Intergovernmental Fiscal Reform, Financial Deepening, and Regional Disparity in China: A Missing Link*

It becomes apparent that growing disparity in China is highly associated with regional variation of productivity, and that productivity is significantly impacted by financial deepening process. After identifying and estimating the share of bank lending to non-state sector, this paper finds a significant variation in the level of financial deepening between regions. Then this paper examines why financial development process turns out to be divergent between coastal and inland regions. Such analysis places the issue of enlarging regional imbalance in China in a context specific to the weakness of re-centralization process of intergovernmental fiscal relations in 1994.