restricts migration) may not be abolished overnight, but will be phased out step by step.

Of course, migration and urbanization will produce social problems and conflict. But these have occurred in every country at China’s current stage of development, and China, too must go through it. Otherwise, the country will remain divided forever.

Fan Gang is Professor of Economics at Beijing University and the Chinese Academy of Social Sciences, Director of China’s National Economic Research Institute, Secretary-General of the China Reform Foundation, and a member of the Monetary Policy Committee of the People’s Bank of China.

Copyright: Project Syndicate, 2010.www.project-syndicate.orgFor a podcast of this commentary in English, please use this link:

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