Is China Disintegrating? The Magnitude of Chinese Provinces' Domestic and International Integration

In this paper, we apply the “border effects” method to study the impact of the economic reforms launched in China at the end of the 1970s in terms of international trade openness and domestic market integration, two of the main objectives of the reforms package. We rely on a new set of provincial trade flows to develop a model that analyzes and compares the magnitude and evolution of Chinese provinces' engagement in domestic and international trade by computing all-inclusive indicators of trade barriers. Our results underline the increasing international trade intensity of Chinese provinces between 1987 and 1997. Despite trade liberalization policies, barriers impeding international trade remain however extremely high. We find that Chinese provinces' greater involvement in international trade went together with a decrease in domestic trade flows intensity. Even if Chinese provinces still rely more on goods from the rest of China than on international imports, provincial borders appear to matter more and more inside the country in the sense that they imply greater discontinuities in the Chinese domestic market.This evolution underlines the failure of reforms to promote domestic integration and the growing division of Chinese domestic market into cellular sub-markets.