Western China grew by an unprecedented 12 percent last year, 2.1 percentage points higher than the national average, but the wealth gap between western and eastern China shows no sign of narrowing, according to a new report.

The Economic Development Report on Western China jointly released in Beijing on Sunday by the Chinese Academy of Social Sciences and Northwestern University said that, in 2005, per capita disposable income of urban dwellers in western China was 66.7 percent of the figure for east China. That is three percentage points lower than the 69.7 percent figure recorded in 2004.

Rural residents saw their ratio fall 3.8 percentage points from 48 percent to 44.2 percent.

General secretary Chen Yao with the China Regional Economy Society(CRES) said that the wealth gap might expand further if China failed to level the competitive playing field by improving public facilities and the business environment in the west.

An example in case is the reserves ratio system. The central bank applies a uniform reserves ratio to all commercial banks regardless of regional differences. As a result, developed eastern areas enjoy higher returns on investment and have an advantage in attracting capital, he said.This in turn aggravates the shortage of capital in western areas.

CRES Vice President Chen Dongsheng said that central transfer payments, which central government offers to foster a national fiscal balance and promote the development of poorer regions, had not been effectively used.

About 78 percent of last year's 762 billion yuan of central transfer payments were used as subsidies and only 22 percent was invested, said the report.

To remedy the situation, Chen suggested setting up a special development fund for western areas together with regulations to ensure the legitimate and effective use of the funds.

He Liancheng with Northwestern University said that western China must accelerate local economic reforms to attract more private capital and enliven the stagnant state-owned economy.

In 2005, western China generated a total of 3.37 trillion yuan in gross domestic output, up 12 percent over 2004, much higher than the national average of 9.9 percent. Western China covers 12 provinces, municipalities and autonomous regions and has a population of 364 million, 28.6 percent of the country's total.

Source: Xinhua