China's Golden Cities; Amid the greatest wave of urban migration in history, a few standouts are emerging.(Cover story)

Byline: David Dollar (Dollar is the World Bank country director in Beijing.)

The common assumption about China's boom is that its impact, good and bad, is concentrated in the coastal cities where economic reforms first began 25 years ago. One thinks of Shenzhen's blossoming from a fishing village into an industrial metropolis of 7 million people with a business climate that builds great wealth, but also may foster corruption and degradation of the environment. That's what many of us at the World Bank would have assumed, too, until we began surveying 12,400 firms in 120 Chinese cities. While we are only beginning to analyze the data, a number of patterns quickly emerge. Among the most striking is the fact that there is no link between fast growth and the breeding of corruption or pollution.

In general, China's transition to a market economy appears to be both more advanced and somewhat less damaging than we thought. Only 8 percent of the firms in this random sample of manufacturing are majority state-owned. Though they control one third of the assets in the sample, this still suggests a larger private sector than previous estimates. The extent of the transition varies dramatically:, from 99 percent private firms in Wenzhou or Jiaxing on the southeast coast to 60 percent in Anshan in the old northeastern rust belt. But in the cities where the private sector flourishes, firms reported far less red tape--from faster times through Customs to fewer days dealing with bureaucracy and less frequent demands for bribes.

While corruption is inherently hard to measure, we get pretty good response rates on the question of whether firms have to pay bribes to get loans from commercial banks, which are still largely state-owned. In southeast cities such as Hangzhou or Xiamen, 1 to 2 percent of firms report paying bribes to gain loans; the figure is above 10 percent in more than 20 cities of the center and west.

What explains these differences? Being near the coast is a help in China, because of access to external ideas and because coastal areas were permitted to experiment with reform ...