Difficulties ahead to revive China's 'Rust Belt'

By Chi Fulin
0 Comment(s)Print E-mail China Daily, May 3, 2016
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Luo Jie / China Daily

A recent policy document issued by the State Council, China's Cabinet, says "old industrial bases", meaning Northeast China, will make significant progress in the key areas of reform by 2020 and, revive by 2030.

The document says the northeast region's opening-up, which includes expanded and all-directional opening-up to advance reforms, will become a new driving force for its revitalization.

From 2003 to 2013, China launched the first campaign for the region's revitalization. As a result, significant and historical changes were achieved in infrastructure construction and the development of heavy chemical industries thanks to the support of the central government, as reflected in its growing economic strength, a better economic environment and a tangible rise in its economic aggregate.

However, the campaign has failed to achieve a breakthrough in structural adjustment and institutional innovation, and the region's structural and institutional contradictions and problems have been exposed once again vis-a-vis the country's economic transformation and upgrading.

The new campaign to revitalize Northeast China should, therefore, focus on structural adjustment and institutional innovation to transform the region into a base of advanced or upgraded manufacturing. For its revival, a modern perception of the service sector should be cultivated. The region could learn from the experiences of Germany, whose modernized service sector accounts for 70 percent of its GDP and production-related services account for 70 percent of its service sector.

Northeast China should also strive to realize the transformation and upgrading of its manufacturing sector in order to establish an industrial model in which its modern services, production-related services in particular, is the driver of the transformation and upgrading of its manufacturing.

The low proportion of modern services in its industrial structure has seriously restricted the transformation and upgrading of manufacturing in Northeast China, which, in turn, has slowed its broader economic transformation. And without key progress being made in restructuring of State-owned enterprises, the main force of the region's manufacturing sector, structural adjustment and institutional innovation will be difficult to achieve.

Another hurdle in the path of the region's revitalization is its low degree of opening-up, both its opening-up to foreign countries and the opening up of its market and industries. In 2015, the region's three provinces-Liaoning, Jilin and Heilongjiang-accounted for 8.6 percent of the country's total economic aggregate, but their imports and exports accounted for only 3.4 percent of the country's total.

As far as market opening-up is concerned, the region's private sector accounts for more than 50 percent of its GDP, 10 percentage points lower than the country's average of more than 60 percent. According to a list published by the All-China Federation of Industry and Commerce, of China's top 500 private enterprises, only nine are from the northeast provinces, compared with 138 from Zhejiang province and 91 from Jiangsu province in coastal China.

The northeast region's industrial opening-up is also at a low level. In 2014, the region's State-owned assets accounted for 50 percent of the total assets held by industrial enterprises above a certain scale, while the country's average was only about 10 percent.

To develop a new driving force for its rejuvenation, Northeast China should, therefore, make full use of the China-Russia-Mongolia economic corridor, advance cooperation on infrastructure investment and set up a Northeast Asian free trade network to strengthen its production-related service trade and open up its service market.

Such a driving force is essential for an innovative mode of development. In the region, the government's "invisible hand" remains very strong. So what it should do next is to take practical measures to allow the market to play a bigger role in economic activities. Also, the region should cultivate the concept of inclusive development in society.

Despite the difficulties it faces, the region is still expected to become an important base of China's advanced manufacturing in the next five to 10 years if it can cash in on the opportunities offered by the country's intensified efforts for economic transformation and upgrading and opening-up.

The author is president of the Haikou-based China Institute for Reform and Development in Hainan province.


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