North­east­ern prov­inces need core re­form

Wide dis­par­ity in growth rates shows value of western prov­inces’ di­verse in­dus­tries

China Daily (USA) - - BUSINESS - ByWANG YANFEI wangyan­fei@chi­nadaily.com.cn

China’s eco­nomic growth is on the path to achieve more bal­anced and in­clu­sive growth, but some re­gions that face stronger headwinds need to quicken up the pace of in­dus­trial up­grade, ac­cord­ing to econ­o­mists.

A study of re­gional eco­nomic growth shows that in­land re­gions are tak­ing the lead, us­ing pol­icy sup­port to cre­ate di­verse in­dus­trial struc­tures. On the other hand, old in­dus­trial bases that are grap­pling with over­ca­pac­ity prob­lems are lag­ging be­hind.

In the first half of this year, a to­tal of 23 re­gions out­paced the 6.7 per­cent na­tional growth rate. Eleven of those are western in­land re­gions.

Chongqing held onto the top spot in the first half of this year with a 10.6 per­cent growth rate, fol­low­ing 10. 7 per­cent in the first quar­ter. Zhang Fu­min, deputy head of mu­nic­i­pal sta­tis­tics bureau, said that it is quite dif­fi­cult to achieve such per­for­mance at the time when the na­tion is fac­ing down­ward eco­nomic headwinds.

“In­dus­trial up­grade and a di­verse eco­nomic struc­ture has paid ben­e­fits for the lo­cal econ­omy,” said Zhang.

Su Jian, an eco­nomics pro­fes­sor with Pek­ingUniver­sity, said that the cen­tral gov­ern­ment pol­icy in­cli­na­tion played a rather sig­nif­i­cant role, re­fer­ring to tax cut poli­cies that at­tract com­pa­nies to set­tle in un­der­de­vel­oped re­gions. He added that, with its well-es­tab­lished in­fra­struc­ture, the city is likely to con­tinue to take the lead in the fu­ture. The One Belt-One Road ini­tia­tive will “give it a boost”, so the city is ex­pected to be­come a tran­si­tion spot for busi­ness along the belt and road.

Ear­lier in Septem­ber, the city was ap­proved by the cen­tral gov­ern­ment to be onea­mong­seven re­gions to set up newfree trade zones, cre­at­ing more op­por­tu­ni­ties for trade and in­vest­ment, ac­cord­ing to Bai Ming, a re­search fel­low at the Chi­nese Academy of In­ter­na­tional Trade and Eco­nomic Co­op­er­a­tion.

At the same time, more de­vel­oped re­gions in eastern China have also ben­e­fit­ted from eco­nomic up­grad­ing.

In the first half of this year, the value-added of in­for­ma­tion tech­nolo­gies and in­for­ma­tion ser­vices in Bei­jing at­tained 118.5 bil­lion yuan, up by 11.2 per­cent year-on-year, and in Shang­hai that sec­tor stood at 77.3 bil­lion yuan, which is 16.5 per­cent higher than the same pe­riod last year.

How­ever, re­gions that rely heav­ily on the old-man­u­fac­tur­ing model need to quicken up the pace to up­grade eco­nomic struc­ture, econ­o­mists said. They have had the low­est growth in the na­tion, de­spite a mild tick­ing up in the first half of this year.

Hei­longjiang, Shanxi, and Liaon­ing prov­inces are the na­tion’s worst per­form­ers, with 5.7 per­cent, 3.4 per­cent and neg­a­tive 1 per­cent growth in the first half, re­spec­tively, tick­ing up a lit­tle com­pared to the 5.1 per­cent, 3 per­cent and neg­a­tive 1.3 per­cent growth in the first quar­ter.

“Old in­dus­trial bases face more dif­fi­cul­ties com­pared to other re­gions, but we should not lose hope for them,” said He Zhicheng, the for­mer chief economist with the Agri­cul­tural Bank of China.

He noted that Jilin, which is lo­cated in what has been called the north­east rust­belt, achieved 6.7 per­cent growth—the first time that the prov­ince reg­is­tered the same growth rate as the na­tional level since 2014.

Echo­ing his state­ment, Hu An­gang, an eco­nomics pro­fes­sor at Ts­inghua Uni­ver­sity, said that the north­east re­gion has com­par­a­tive ad­van­tages in agri­cul­ture and man­u­fac­tur­ing in­dus­tries, “but en­ter­prises need to turn to high-end prod­ucts.”

The re­gion has been strug­gling with cut­ting over­ca­pac­ity, but some small en­ter­prises in the sec­tors with over­ca­pac­ity started pro­duc­tion again in the first half, af­ter be­ing shut down ear­lier.

Hu said this is not sus­tain­able. He said the lo­cal gov­ern­ments’ de­ter­mi­na­tion to im­ple­ment struc­tural up­grade mat­ters the most if the re­gion is to achieve growth in sus­tain­able ways.

“The cen­tral gov­ern­ment has given much pol­icy sup­port,” he said.

The Na­tional De­vel­op­ment and Re­form Com­mis­sion, China’s top eco­nomic reg­u­la­tor, is­sued a three­year plan (2016-18) in mid-Au­gust to help the north­east re­gion boost growth. The plan in­cludes 137 key tasks that must be ac­com­plished in the 3 years, cov­er­ing is­sues such as eco­nomic up­grade, so­cial wel­fare and sim­pli­fy­ing ad­min­is­tra­tive pro­ce­dures, ac­cord­ing to ZhaoChenxin, spokesman for the Na­tional De­vel­op­ment and Re­form Com­mis­sion.

A to­tal of 127 fixed-as­set projects val­ued at 1.6 tril­lion yuan (240 bil­lion dol­lars) will be launched dur­ing the pe­riod to sup­port the re­gion to fin­ish the tasks on time, ac­cord­ing to Zhao.

Hu said that in­vest­ment in in­fra­struc­ture, pub­lic trans­port and pub­lic fa­cil­i­ties are nec­es­sary to pave the way to growth, but the lo­cal gov­ern­ments need to make sure that the money flows to projects that would help tap eco­nomic po­ten­tial in the re­gion.

An of­fi­cial with the com­mis­sion, whode­clined to be named, held sim­i­lar views, and high­lighted the role that lo­cal gov­ern­ments should play in im­ple­ment­ing the plan.

“The na­tion has re­leased guide­lines and pro­vided sup­port to the north­east re­gion for more than 10 years, but merely pour­ing in money can­not help the re­gion boost growth,” he said.

“The key thing is to change the old ad­min­is­tra­tive mech­a­nisms,” he said. “The pri­vate sec­tor needs to have equal op­por­tu­ni­ties com­pared to large-state owned en­ter­prises— growth in the pri­vate sec­tor would help bump the re­gion out of the slow-growth trap.”

In the first half of the year, in­vest­ment in the pri­vate sec­tor in Liaon­ing prov­ince de­clined by 58.1 per­cent, the worst per­former in the na­tion, data from the NDRC show. Dur­ing the first seven months of this year, fixed-as­set in­vest­ment in the north­east re­gion dropped by 60.7 per­cent year-on-year, which is 2.6 per­cent­age points lower than the first half.

The per­for­mance of Liaon­ing prov­ince is the ma­jor fac­tor that dragged down the over­all per­for­mance of the na­tion’s fixed-as­set in­vest­ment, said a re­port re­leased by China In­ter­na­tional Cap­i­tal Corp in the mid-July.

The NRDC of­fi­cial added that lo­cal gov­ern­ments should mon­i­tor the pace of how key tasks listed in the plan are im­ple­mented. “Re­solv­ing deeply imbed­ded ad­min­is­tra­tive prob­lems would be more help­ful for the re­gion — more than the 127 fixed-as­set in­vest­ment projects will be,” he added.

WANG JIANWEI / XIN­HUA

Vis­i­tors seek in­for­ma­tion about prod­ucts from booth man­agers at the 27th China Harbin In­ter­na­tional Eco­nomic and Trade Fair, which ended on Sept 19.

LIN HONG / XIN­HUA

A worker pre­pares mush­room prod­ucts in a work­shop in Baihe, Jilin prov­ince, on March 22, 2015.

LIU DEBING / FOR CHINA DAILY

A worker walks through stacks of steel rods in a State-owned steel plant in North­east China’s Liaon­ing prov­ince. The prob­lem of over­ca­pac­ity is es­pe­cially se­ri­ous in the three north­east­ern prov­inces.

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