China to Reconfigure Economic Activity to Aid Sustainable Development

The State Council notice has followed more than six months of preparatory work involving more than a dozen government agencies. Preparation for the reclassification of state land has been underway since the initiative was written into China's 11th five-year economic and social development plan, unveiled in 2006, which sets the goal for sustainable development through better resource conservation and environmental protection. The recent State Council notice has laid out the guiding principles for this endeavour. Draft plans for the nationwide reclassification will be completed in September this year, and will be submitted to the State Council for review by December.

Four "Functional Areas"

The basic idea of the initiative is to classify China's territory into four "functional areas", based on the carrying capacity of local resources and the environment, as well as the intensity of existing economic activities and future development potential. Based on this, the intensity of future economic activities will be regulated by the central government through various fiscal, investment, industrial, population and land policies, as well as through the adoption of different performance evaluation criteria for local governments.

The four types of areas are:

Areas for Optimised Development: These are defined as areas where economic activities are already quite intensive, and the carrying capacity of local resources and the environment has started deteriorating. Many areas in coastal regions may fall into this category.

Areas for Intensive Development: These are areas where the carrying capacity of resources and the environment is strong, and where large-scale conglomeration of economic activities and population can be well absorbed.

Areas for Restricted Development: These areas have very poor carrying capacity, with the local environment and resource endowment unable to support intensive development. These could also be areas which are vital to the country's overall ecological safety.

Areas Prohibited for Development: All nature reserves are listed under this category.

Although the government is yet to release an official classification of different areas, an earlier research report by the National Development and Research Commission revealed some probable candidate areas for optimised or intensive development. The optimised development areas will probably include the Yangtze River Delta, the Pearl River Delta, the Beijing-Tianjin-Hebei area, part of Shandong province and coastal Fujian province. Areas for intensive development are mostly located in central and western China, and include the Chengdu-Chongqing economic area, central Chinese cities along the Yangtze River, areas around Yunnan’s provincial capital Kunming, areas around Shaanxi’s provincial capital Xi'an, and areas around Xinjiang’s regional capital Urumqi.

New Policy Framework

Different combinations of government policies will apply to areas under different classifications, according to the State Council notice.

Fiscal policy: The Ministry of Finance will increase funding to restricted development areas and those prohibited from development.

Investment policy: Government investment in restricted/prohibited areas will focus on public services, ecological construction and environmental protection, while in intensive development areas it will focus on local infrastructure construction.

Industrial policy: Different industrial development catalogues will be drawn up for different areas. Areas for optimised development should focus on innovation and industrial structure upgrade, while intensive development areas should be encouraged to absorb industries migrating from other regions.

Land policy: Construction land supply in optimised development areas will be highly restricted, while that in intensive development areas will be expanded in a “proper” way. Land usage in restricted/prohibited areas will be strictly monitored.

Population policy: People will be encouraged to move into areas for intensive development, and those in restricted/prohibited areas will be encouraged to migrate to other places.

Environmental policy: Different levels of environmental policy will apply to different regions, with areas for optimised development facing much stricter pollutant discharge standards than areas for intensive development.

Local government performance evaluation: Performance evaluation in optimised development areas will emphasise energy efficiency and industrial structure optimisation and innovation, rather than economic growth. For intensive development areas, such criteria as economic growth rate, industrialisation and urbanisation levels will be stressed. Restricted areas will focus more on evaluating environmental protection and ecological construction, than on economic growth, industrialisation and urbanisation.

Outlook and Implications

The new initiative has been undertaken at a time when China is struggling to tackle complex and overwhelming development challenges in both its developed and less-developed regions. After three decades of rapid industrial development, China's coastal regions have become overcrowded and face a myriad of issues ranging from environmental degeneration to constricted land supply. In the meantime, the central regions and the north-east have seen their economic performance slipping, while the west has been trailing far behind throughout. In addition, competition among different regions for raw materials and market share has become increasingly intense, leading to heavy waste and inefficiencies.

To close the regional development gap, the central government has initiated three major regional development programmes—the Great Western Development Programme, the Rise of Central China Programme and the Programme to Rejuvenate the North-East. The new resource/environmental capacity-based classification, however, will further differentiate the regional grouping—implying finer regional variations in development strategies and policies. This in turn will generate a wave of movement in industrial activities and labourers across different areas, and this process may eventually alter China's economic map.

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