Lei Xiangping

    lagon235@163.com

    AS most of China gradually entered an age of medium-to-high growth, the economy of Northeast China, consisting of Heilongjiang, Jilin and Liaoning provinces, was like a roller coaster plunging from the highest point.

    In April, Premier Li Keqiang paid a visit to the region and studied its economic situation. Li reiterated that despite China’s economy slowing down, the growth of the Northeast was “unsatisfactory” and “worrisome.” His concern arose from the latest data, which showed that growth in Heilongjiang, Jilin and Liaoning in 2014 was 5.6 percent, 6.5 percent and 5.8 percent, respectively, all below the national level.

    The decline surprised many people. During the past 10 years, the region had kept the position as a growth pioneer; however, the change comes as no surprise. For decades, the region’s economic structure has been unsustainable and its economic reform not thorough, making it vulnerable to exterior economy influences.

    In retrospect, Northeast China was a leading industrial hub thanks to its abundance of oil, coal and iron ore, and was praised as the “eldest son of the People’s Republic of China” because of its economic importance to China. After reform and opening up started, it was overtaken by southern and coastal regions because the northwest region adhered to a planned economy, which relied on State-owned enterprises, mostly with regards to developing and processing natural resources and equipment manufacturing, and neglected developing private sectors, especially the service industry.

    It wasn’t until 2003, when the Central Government introduced the Northeast Area Revitalization Plan, that the region’s growth began to pick up. According to the plan, the Central Government had invested financially in the region to build new infrastructure, reform SOEs, increase foreign trade and cultivate new growth points such as tourism and bio-agriculture. Within this context, the region’s average growth from 2003 to 2013 reached 12.7 percent, much higher than the national level.

    However, the rapid growth had been mainly fueled by investments in SOEs and infrastructure — investment had contributed to 70 percent of growth in Liaoning Province alone in 2013 — and these favorable policies granted by the Central Government had in turn hindered the region’s further reform: its reliance on SOEs remains and the economy structure is still focused on mining and manufacturing while the service sector lags behind.

    As the development of SOEs and investment slowed down and prices of natural resources fell dramatically, the region’s growth inevitably deteriorated. In 2014, many SOEs were losing money. For example, the reduction of production in Daqing oil fields scraped 20 billion yuan (US$3.2 billion) off Heilongjiang’s growth and 6 billion yuan off the tax revenue. Fixed-asset investments declined by 2.9 percent (even though average growth was over 30 percent from 2004 to 2011).

    Worse still, because the region doesn’t have a full-fledged service sector to absorb surplus laborers, every year nearly 2 million workers are fleeing to places where the service sector is mature such as Beijing, Shanghai and the Pearl River Delta region. Yet, the loss of laborers means the shrinkage of demand.

    Liang Qidong, a researcher from the Chinese Academy of Social Sciences, attributes three factors to the region’s decline: the dwindling natural resources reserves, lagging manufacturing competition and, most importantly, the end of the planned economy. Obviously, the fundamental reason for the decline is that the “tangible hands” of the government played a stronger role than the market force in building up the economy.

    To support the worsening economy, the Central Government pledged early this year to build the northeast area into an internationally competitive base for equipment manufacturing, raw materials, energy supply and agriculture and step up the fiscal support, which is a second golden opportunity for the region. However, the same mistake can’t be made by simply throwing money at it without deepening the economic reform.

    The market force should play a decisive role in the region by diversifying the economy structure, cultivating service sectors and promoting mass entrepreneurship and innovation. Just as Liu Rui, an economics professor at Renmin University of China, suggested, the biggest obstacle for getting the region’s growth back on track is whether it can strike a good balance between the government and the market.

    (The author is an editor with the News Desk at China Radio International.)