Economic plight of Northeast China sparks debate

Source:Global Times Published: 2017/8/31 22:13:39

Illustration: Luo Xuan/GT

Editor's Note:

How to revitalize Northeast China's struggling economy has been the subject of intense debate in recent years. A 300,000-word policy proposal whose lead author was prominent domestic economist Justin Lin Yifu said that Northeast China's Jilin Province should develop labor-intensive industries as the first step toward economic revival. That view set off another round of heated debate among economic experts and scholars. Here are some extracts of their viewpoints.

The Jilin Report, published by a research team headed by Lin, from the Center for New Structural Economics at Peking University

The past strategy of reviving Northeast China mainly focused on promoting heavy industry while ignoring light industry, but what is fundamental for the transformation and upgrading of Northeast China in general and Jilin Province in particular is how to make the best use of their advantages and compensate for disadvantages.

The fundamental way to solve the Northeast problem is to shift from the "comparative-advantage-defying strategy" to "comparative-advantage-following strategy." The industrialization process in conformity with comparative advantage must be "first developing light industry before vigorously promoting heavy industry."

Industries with comparative advantage in Jilin should be labor-intensive. So the province should encourage the development of manufacturing in the textile, household appliance and electronics sectors.

Attaching importance to light industry doesn't mean giving up on heavy industry. Jilin should continue to expand its heavy equipment manufacturing sector.

Sun Jianbo, former chief strategist at China Galaxy Securities

East China's Zhejiang Province and Jiangsu Province as well as South China's Guangdong Province need to shed some of their labor-intensive industries, but what is the comparative advantage for the Northeast in taking over their role? Cheaper labor? More skilled workers? A more suitable climate? More convenient logistics?

What Lin's team lacks is not theory, but common sense. Just think about how many icy and snowy days a year will force manufacturers to suspend production. Costs could be much higher in the Northeast than in Southeastern coastal areas.

One of the fatal mistakes Lin made is to treat Jilin Province and the rest of the Northeast like a national economy. Even for a country, there is no need to develop every industry. Any country can develop the most advantageous industries and leave the others to international trade. Since the Northeast is just a region of China, does it really need to develop such industries as textile, household appliances and electronics?

In general, the problem of the Northeast does not lie in its industrial structure, but in the system and local culture. If there is a good system and culture, naturally there will be entrepreneurs willing to invest in fertile fields.

What the Northeast should develop is eco-tourism, food, Chinese medicine, precision instruments and machinery, as well as regional financial industries.

Fu Caihui, a researcher with the Center for New Structural Economics at Peking University

The Jilin Report does not suggest exclusively developing light industries and giving up on others. Some critics have jumped to that conclusion based on hearsay, and they haven't even read the full report.

Sun has cited the example of the Nordic region to prove that Jilin cannot develop light industry, but actually he is not familiar with the situation in Nordic areas. For instance, Sweden and Switzerland developed textile, shoemaking and electronics industries in the past. Further, it is not true that  manufacturing can't be done in the Jilin winter, because work is done inside factories, not in the freezing open air.

The industrial added value of Jilin's textile enterprises with annual revenue exceeding 20 million yuan ($3 million) reached 14.74 billion yuan in 2016, up 16.1 percent year-on-year and more than the 12.21 billion yuan generated by the local energy industry. Textiles are included in the eight key industries in Jilin.

Those who still believe that the Northeast should stick to developing heavy industry and coastal areas should hold onto light industry are still living in the planned economy era.

Tian Guoqiang, director of the School of Economics at the Shanghai University of Finance and Economics

The focus and essence of the debate is in fact one question: Should scholars or government policy determine the development of specific industries, especially not emerging industries, or should the market make the call?

The Jilin Report led by Lin almost ignores reform and systemic problems. It also contends that Jilin's industrial structure, which defies the theory of comparative advantage, is the fundamental reason behind the low foreign investment in the region.

But my point of view about low investment returns is just the opposite. It is hard to achieve sustainable economic development if we only talk about development and policy, with no attention paid to reform and governance.

Zhang Keyun, a professor with the Regional and Urban Economic Research Institute of Renmin University of China

The key to the revitalization of the old Northeast industrial base is not the comparative advantages of the region. The key is to find the right opportunities and re-orient the area's development strategy in light of national or even global changes.

The problem in the regional economic structure involves the performance of its aging industries disease. Other problems are an economy that grows slowly or even contracts, serious unemployment and a huge outflow of people.

The heart of the problem in the Northeast is the large outflow of technical staff. It is more important to prevent the outflow of talent than to compensate for specific economic weakness.


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