Since China started economy reforming in 1978, with Den Xiaoping’s idea which is open China costal line to the world and make a group people get rich at first. With that idea, the cheaper labor force and policy help have successfully attracted foreign and national investor start invest in the Chinese market. Thus, China has achieved significant improvement in the economy until now. However, because the policy decision is focused on the costal cities, the inequality for the governor help has happened. Shanghai, Guangzhou, Shenzhen those kind of costal cities got most investment from government in education, social infrastructure and also for the technology, as the result, most mordant cities are on the costal. The urbanization building needs large number of labor to support the development, according to that people who live in inland of China have an incentive to immigrant to the urban area to see both of the better living and working opportunities. The inequality development has occurred since there has different in government helping and population lost.
First, the gap of education between in developed cities and developing cities. “Education has contributed to economic growth in China” (Qian, Smyth 2007). Education is one of the most important part for the economy growth, “high education has at three potential channels through which to affect economic growth: he accumulation of production skills and capabilities; the generation of new knowledge through innovation; and enabling quicker adoption of existing cutting-edge technology.”(Holmes, Craig 2013). To explain the importance of the education level affects the economic growth. We can throw all the models. First, we can through the Solow’s growth model with technology to see that, because of the diminishing returns to the scale,when we add investment in capital stock and with the population increases, “investment becomes increasingly used to maintain capital stock per worker, and less is used to increase stock. Eventually, the economy reaches a steady state where all investment is used to maintain the existing level of capital per worker” (Holmes, Craig 2013), because the investment in only can keep the output per worker in the steady state, in the long-run in does not effect the economy grows; however, in short-run, invest in human capital will leads steady state point move to a new point. For example, if the labor force has low educated level in the initial, it means work with has low productivity in the initial, until the new worker with higher technique to the market and replace the old worker, the output per worker will improve to a new level. Second, in Romer’s growth model, we can see the investment in R;D will increase the economy in the long-run, because increasing in R;D is expected to result in increasing in knowledge. “Higher education obviously plays a key role in ensuring there are sufficient workers in the economy with the ability to carry out R&D.”(Holmes, Craig 2013). University as an important role in the economy, the number of high level education institutions in one area will easily get increasing in innovation stocks to increase the number of skilled workers and get local economic growth. In nowadays China, most universities are situated in Beijing or costal provinces. The statistic from Ifeng news in 2017, as the image shows, the darker area means with a larger number of universities that are having. There are 486 universities allocated in costal area such as Shanghai, Zhejiang, Jiangsu those kind of provinces which occupied almost 20 percent of the total amount of universities in China. Inequality of knowledge institutions allocation is the one of the reasons that have the gap between the southern area and the western area. Not only the difference in the number of universities, but also the average year of schooling for the residence will impact the level of economic growth in one area. In Qian and Smyth’s research, they found out the income level has a positive relationship with people’s schooling years. The difference of average schooling between inland and costal area has directly affected people’s income level. The income level will change people’s consumption levels, that is the factor makes the difference between inland and costal area. As the table shows, both inland and costal area’s average shows a increase trend between the 1990-2000, but costal area is always has a higher number of average of schooling than inland areas, that the other reason for education cause the inequality economy growth in China.
Secondly, the inequality of the population allocation also makes the inequality in an area’s economy grows. Costal cities’ advantage attracts people live in the inland area. People are not only seeking the higher education levels, but also seeking for the better work opportunities. For instance, the most famous internet companies in China, such as Alibaba, Tencent, Baidu are all located south of China. Those companies can support better condition for their employers than most companies in inland area, as “CHINADAILY” posted the “top 10 Chinese cities with highest average monthly salary”, those 10 cities eliminate Beijing, rest of 9 cities are all in the south of China, beside the costal line. High wages attract more labors to serve in the south. According to all the reason that the southern area attracting people move to south, the population has been increased after starting the economic reform, it means in the south area has enough labor force to support the market. As the Solow’s growth model present, the long-run growth is gy = gk = n + ?, where n is population growth and ? is the technology growth, since people move to south area, and get well educated, thus, costal cities can get easily improvement in economy contrast to the inland cities. The difference in wages also makes the income inequality between north and south of China.