# **1. Introduction**

Between 1990 and 2005, China invested approximately US$600 billion, or US$40 billion per annum, to upgrade its road system. The centerpiece of this massive infrastructure program was the building of a 41,000 km National Expressway Network (NEN; World Bank 2007).<sup>1</sup> This highway network, which is second in length only to the US Interstate Highway System<sup>2</sup> , is designed to eventually connect all cities of more than 200,000 people and its construction has formed an important part of China's national development strategy. Along with trade facilitation, one of its goals, therefore, has been to promote the faster development of China's poorer inland regions, thereby assisting in their catch-up with more prosperous coastal areas.<sup>3</sup> This aim has come to be seen as increasingly pressing in Chinese policy discourse in light of wide, and growing, regional disparities. In 2007, the GDP per capita of China's richest prefectural-level region (Dongying City) exceeded that of its poorest (Hotan Prefecuture) by a factor of more than 24:1. To put this into perspective, this is roughly equal to the ratio of the United States' GDP per capita to that of Cameroon's.

In this paper, we present a short-run analysis of both the national and spatial economic impacts of China's NEN. We assess not only how this massive investment program has affected regional disparities, but also disparities between urban and rural areas, which are also a prominent concern in Chinese policy debates (Meng _et al_ . 2005; Ravallion and Chen 2007; Hering and Poncet 2010a). The rationale behind large-scale transport investments between leading and lagging regions is usually to encourage the de-concentration of economic activity. Improved infrastructure lowers transport costs and thereby promotes integration of the national market. This enables producers and consumers in remote areas to gain better access to prosperous urban markets and lower prices for inputs and goods. However, producers in leading areas also benefit from falling transport costs. As their market reach increases, they achieve even greater scale economies, lowering costs and increasing competitiveness. So, _a priori_ it is not entirely clear where the gains from infrastructure

> 1 Expansion of the network has since continued, with its current length standing at around 65,000 km (according to the National Bureau of Statistics, China).

> 2 For comparison, the total network length of the US Interstate Highway System is 75,000 km (http://www.fhwa.dot.gov/interstate/faq.htm#question3).

> 3 "In the light of the national development strategy, planning and building a national expressway network will facilitate the establishment of a unified market in the country, thus promoting commodities and various other resources to flow and compete freely around the country, which is of great importance in narrowing down the development gaps between different regions, increasing job opportunities and pushing the development of related industries. Based on a summary of the experiences of economic and social development in the developed countries, the national expressway network plan is an urgent need for the building of an all-round well-off society and for the realization of modernization..." (http://www.crcc.cn/536-1712-4102.aspx).

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