Visitors to China are always impressed by its dynamism and growth. But there is another China, that of the hinterland, where the picture is very different. Poverty and underdevelopment characterize half of China's huge land mass and a fifth of all its people. Growing anger in China's poverty belt has resulted in thousands going on strike. Fearful of instability, Beijing is trying to lure foreign and domestic businesses into the interior to provide jobs and boost economic growth. But there is one major obstacle: corruption. Unless Beijing can curb corruption by local government officials, attempts at developing its poverty-stricken west will come to nothing.
So far, China has relied on massive campaigns to redress the imbalances between the prosperous east and the poor west. Huge public works programs--roads, railroads, and dams--are being built to make the provinces more accessible and hospitable to commerce. The problem with this approach is that it funnels most of the central government's funding through local bureaucrats--the very same corrupt officials poor farmers are protesting against. Local officials have stolen huge sums that were supposed to go directly to the people, illegally pushed families out of their homes to make way for roads and dams, and forced foreign investors to choose cronies rather than competing local companies as business partners.
China should consider changing tactics. Microloans directly to peasants and merchants would stimulate economic growth far more than huge infrastructure projects. And enforcing the rule of law in remote provinces would curb the corrupting influence of local government officials. It would also allow markets to begin to work in the hinterland.