Chinese “wealth clusters” show how good it is when the government stays out of things

Hangzhou rises.
Hangzhou rises.
Image: Reuters/Stringer
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The Chinese government takes great credit for starting the economic reforms in 1978 that brought China out of the darkness of the Mao era. But the most important thing it really did was get out of the way, suggests a new study from Xi’an Jiaotong-Liverpool University.

Using evidence from industrial census data, the study shows that historically wealthier regions, once under less government control and back in charge of their own business (or some of it), soon achieved relative prosperity once again (pdf). Light-industry clusters formed along the eastern coast, taking advantage of its maritime harbors and historical fluvial ports—including those of the Grand Canal connecting Beijing and Hangzhou. They began producing and trading, reviving old networks within China and abroad. Hangzhou blossomed into an innovative technology center. Today it’s home to Alibaba, the e-commerce giant.

“China’s growth resurgence, at least in the 1980s and 1990s, is more about the flourishing of long-suppressed indigenous entrepreneurial traditions than the success of top-down development programs,” notes Andrew Batson, China research director at Gavekal Dragonomics.

The study notes that “access to sea ports stimulates industrial concentration but agricultural legacy has the opposite effect,” confirming finds in other countries. And light industrialization—which in post-reform China tends to be private—creates “larger and stronger” clusters. The researchers conclude that the synergy effect of more trade and urbanization “is stronger where the local conditions are favorable to clusters.”

If only China’s laissez-faire attitude toward such clusters were applied to its politics.