A tale of China’s convergence

A tale of China’s convergence

The World Development Report 2009, an annual publication by the World Bank, focuses on the effect that economic geography of places has on development. The argument is that “place" is the most important correlate of a person’s welfare. “In the next few decades, a person born in the United States will earn a hundred times more than a Zambian, and live three decades longer."

It sounds a bit tautological, for one would have assumed that this is what development is all about, and perhaps it is a bit late in the life of the World Bank to discover disparities in development that are a function of spatial location.

The interesting part of the report, however, is the way in which the World Bank attempts to lay out approaches to deal with these inherent problems. It argues that governments generally cannot simultaneously foster economic production and spread it out smoothly. Rising concentration of economic production leads to an eventual convergence of living standards, though the inherent attributes of the fast growing regions make it more difficult for the places left behind to catch up. The report argues that it is the duty of public policy to find “the most realistic way to harness the immediate benefits from concentration to achieve the long-term benefits of convergence".

It then goes on to identify how development convergence occurs. As development proceeds, rural-urban gaps in essential consumption diminish quite rapidly as consumption patterns converge. At the next level, demands for services such as health, education, drinking water, sanitation, electricity and similar services converge. However, gaps in wages and income remain, and take a long time to achieve convergence.

At a very broad level, these parables and anecdotes appear to be wise and to point the direction for policy. At a practical level, however, the real problem is that incomes do not converge and remain disparate—between rural and urban areas, between developed and less developed nations, and between economically active and dormant regions. Eventual convergence is no panacea; for in the interregnum, rural-urban migration will continue, as will pressures on urban infrastructure. If solutions to ensure convergence of economic development were simple, India and China would have achieved inclusive growth several decades ago. However, the lessons have not been lost on these two countries, and the National Rural Employment Guarantee Act in India and the infrastructure initiatives in China’s western parts are intended to accelerate what the World Bank calls “convergence".

One of the major initiatives that the government of China in pursuing this objective is the expansion of the railway network. The nation is currently only able to satisfy around 35% of applications for freight transport, according to Wang Fang, China transport coordinator for the Asian Development Bank. China’s railway network is already one of the most extensive in the world, but it has come under pressure as the nation’s economy has boomed, giving many of the country’s 1.3 billion people more opportunity to travel. Chinese New Year is a perfect illustration of the bottlenecks that grip the country’s railways when scenes of havoc take hold at stations throughout the nation. The present plan is to double the existing network in a decade, an enterprise that would involve construction of around 60,000km of modern track.

Of particular interest to India is the activity that is happening immediately to the north of our borders. The link to Lhasa is already a reality, and has opened up Tibet to tourists, businessmen, and traders from the northern parts of China. Students from Tibet are able to study in Beijing and other universities, and products can move north with ease. The link from Chengdu to Kunming is already providing access to southern trade, including products from Thailand and Myanmar. China has expressed readiness to bring the rail link up to Nathu La in Sikkim, if the Indian side is prepared to provide the link from Nathu La to Kolkata port. On the western side, China is pushing forward to link its railways with the Central Asian countries.

The major strategy is for trade—to open up these interior regions, to provide access for goods and services to move from other parts of the country, and to create employment in these regions. At the same time, there is a strategic objective as well: to find access to the sea towards the Arabian Sea as well as the Bay of Bengal, and thus reduce the long haul of its traded goods from the South China Seas. There are other strategic advantages for China as well, but a discussion of those will not fit this narrative. The point to note is that there is a strategy to improve infrastructure to reduce migration in search of employment, to provide access, and in short, to make the prosperity of the eastern regions of the country available to the western and northern regions.

Perhaps this could be a pointer for us. It is easier to do this in India, since infrastructure linkages are better: We could just focus on the other services such as health, education, sanitation and water in the rural and urbanizing areas, and achieve the same goal. Perhaps this is the lesson we can take away from the World Development Report 2009.

S. Narayan is a former finance secretary and economic adviser to the prime minister. We welcome your comments at policytrack@livemint.com