Trade-cum-FDI, Human Capital Inequality and the Dual Economy in China

Abstract

Increasing income inequalities between the coastal and the inland regions in China is a topic that has attracted considerable concern in recent years. Received explanations include preferential government policies in the coastal regions, favourable geographical location and superior infrastructure facilities in the coastal regions. This chapter explores the causes of regional disparity in the light of the celebrated Singer Hypotheses. The analysis of increasing inequalities between the coastal and the inland regions in China can be anchored in Singer’s hypotheses of dualism for several reasons. First, several features of China’s foreign trade and FDI are of the trade-cum-FDI type that Singer (1950, 1975) analyses. Second, the economic relationship between the coastal and the inland regions of China is of the classic centre-periphery type that Singer expounds in the context of developing and developed countries.

The investing countries are seats of the multinational corporations, the homes of a modern autonomous appropriate technology, and are economically integrated societies. [They] tend to be the chief gainer from any kind of relationship, whether the trade or investment or transfer of technology involves primary commodities or manufactured goods.

Foreign investment and the export sector (in the developing countries of the trade-cum-investment type) might be ‘enclaves’ or ‘outposts’ of the investing country The interaction between the enclave and the rest of the economy is of such a kind as to lead to polarization (or sharpened dualism) within the economies of the borrowing country.

(Singer, 1975)