# **1. INTRODUCTION**

The Chinese economy has grown rapidly since the reforms in 1978 at the expense of a widening development gap between the coastal and inland regions (see for example, Chen and Fleisher, 1996; Kanbur and Zhang, 1999; Lee, 2000; Kim and Knaap, 2001; Hu, 2002; Wu, 2002; Luo, 2003).<sup>1</sup> Built on the advantageous geographic positions, the gradual open-door policies have contributed to the rapid take-off of the coastal provinces (Gao, 2004; Fu, 2004; Zhang, 2001; Jones, Li and Owen, 2003; Fujita and Hu, 2001; Wen, 2004). For example, in 2003, 25 years after the reforms, the coastal provinces had around 85% of total Foreign Direct Investment (FDI), and more than 90% of total foreign trade of China.<sup>2</sup> We argue that the selective policy inclination and the gradual extension of the open-door policies biased growth in favor of the coastal areas beyond the natural advantages this region already had (Léon, 1998; Démurger, 2001; Luo, 2001).

Many empirical studies and theoretical models have tried to retrace the trajectories of urban concentration during the major stages of development (see for example, Williamson, 1965; Wheaton and Shishido, 1981; Mac Kellar and Vining, 1985; Henderson, 2000). To our knowledge, few studies examine the spatial disparities and the polarization/dispersion forces at the different stages of development in China. In the context of developing countries, three great stages are worthy of consideration: the 1<sup>st</sup> stage, pre-industrial, which is characterized by a low income per capita and a weak urban concentration; the 2<sup>nd</sup> stage, where the economic take-off and the industrialization process push the urban concentration and the polarization of activities; the 3<sup>rd</sup> stage, where, with a concentration of the technological industries and a diffusion of the labor intensive industries, the widening of the regional inequalities and the concentration of activities in urban areas decelerate and then decrease when the GDP per capita approaches the threshold level of $5000 (constant 1985).<sup>3</sup> China is a good candidate for a country case study that examines the spatial disparities of economic concentration in different stages of development using a geographic approach. On the one hand, openness may reinforce polarization, which characterizes the 2<sup>nd</sup> stage of development; while on the other hand, the progressive transition of the coastal region to the 3<sup>rd</sup> stage may lead to a relative diffusion of the labor intensive activities.

This paper presents an early attempt to offer empirical support on (i) how concentrated the economic activities are in China; (ii) what factors determine the economic concentration, and (iii) whether the concentration differs in the coastal and inland regions. We test two hypotheses in different stages of development with regard to both China as a country and the coastal provinces as a region: first, whether the openness has reinforced a polarization process that characterized the

> 1 In general, according to the criterion of geographic position, we classify Chinese provinces into three categories: coastal, central, and west. According to the regional classification of the "Statistics of China's Fixed Assets and Investment 1950-1985, _"_ the coastal region includes Liaoning, Hebei, Beijing, Tianjin,  Shandong, Jiangsu, Shanghai, Zhejiang, Fujian, Guangdong, Hainan; the central region includes Heilongjiang, Jilin, Nei Mongol, Shanxi, Henan, Anhui, Hubei, Hunan, Jiangxi; the western region includes Guangxi, Shaanxi, Gansu, Ningxia, Qinghai, Xinjiang, Chongqing, Sichuan, Yunnan, Guizhou, Xizang. The central region and the western region are considered as the inland regions. See annex 1 for more details.

> 2 Data source: China Statistical Yearbook, 2004.

> 3 See Catin and Van Huffel (2003).

2