Widely different local economic growth rates pose new challenges for China’s policymakers

While some regions report double-digit growth, others are in recession, showing the country’s economic ascent is not a tide that raises all boats

PUBLISHED : Thursday, 28 July, 2016, 1:30pm
UPDATED : Thursday, 28 July, 2016, 11:25pm

Local economic growth across China is on an increasing polarised trajectory with double-digit growth in some places and recession in others, creating new challenges for policymakers in the world’s No 2 economy.

In a rough grouping, underdeveloped places like Chongqing, Guizhou and Tibet boasted above 10 per cent growth thanks to strong government spending on roads and bridges, while rust-belt zones dominated by heavy industry bore the brunt of the slowdown.

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Liaoning, which reported a 1.3 per cent economic recession in the first quarter, has yet to publish its first half performance – which was also widely expected to be a recession – nor did the coal-reliant provinces of Shanxi and Heilongjiang.

Coastal provinces with bigger exposure to exports performed relatively weakly amid painful economic restructuring, although a few places like Guangdong and Zhejiang did better than the national average.

Among the 26 provincial areas that released data, 21 reported gross domestic product growth higher than the national average of 6.7 per cent. Hebei, China’s main steel-producing region, reported a lower rate. Shanghai and Beijing, the two municipalities relying more on services than industrial production, grew 6.7 per cent from a year earlier in the first six months.

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Lian Ping, chief economist at Bank of Communications, the country’s fifth biggest lender, said coastal China was grappling with weaker external demand and economic restructuring that was shifting more manufacturing inland.

“Western regions are leading the growth with heavy infrastructure investment,” said Lian. “In comparison, coastal cities such as Shanghai are saturated with such projects and are grappling with economic restructuring.”

GDP growth rates remain a major factor in assessing the performance of local officials, and the trajectory of their careers. Local governments from provincial down to county level tend to over-report economic figures, and each year the combined GDP size of all provinces is always larger than the national one.

However, the mainland’s economic polarisation is increasingly visible, with booming cities like Shenzhen and Shanghai attracting talent and investment, while prospects are dim in the rust belts.

As coastal cities like Nanjing to Suzhou try to prevent runaway property prices, third- and fourth-tier cities struggle with empty houses and huge unpaid debts.

GDP growth inflated by heavy fiscal expenditure on infrastructure won’t be sustainable and could be hugely wasteful
Mei Xinyu

Widely variable fiscal revenue is another sign: Shanghai reported a hefty 30.6 per cent rise in the first half while in Liaoning province it plunged 18 per cent.

Premier Li Keqiang is taking note of the problem, telling an executive meeting of the State Council, China’s cabinet, on Tuesday: “Nowadays, local economic development is polarising while local government’s work is also polarising as some regions go all out for growth while others don’t do their jobs or dare not to get things done.”

He urged local governments to spend funds allocated from Beijing for infrastructure projects and threatened to withdraw them or even punish those who did not act on Beijing’s policies immediately and wholeheartedly.

China’s regional economic data still required a critical reading, said Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation, under the Ministry of Commerce.

“GDP growth inflated by heavy fiscal expenditure on infrastructure won’t be sustainable and could be hugely wasteful,” Mei said.