Developing the coastal regions for so long during the Mao period has left a huge disparity between the economies of the interior and the coast. The gap is so large that even though the interior in some areas is growing at the same rate as the coastal regions, the absolute gap only grows larger because of the disparity of their starting points.

While the six and seven five-year plans were based on the system that economic development would diffuse into the center from the coastal regions, this was not a good idea in the long run and did not work out. This plan was laid out it what’s called the “latter step theory” which though that the interior could absorb what was going on in more developed areas. This had not worked because the infrastructure was not there in the interior to even transferring these new technologies.

Even after this was seen not working, in 1988 under Deng Xioping, they used the “modification of regional development policy,” which continued again with the diffusion policies of the past. The only good thing that came out of this time period was the eighth five-year plan, which helped to focus more on industries instead of just building up regions. Price reforms also came along with this plan. He also started the Yangtze River Valley Development Program, which was intended to integrate China’s interior and coastal regions, but ended up not working.

Only when Jiang Zemin came into power did the serious problems of the growing disparities between coastal and interior areas become a major issue. This situation brought about the ninth five-year plan, which discussed the growing disparities and called for three-component solution. First, larger investments would go towards the building up of the interior. Second, continued support for underdeveloped areas, and encourage coastal cities to transfer resource intensive and labor-intensive industries to move their locations. This plan emphasized to investors the abundance of natural resources, and the amount of labor available in the interior. While this was a good plan, there ended up being many problems complete this.

Budget deficits have grown and were being taken care of by excessive money creation and borrowing which led to increased inflation and debt to foreign nations. Even though a fiscal contracting system was being used during the 1980’s it put pressure on the central government’s budget. This increased inflation gave reason to reshape the fiscal foundations of China. This was needed if China wanted to continue the same growth pattern.

In order to start fixing problems there needed to be better interaction between the center and the local people. Public interest needed to be put in front of specific interests of individual provinces. There would also be a new system for collecting taxes. Instead of the contracting system they would be moving to a tax assignment system, which created separate local and central taxation systems.

Rural enterprise development was also very important to fixing regional policies. This would help with moving overseas investment to the interior and pushing coastal provinces to help out poorer interior provinces. There are they key components of the program. First, new credit policy was put into place so that more money in loans could be given to rural areas. Second, better tax incentives were given to industries in the interior to spark production. Third, there would be a transfer of labor-intensive industries to the interior. Many of these advantages and investment vehicles would be phased out by 1995 when business has reached a solid point.

Even though many changes have been incorporated into policy reform, deficit remains a problem for the central government and has prevented a major shift in regional development. Overseas investments need to be increased in the interior in order to close the inequitable distribution of wealth, and growth needs to increase ten fold in the interior to compare to the coastal regions.