Old, and cold

Can Chinese planners revive the Northeast?

Ring of Life w

Fushun: ring for help?

To celebrate the fifth anniversary of the People’s Republic, a special stamp was issued in 1954. It featured the Fuxin coalmine in Liaoning province. A five-yuan banknote issued in 1960 also carried the image of the same coalmine. These collectors’ items now serve as a reminder of the glory days of China’s northeast: a region that provided the industrial base for Mao’s first five-year plan. Back then Fuxin was also home to Asia’s biggest open-cast mine.

In recent times Fuxin has become better known as the “sinking city”. Five decades of intensive excavation have undermined it’s foundations (see WiC9). It is a manifestation of the challenges faced by the provinces of Heilongjiang, Jilin and Liaoning. The three – home to 110 million people – sit huddled together in the ranks of China’s worst performing provinces (they are in the bottom five measured by GDP growth in 2014).

Heilongjiang recorded a growth rate of 5.2% in the first nine months of 2014, almost 25% less than the national average and far below its own 8.5% target. This is not the first time it has struggled. At the turn of the century, former premier Zhu Rongji’s state-owned enterprise reforms had a devastating impact on the former Manchurian heartland. A revitalisation plan was launched in 2003 and for much of the past decade it seemed to be working. All three provinces had double-digit growth rates through to 2012. And then their economies stalled again.

Observers are now wondering whether the slowdown is a temporary blip, or the sign of more serious structural pressures. In Liaoning, it is the latter, according to Liang Qidong, a vice president at the Chinese Academy of Social Sciences.

Liang tells the Economic Observer that there are still 1,751 branches and units of the major SOEs in Liaoning. “The big SOEs are just not reforming themselves and Liaoning dare not meddle with them,” he says. “The centrally-planned economy is still alive and kicking here.” And SOEs still make up 50% of local GDP (albeit down from 66% at the beginning of the century). Liang argues that the northeast has relied on a familiar three-pronged economic model, which now runs contra to the government’s national ambitions. Firstly it continues to depend on polluting heavy industries. Secondly, growth has been propelled by investment, no matter how uneconomic the potential returns, and thirdly, there has been huge capital expenditure on industries already suffering from a supply glut.

These issues are of particular interest to Premier Li Keqiang, who was Liaoning’s Party boss from 2004 to 2007. He has been spearheading a new drive to prevent the three provinces from turning into the Chinese equivalent of America’s rust belt. This involves building better transportation infrastructure and affordable housing alongside the development of new industries such as robotics. But the National Business Daily reports that the plan has not been yielding much success to date.

One major initiative is supposed to be the creation of a super city by linking Shenyang and Fushun (see WiC173). The original idea was to let the two cities continue to expand until eventually they touched each other (they are 45km apart). But the absence of an overarching plan means their development has been uncoordinated. Meanwhile The Economist magazine visited Shenfu, a dormitory town midway between the two cities, which has experienced a property boom and bust. “Guys used to walk through the door and buy two or three homes at a go,” says a saleswoman at Deshang International Garden, a large housing complex. In fact, its occupancy rate is now about 50% which makes it one of the most successful developments in town, she told the UK magazine.

China would also like the three provinces to form the backbone of a new North Asian trade zone. But weakness in the Russian economy does not bode well for this prospect in the near term. So is some regional stimulus on the way? The Economic Observer says there is a case for it: “The Northeast has had to quietly endure the environmental costs of China’s resource-based economy. It’s a debt which the whole country needs to pay back by helping these three provinces.”

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