China's Regional Disparity and Its Policy Responses

The fruits of China's rapid economic development over the 3 decades have not been distributed fairly across different regions. Using data from a sample of 815 Chinese listed firms during 1998—2004, our error‐correction investment model showes evidence of different financial constraints on firms' investment in different regions. We argue that China's regional development policies have contributed greatly to the regional inequalities. To control the rising inequality, China has shifted its focus from the coast to the interior regions. However, it is becoming increasingly difficult for the government to direct the economy, as market mechanisms now have a far greater influence on the economy than the government does. The people‐centered approach of the current leadership has meant that substantial attention has been placed on regional development disparities in an attempt to build a “harmonious society.” China needs further extensive reforms if all the measures for reducing regional disparity are to be effective.