CIRJE-J-22. Zhong, Fei, "Decomposition of China's Regional Inequalities�\Empirical Findings and Policy Implications�\", April 2000.

Using per capita GDP for all the counties and cities for the year 1997, China's regional inequalities are decomposed into their intra-provincial/regional, inter-provincial/regional components. Regardless of the attributes used, inter-provincial/regional inequalities are by no means the dominant sources of overall inequalities, and thus there is no justification for ignoring intra-provincial/regional inequalities. If the investment in fixed assets is classified into sources of founds, there is no strong correlation can be found between GDP and the investment of state budgetary appropriation compared with other investments. Based on some time-series data and the fact that labor markets are still fragmented across provinces lines, it is safe to say that intra-provincial/regional inequalities will last for a long time.

From the findings of this article, an interesting policy implication can be drawn with respect to the development of the coastal, interior, and western provinces. If narrowing the gap among the provinces or regions is only achieved through investment in industrial projects of some special counties and cities, and if the issue of intra-provincial/regional is not properly addressed, the reduction of inequalities among the provinces/regions may not necessarily result in a substantial decrease in overall inequalities. Another policy implication sheds light on the importance for the local-governments to redistribute resources in order to reduce the intra-provincial/regional inequalities.