Regional Discrimination in China

Provincial Regionalism, Discrimination, and Inequality between Henan, Guangdong, Beijing, and Shanghai

Department of Political Science at Georgia State University • April 2020

After the rise of Deng Xiaoping in 1978 as the de facto leader of the Chinese Communist Party, China entered what is conventionally described as a period of sweeping economic reform. In global discourse, particularly in the Western world, these transformations were interpreted as a decisive break from Maoist stagnation, as the gradual introduction of market mechanisms would produce prosperity, efficiency, and modernization. In material terms, there was evidence to support this: China experienced economic expansion, with an annual GDP growth average around 9 percent, alongside rapid industrialization, including in regions that had previously been relatively underdeveloped. However, these developments were inextricable from the institutional changes that made them possible. The decentralization of state authority, the dismantling of collective agriculture, and the partial privatization of state-owned enterprises did not simply “liberalize” the economy. They reconfigured the structures through which economic and social life were organized, redistributing power to local actors and embedding competitive, market-oriented logics across regions. These very mechanisms of growth (decentralization and privatization) exacerbated regional inequalities, revealing that the promise of prosperity was, in reality, a fracturing force.

Economic disparities between regions in China became significantly more pronounced after Deng’s reforms, particularly through policies aimed at decentralizing government and decollectivizing agriculture. While these reforms spurred rapid economic growth, they also intensified preexisting political, economic, and structural divides between rural and urban populations. The introduction of Special Economic Zones (SEZs) further amplified these disparities. Though intended to attract foreign investment and expand trade, they ultimately concentrated capital, infrastructure, and opportunity within a limited number of regions, producing a highly uneven geography of development. This investigation will focus in particular on the SEZs of Shenzhen, Hong Kong, Shantou, and Shanghai, as well as the broader provinces of Guangdong, Fujian, Guangxi, Henan, and Beijing. The differences between these regions cannot be understood in purely economic terms, but rather through a more complex intersection of factors, such as variations in state authority, linguistic diversity, historical positioning, and social structure.

Since the implementation of Deng Xiaoping’s reforms, income inequality has grown immensely in China. Before 1978, income inequality as measured through the GINI coefficient was at a mere 0.16, reflecting a relatively egalitarian distribution of wealth. However, between 1980 and 2002, this figure rose from 0.3 to 0.55, a shift that, according to the IMF, has “rendered China among the most unequal countries in the world.” Income inequality between regions, most notably between coastal and inland regions, has only grown due to the rapid industrialization of South China, as well as “differences in education and the skill premium” and “structural factors such as urbanization and population aging.” This rise in inequality has been particularly pronounced between coastal and inland regions, where the rapid industrialization of southern coastal areas has outpaced development elsewhere.

At the time of these reforms, China’s economy remained largely agrarian, making the decollectivization of agriculture a central component of the broader shift toward a market-oriented system. This initiative set to divide once-communal control of farmland, and in its place, instituted a “reorganization of the internal management system of the communes through the introduction of the contract system.” Essentially, control of the land was handed over to individual farmers, who were required to give a portion of their crops to the government in exchange for their newfound autonomy. These decollectivization reforms led to a notable 25 percent increase in agricultural production, along with a sharp rise in farmers’ incomes, in part due to “increased [state] procurement prices.” However, the policy also exacerbated divisions within the rural and working classes. While it increased individual wealth for a select few, it politically disenfranchised the peasantry, undermining their collective power. Some analysts argue that this move was crucial to China’s transition to capitalism, as it “disempowered the peasantry” and reduced resistance to further reforms. Through temporary income increase and fragmentation of collective economic interests, the CCP was able to gain the peasantry’s support for further future reforms and effectively eliminate “one big threat to the further transition to capitalism.”

In China’s shift toward capitalism, the decentralization of government was another crucial move by the CCP, shaping both economic outcomes and the structure of state power. On the surface, decentralization might seem to imply a weakening of central authority, with local governments gaining more control over economic and administrative decisions. Yet the reality is far more complex. As Cai & Treisman (2006) emphasize, the powers “lost” by Beijing were not necessarily gained by local governments. The increasing complexity of China’s economy and society, driven by rapid modernization, made it harder for any level of government to maintain comprehensive oversight and control. Decentralization, effectively, did not just redistribute power: it disseminated it in a way that made governance more fragmented, creating a system where the state’s ability to manage and direct its own transformation became increasingly tenuous.

The directive did, however, grant greater powers to local governance, especially in economic decision-making. Local authorities were encouraged to “experiment” with new approaches to governance, fiscal policy, and structural reforms, fostering “healthy competition among cities” and encouraging “local innovation in the provision of public goods.” The emphasis on local government came with the implementation of Special Economic Zones, initially in Guangdong and Fujian, “to exploit their proximity to Hong Kong and Taiwan.” These zones lined the coast, particularly in southeastern coastal provinces like Guangdong, Fujian, and Guangxi. These particular regions were able to take advantage of the Open-Door policy (1978) that emphasized the importance of Chinese markets’ participation in the global economy and attracting foreign investment.

The Special Economic Zones (SEZs) were granted a range of privileges to specifically attract foreign direct investment (FDI). These included greater autonomy in political and economic decision-making, lower tax rates, and the ability to engage in “joint-venture contracts with foreign companies freely.” This special status allowed these zones to serve as testing grounds for market-driven policies. Over time, the entire country “gradually opened up to foreign investments and trade, starting from coastal provinces and gradually expanding to the central and the west.”

Another major disparity between North and South China is the linguistic one. In the south, particularly in Guangdong (Guangzhou), Hong Kong, and Macau, Cantonese (Yue) is spoken by the majority of residents, as well as other minority dialects like Wu, Xiang, Gan, Hakka, and Min, while in the north, particularly in Beijing, Hubei, Henan, and Shandong, Mandarin is the dominant dialect, spoken amongst “a mostly monoethnic population (92% Han vs. 8% of 55 other ethnicities).” This greatly hinders the ability to communicate between regions, since each dialect, particularly Cantonese and Mandarin, is nearly unintelligible to the other. In turn, linguistic north-south regionalism and categorization “may be explained by...the great variation in local dialects and accents which serve as the most easily recognized stigma of the people.” This divide reinforces historical stereotypes and regional tensions, which have deep roots in dynastic-era differences and are further intensified by the rapid industrialization and commercialization that accompanied China’s post-1978 reforms.

Linguistic divides in China are often accompanied by deep social divides, many of which are rooted in the structural nature of the government and institutions like the hukou system. The hukou is a residency (or household) registration system, under which residents and families are classified as “rural” or “urban.” It is a “dualistic socioeconomic structure” under which “some 700-800 million people are in effect treated as second-class citizens.” Those with a "rural" hukou face significant restrictions, including being unable to legally settle in cities and lacking access to basic welfare and state-provided services available to urban residents. Before the reforms of 1978 and the subsequent wave of industrialization, most residents in southern and central China, particularly those outside of cities, held “rural” classifications. This made it very difficult for interstate travel and migration, which gradually opened up after 1978.

Despite the loosening of migration policies after the reforms, rural workers who move to cities still face significant obstacles in obtaining new residency classifications, access to welfare, education, and employment opportunities. Rural migrant labour (nongmingong) specifically “...refers to industrial and service workers with rural hukou,” and they are not considered officially to be urban workers. As a result, this creates material social divisions within provinces (i.e., Guangdong) with high commercial output and large migrant labor forces. These divisions not only separate ‘rural-to-urban’ populations within these regions but also set them apart from the rest of the country. The hukou system intensifies regionalism in China by compounding “the lack of redistribution within China’s fiscal system.” Commercial, prosperous localities are prioritized by Beijing because of their “large amounts of fiscal revenue,” and “poor areas are left behind.”

Beyond linguistic and economic disparities, China’s geography has also played a critical role in shaping regional inequality. The decentralization of government, while granting local authorities greater autonomy, interacted with natural topographic features to further intensify economic divides between provinces. The primary boundary between northern and southern China is delineated by the Qinling–Huaihe Line, which follows the Qinling Mountains, the Huai River, and the Yangtze River. These natural topographical limits, particularly the mountainous terrain, make it more physically difficult for inland provinces to reach trade at the coast quickly and to develop efficient transportation networks over such rugged landscapes. As a result, these geographic features have "sliced the country in two economically." Western and inland provinces face higher transportation costs due to their distance from the coast and the challenging topography, leaving them at a distinct disadvantage in terms of trade and economic development.

Geographic and topographic divides only magnified distance and disparity between inland and coastal provinces, creating “certain adverse effects on [economic] growth.” The inland provinces, cut off from the coastline, faced immense barriers in participating in the global market, especially Guangdong and Beijing. The Open-Door Policy, which sought to exploit the geographical advantages of the coastal provinces to attract foreign investment, exacerbated these divisions. It created a situation where industrialization and infrastructure flourished along the coast, while inland areas, with their rugged terrain and distance from trade routes, were left behind.

In recent decades, the Chinese government launched several initiatives aimed at alleviating regional inequality and addressing concerns over social and political instability “...as a result of economic polarization.” One notable effort was the Western Development Program (xibu da kaifa; WDP) of 1999. This program aligned with Deng Xiaoping’s proposal to reform and develop the nation in stages, “first on the coast and then in the interior.” After nearly two decades of rapid development along the coast and in the eastern provinces, the government turned its attention to the west, signaling a “change in China's regional development strategy,” initiating the WDP as a way to narrow the growing disparities. The WDP set out to improve the infrastructure and industrial production capabilities of western provinces, implementing “preferential policies for foreign investment and significant increases in fiscal transfers to western regions.”

As a result, “the income gap between coastal and western regions has decreased since the mid-2000s.” But this shift is not merely an economic balancing act; it is a response to a profound structural imbalance that emerged in the 1990s, when the southern and eastern provinces of China saw expansive growth, fueled by international trade and investment. This rapid development along the coast generated vast wealth but also magnified the disparities between the prosperous regions and the underdeveloped inland areas. Due to these profound gaps in industrialization and economic prosperity between southern coastal provinces and western inland provinces, the WDP “implemented strategic programs...and announced new incentives to attract investment to the central and western regions.”

In 2008, about a decade after the WDP was first introduced, the government continued to set new initiatives for the development of the western and central regions. From 2000 to 2008, following the implementation of the WDP, China’s western region’s collective GDP grew by an average of 11.7 percent annually. However, the program and continued policies of the CCP are not without their own shortcomings; from 1999 to 2009, “high-volume growth in western China was limited to just three major cities: Chengdu, Sichuan; Chongqing; and Xi’an,” and overall average incomes in the western and central regions were below the national average.

The integration of capitalism and commercialism in China has exacerbated regional tensions, intensifying the very divides it purports to address. The economic disparities between provinces remain glaring, particularly the chasm between rural and urban areas. Initiatives like the Western Development Program (WDP) were designed to bridge these gaps, but the decentralized nature of governance often undermines their effectiveness. The problem lies in the way local governments, with their patchwork of authorities and varying levels of autonomy, can mismanage or distort the implementation of such programs. This makes it difficult to assess whether these initiatives are truly achieving their intended goals. The real question, then, is not just whether China can manage these growing divides, but whether it can ever reconcile the promises of progress with the entrenched reality of inequality.