Intangible Capital Distribution in China

Our main argument in this paper is that conventional growth convergence analysis in China is incomplete without considering intangible investment. We first document the unbalanced investment of intangible capital across Chinese regions. A few mega cities invest heavily in intangible capital, while the majority of regions have below-average investment levels. In addition, long-term convergence clusters is an important feature of intangible capital distribution: High levels of investment tend to be persistently concentrated in the few coastal regions while investment in poorer regions is projected to be low, leading to a long- run distribution with probability mass located at levels much lower than the national average. External shocks such as the global financial crisis can exert an adverse effect: The level to which most regions converge based on the post-crisis transition dynamics is lower than that based on the pre-crisis dynamics. Finally, we document that poorer regions have less difficulty in converging to the average level of their neighbouring regions, suggesting that knowledge spill-overs is an important mechanism that help mitigate the level of unbalance in the context of intangible economy.