What can the Northeast expect?

A survey of “Finance and Economy of the 21st Century” reports that twelve districts attached to cities have very low real estate prices, with apartments at less than 100,000 yuan (14 680 USD). Of these twelve places, eight are in the Northeast. They are not necessarily poorly located. They are close to the center or the train station. This analysis recalls the decline of this region, a former bastion of an outdated planned economy. The research bureau Trigger Trend, following the investigation, identifies the facts, exposes the causes of this decline and tries to find the exit solutions.

Summary of the article : 

The decline of the population

The region includes the three provinces of Liaoning, Jilin, and Heilongjiang.

Faced with an economy out of step with the prosperous provinces, it experienced a population decline as early as 2013. It has lost 1.64 million people over the last seven years. With 107.9 million inhabitants, it has 7.7% of the country’s population against 8% in 2014.

A global crossroads

Thanks to the Trans-Siberian Railway construction linking Moscow to the ports of Vladivostok and Dalian more than a century ago, the Northeast had experienced its first boom. Harbin became a crossroads of the world, and the isolated cities of Shenyang and Changchun entered the world economy. The developed railway network, until 1978, contributed to the boom of the economy. 

A lost strategic point

The container revolution and the boom in maritime trade have relegated the train to the spectator seat. Also, China’s eastern facade, integrated into world trade, uses the large neighboring ports. The cost of transportation between Harbin and Dalian is four times higher than between Shanghai and New York. During the unequal treaties (Argun and Beijing in 1860), the weakened Qing Dynasty ceded to Russia 600,000 square kilometers north of the Heilongjiang River and 400,000 square kilometers east of the Ossouri River while losing access to the seafront. Heilongjiang and Jilin are thus landlocked.
However, the sea is very close. From the village of Fangchuan in Hunchun, there are 15 kilometers on the Tumen River to the Sea of Japan.

 North Korea and Russia have joined forces to completely strangle the Tumen River’s mouth in the Northeast. Russia built a railway bridge during the Korean War to deliver aid supplies to the Kim family. As the bridge is only 7 meters high, it blocks all large ships. North Korea allowed only Chinese fishing boats to sail, cargo ships and warships cannot pass, and the entire Tyumen River lost its commercial value.
Many people think that if China had destroyed the railway bridge and made North Korea bend in reform and opening, the Northeast could have integrated into the world economy at a “lower cost.” Not only would a large number of foreign investors come here to invest in factories, but the Northeast would have benefited more from the markets of Japan and South Korea and even the U.S. – the demand of hundreds of millions of consumers.

The Tumen River cannot save the Northeast

Many believe that the Tumen River could save the region in negotiations with North Korea and Russia. But not all rivers are called the Yangtze. The Tyumen River, much awaited by the Northeast, is not a great river.
The only place on the Tumen where thousand-ton boats can pass is the 15-kilometer waterway at Fangchuan. With a little improvement, river and sea vessels of 300 to 2000 tons can pass. However, the further inland you go, the smaller the number of ships passing by the sea.
For the Yangtze, it is different. The water depth of the Ningbo Port Canal is 30 to 100 meters, and ships of 300,000 tons can enter and exit freely, while boats of more than 400,000 tons can enter and exit at high tide. Downstream of the Yangtze River, the water depth is 12.5 meters, and 100,000-ton cruise ships can arrive at Nanjing Port with lighter loads, while 50,000-ton cruise ships can arrive there directly. In the Yangtze River’s shallow waters, 5,000-ton freighters and 10,000-ton fleets can also reach Chongqing directly.

Tumen and Yangzi Jiang in China

Better navigation would bring a marginal improvement, but in no way would it change the situation. Many car factories use ro-ro ships to reduce transportation costs, ships that can carry thousands of cars at a time, but weigh thousands of tons. Would companies choose to open an automobile plant upstream on the Tumen River?
The depth of the waterway’s draft is directly related to urban development. The main waterway in the northern part of Jiangsu Province is a thousand-ton waterway, which connects Lianyungang, Huai’an, Suqian, Xuzhou, and other cities. It looks at the level of development in northern Jiangsu Province today.

The roots of the decline

After the war, the Northeast became the most developed and economically advanced region in China, producing 41% of its cement, 76% of its electricity, 92% of its steel, and 95% of its coal mines.
After 1949, the region accounted for almost 40% of construction projects cooperating with the Soviet Union. Daqing oil, Anshan iron and steel, Fushun coal, and Changchun automobiles all came out of this province to be sold throughout the country. The region had gambled only on heavy industry and is paying the consequences of this strategy. The government has identified 80 areas with limited resources, a third of which are in the Northeast.
Everyone thinks that around the capital, Northern China forms the ring of Beijing’s poverty belt. Around Shenyang, a belt of resource depletion is also included with Fushun, Gongchangling, Panjin, and Fuxin.
It is challenging for the Northeast to take off.
However, I particularly disagree with some who say that the Northeast’s economic woes’ real cause is an obsolete industrial structure that is overburdened with heavy industries.
In the era of the planned economy of “national failures,” none of this was a problem. Liaoning’s industrial products are supplied to the entire country according to plan, often more than demand. There is no need for marketing as long as the national plan is followed; no matter how depleted a mine is, the state will transfer employees.
Times have changed, and this type of industrial structure has become a problem today. Since reform and opening, the geographical distribution of many industries has changed considerably. The massive chemical industry in the Northeast is no longer dominant but faces competition from several provinces. For example, XCMG, which produces heavy construction machinery, is based in Jiangsu, while Zoomlion and Sany Heavy Industries are based in Hunan.
Liaoning’s petrochemical industry used to occupy a central position in the country. However, with more than 500,000 tons of ethylene projects in Wuhan, Nanjing, Shanghai, Tianjin, Pengzhou, Zhenhai, Maoming, and other booming locations, Liaoning’s petrochemical industry is no longer smiling. From a macroeconomic point of view, market saturation has penalized the heavy chemical industry. Despite policies to revitalize the Northeast sector, the proportion of heavy industry has declined significantly and is smaller than other traditionally less essential regions in this market. The ratio of heavy industry in Jilin’s GDP is 67.9% and 67.4% for Heilongjiang, while the Canton province of Guangzhou is 68.3%, Chongqing 79.6%, and Ningbo 74.5%.
In my opinion, the real cause of the economic woes of the Northeast is not heavy industrialization and its industrial homogenization, but rather the following two reasons. The first is the lack of suitable waterways and efficient public services. It is difficult for the Northeast to develop in heavy industry or turn to the light industry, have price advantages, and compete.

Transport disadvantage

In the past, China’s economic performance has long been dominated by the manufacture of low- and mid-range products. To gain a competitive advantage, labor-intensive industries must be cheap.
Therefore, the key to the development of low-end manufacturing is low labor and transportation costs.
Chengdu-Chongqing’s economic ensemble, which was inland initially, was able to rise because it had these two strengths. Then, step by step, it migrated to electronic information and other high value-added industries to raise its level. In the early stages of transformation, the Northeast has a large number of skilled workers and a very high rate of urbanization, which may correspond to the first point. But Jilin, Heilongjiang, and even Liaoning, with the absence of waterways, cannot compete in transport costs.
The annual flow of runoff water from the Liao into the Liaoning is only 13.7 billion cubic meters, only 4% of the Pearl River, t 23% of the Huaihe. Shallow water, mud, and freezing in winter make the Liaohe value for shipping very low. Whether the Northeast produces a labor-intensive light industry or capital-intensive heavy industry, it must first be transported by rail or road to the port of Dalian and other transit locations.
This additional transportation cost is prohibitive. Some export-oriented foreign companies will see this as a reason to simply not invest in the Northeast. 

The weight of the past

This, coupled with the fact that the Northeast was the first place in China to establish a planned economy, has left many scars with the most significant application. The history of the Jiefang truck – Liberation – illustrates these practices of the planned economy: since 1956, when the first Jiefang truck was built, there have been no technical modifications or changes in the truck for more than 30 years. It was only after the creation of the functional area that it was decided to make improvements. In this bureaucratic sys
In the larger industries, Heilongjiang and Jilin have 466 and 356 state-controlled enterprises, respectively, fewer than Hunan’s 715. But the losses in Heilongjiang and Jilin are twice as significant in this area. This whole business environment is well known. 
The Northeast may accommodate one particular company, but it is challenging to bring the entire industrial chain together, using upstream and downstream support, and using economies of scale to reduce production costs.
What do you leave to the Northeast to compete with similar products in the Yangtze Delta and the Great Bay region without a price advantage? How can the Northeast survive the fierce global competition without going into liquidation? It has nothing to do with whether you choose the heavy or light industrial route.

Ideological way out

 To me, the only thing that can save the Northeast is the Northeast itself. In the end, perhaps the biggest problem of the Northeast is not the lack of a physical outlet, but rather an ideological one.
End of the article summary

Trigger Trend, faced with the difficulties of the region, does not see many solutions. It considers that it is still paying the price for the legacy of an era that was not conducive to innovation and development. The Northeast needs to break out of a spirit inherited from a planned economy and take paths more conducive to creativity. The author does not address issues such as unemployment figures – he certainly can’t! Over the last two decades, the region has had to carry out massive downsizing of staff in state-owned factories, which are very loss-making. The recent decline has not improved the situation. Is unemployment in the “harmonized” national average of 5.6% in the cities? What is the real growth of the economy? Zero, negative, positive?

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26 September 2020

Posted on Categories Economy

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