China Must Grow In Rural Areas

"The challenge for China lies in replicating the growth seen in its coastal towns in the country's rural areas," according to David Dollar, the Beijing-based Country Director and chief of mission for the World Bank in China.

'Most Chinese domestic migration is short distance, from the farm to the nearest town or city. But China needs to replicate the coastal dynamic in the rural areas,' he said. 'This will transform the economy from a base of low productivity in agriculture to high productivity in manufacturing and services,' Dollar added.

Rural to urban migration has been a dominant factor behind Chinese urban growth, but it's been mainly limited to coastal urban areas from inland, which were widely seen as centers of national development and benefited from preferential fiscal and administrative policies accordingly. Around 13 million people a year move to cities from rural communities with this steady flow of labor to develop areas feeding growth. And it's expected to continue, with the current urban to rural ratio of 40:60 seen translating to 60:40 within 10-15 years, he added.

'China has a very low level of urbanization. Inequality emerges because the country restricted migration before; the Chinese government has recognized it needs to facilitate it,' Dollar noted. With the obvious attraction of coastal wages twice as high as those in the countryside, there's often a much less business friendly environment away from the ports, he said. 'China has made good infrastructural investments, but this hasn't necessarily always created a business-friendly environment,' he added. Dollar said that China's coastal cities are 'already congested,' adding that the trend going forward will be for rural migrants to move to cities in the countryside. 'There are already more than 100 cities with a population of over one million,' he added. "¦ 'A good investment climate spurs a good environment to live and work and China's coastal cities combine these factors,' Dollar said. Foreign direct investment has played an important role in fuelling the economic growth of coastal cities. Dollar said China has become the world's largest recipient, getting around $60 billion a year. 'This is mostly due to the good investment climate, with a tax rate of 15 percent on foreign investment, compared to a tax of 33 percent on profits for domestic investors,' Dollar said. "¦" [Dow Jones/Factiva]

By World Bank