Bhajan S. Grewal & Abdullahi D. Ahmed

Centre for Strategic Economic Studies, Victoria University, Melbourne, Australia
Abstract 
China’s central government implemented in 2000 the western region development strategy (the strategy hereinafter) with the aim of boosting economic development in 12 provinces, municipalities and autonomous administrative regions in the western part of the country.  The western region is home to approximately 23 percent of China’s population and contains more than half of the nation’s natural resources, but had fallen behind the coastal region in respect of levels of incomes, employment opportunities and social outcomes. Rising regional disparities in China had become a source of concern for the government due to their worrying economic and social consequences. The tenure of the Strategy was initially set at 10 years and in 2010, the government will need to decide whether to renew or end the Strategy. The aim of this paper is twofold: to undertake an assessment of the Strategy and to suggest a more effective composition of regional policies for the future. After analysing the official data for all of China’s provinces, municipalities and autonomous regions from 1994 to 2004, we conclude, in the first part of the paper, that the stated objectives of the western regional strategy have not been met. In the second part of the paper we develop a regional growth model to determine major drivers of regional economic growth in China. Further, the sources of regional disparities are examined using Morduch and Sicular’s (2002) regression-based decomposition approach. The results of these models are used for suggesting a more targeted package of regional development policies for the period beyond 2010.