Economy

It’s grim up north

China wants Russia and Mongolia to help revive its flagging rust belt

Buildings under construction are seen behind The International Hardware and Building Materials City two weeks after the city's ground opening ceremony in Qiqihar

Qiqihar: China’s northernmost bullet train line opened last month

It was said you could smell the advancing Mongol horde long before you could see them. Water was so scarce on the steppes that its people never bathed or washed their clothes. During the rule of Genghis Khan laundering was even a crime.

The Persian chronicler Amir Khuzrusaid said the stench of the warlord’s army “was more horrific than their colour. Their nostrils resembled rotting graves and from them the hair descended as far as the lips. Their chest was covered with lice, which looked like sesame growing on a bad soil.”

As the Great Wall attests, China spent much of its history trying to keep the terrifying barbarians to its north at bay. For centuries economic growth was destabilised and dynasties toppled by nomadic invasions (the most devastating being the final collapse of the technologically advanced Song Dynasty at the hands of the Great Khan’s grandson Kublai Khan in the 13th century).

In his book Why the West Rules – For Now the historian Ian Morris argues that the threat only receded when the Chinese were finally able to close the “Steppe Highway” after the Qing Dynasty defeated the Dzungar Khanate army in 1697. As nomad raids stopped once and for all, about 5% to 10% of the Chinese population migrated north and established themselves on the now peaceful frontier.

Just over 300 years later, the Chinese, Russian and Mongolian governments want to reopen a new Steppe Highway. Each hopes to reinvigorate their respective economies. For the Chinese this means giving a boost to the economically depressed provinces of Heilongjiang, Liaoning and Jilin, which are today suffering from a new mass migration – this time southwards.

The most recent national census from 2010 reveals the region saw net migration of 1.3 million people compared to 360,000 that left during the previous census one decade earlier. In the ensuing five years the process is believed to have speeded up further still.

In July, China Youth Daily published a long analysis of the problems besetting the three Northeastern provinces known as Dongbei, or Manchuria. For one, birth rates have fallen sharply. The newspaper visited a maternity ward in Anshan in Liaoning where half the beds were empty. Nurse Zhao Yanhua told the newspaper she is lucky if she delivers one child a day and she no longer gets a performance bonus.

According to the 2010 census, the three provinces have a lower birth rate than Japan and well below China’s national average of 1.5. Worried that the country is growing old before it gets rich, the central government has been starting to reverse its one-child policy, and encourage families to have more kids.

Yet, China Youth Daily says that only 1.6% of eligible couples in Heilongjiang are opting to have a second child. It concludes that parents who are an only-child are also choosing to have a single child. Fu Cheng from the Jilin Academy of Social Sciences says: “The income in this area isn’t very good and the high cost of raising a child eats into a large portion of their household income.”

As we reported in WiC270, the Northeastern provinces still rely very heavily on state-owned industries in the steel, petrochemicals and equipment manufacturing sectors. Their inability to reform has led to widespread job losses and declining wages. Dong Cheng from Qiqihar CNC Heavy Equipment tells China Youth Daily his factory now employs 1,000 people, down from 10,000 in its heyday.

Nevertheless state firms still have a disproportionate influence in the region. Cui Wantian of Liaoning University told The Economist that 50% of local GDP still comes from SOEs, versus a national average of 30%. But the magazine also points out that in the first three quarters of last year Heilongjiang, Jilin and Liaoning ranked among the five slowest-growing of China’s 31 provinces. And in a reflection of both the demographic and economic problems they face The Economist adds that in the dormitory town of Shenfu – located midway between Shenyang and Fushun – the thinning population is all too evident. For example, it says the occupancy rate of the biggest and best housing complex is only about 50%.

Premier Li Keqiang has long been concerned about the situation in China’s Manchurian rust belt, having formerly been the provincial Party secretary in Liaoning a decade ago. Earlier this year he told a symposium he considers himself half Northeastern. “And I will tell you bluntly,” he said. “The data does make me worried.”

(Liaoning has “acute” fiscal problems points out the Wall Street Journal: the province’s tax revenues plunged 23% in the first half of this year. In Shenyang a construction worker told the paper that many projects got halted in the middle of last year, with staff either losing their jobs or taking pay cuts.)

As well as migrating south, those in the Dongbei region are also crossing the border in search of a better life. Professor Wang Xiaofeng from Jilin University estimates that roughly 20% of the emigration has been to Russia and South Korea.

One of Xi Jinping’s aims has been to turn this population movement to China’s advantage by creating a cross-border trade zone. At the most recent BRICs summit in the Russian City of Ufa in early July, Xi agreed a roadmap for trilateral cooperation with his counterparts in Russia and Mongolia, Vladimir Putin and Tsakhiaglin Elbegdorj.

This essentially means extending the ‘One Belt One Road’ project to the Northeast and linking it with Russia’s Trans-Eurasian Belt project and Mongolia’s own Steppe Highway project. Mongolia’s $50 billion vision includes a 997km expressway (the country’s first) and a 1,100km railway crossing the country from Russia to China.

Mongolia’s three million population is highly reliant on China’s 1.368 billion, with 90% of the former’s exports destined for the latter. Its government is also trying to become more business-friendly following the election last November of the country’s youngest ever prime minister, Saikhanbileg Chimed.

Mongolia’s hand has been partly forced by economic problems following a series of disputes with global mining companies over their concessions. FDI has plummeted, as have foreign exchange reserves, hitting a recent low of $1.2 billion. This has prompted speculation the country may struggle to repay its foreign currency sovereign debt when it comes due in early 2018.

But the government’s spat with Rio Tinto over its $5 billion copper project at Oyu Tolgoi was resolved earlier this spring. In a recent interview with the Financial Times, Saikhanbileg said Mongolia is open for business, and particularly, financing from China’s policy banks or the new Asia Infrastructure Investment Bank.

For his part Xi demonstrated his determination to aid the stricken Northeast with a highly symbolic tour last month. This included a visit to the Changchun-Jilin-Tumen Development Pilot Zone where one third of Jilin province lives.

Xi also made a stop at the Yanbian Korean Autonomous Prefecture on the border with North Korea and home to roughly 740,000 ethnic Koreans (a third of the total in China). It marked the first visit by a Chinese head of state in eight years.

Meanwhile, the Northeastern region is receiving stimulus in the form of infrastructure improvements. For example, this month a 281km high-speed train opened, connecting Harbin with Qiqihar. China’s northernmost bullet train will cut journey times between the provincial capital and Qiqihar from three hours to one hour 25 minutes. China Daily reports that of the 8,000 seats available on the train’s inaugural day around 70% were sold.


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