China Economy

China falls back on fiscal stimulus to revive growth in ailing northeast rust belt

PUBLISHED : Friday, 19 August, 2016, 11:26am
UPDATED : Friday, 19 August, 2016, 10:25pm

Beijing has fallen back on its old trick of fiscal stimulus in an attempt to revive economic growth in northeast China, the country’s rust belt that is falling into economic stagnation or even recession.

China’s economic planner will roll out its Northeast Revitalisation Plan 2.0, a package of about 130 projects with total investment of 1.6 trillion yuan (HK$1.87 trillion), over the next three years to help the region, Chinese media reported earlier this week.

However, there are growing doubts over whether any government-led spending plan, in which some of the funds are expected to be paid by non-state investors, can be effective for a region plagued by commodity price drops, inefficient state businesses, rampant corruption and an exodus of young talent to other parts of China.

Can Beijing revive China’s ailing rust belt?

China started a revitalization plan for the region as early as 2003, consisting mainly of state-backed spending plans and preferential policies, to bring China’s old economic locomotive back to life. Yet, a decade later, the plan has apparently failed to make a difference.

Pumping blood into its economy is simply not sufficient. The old revival plan ... didn’t solve the fundamental problem – nurturing organic growth
Liao Qun, economist

“Pumping blood into its economy is simply not sufficient,” said Liao Qun, chief economist of China Citic Bank International. “The old revival plan helped to ease unemployment and kept social stability but didn’t solve the fundamental problem – nurturing organic growth.”

China’s rust-belt northeast of Heilongjiang, Liaoning and Jilin was an industrial backbone of the country during its planned economy era. But as China transitioned its economy to become more market-driven, the region’s growth that relied heavily upon natural resources and heavy industry hit a wall.

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In the late 1990s, then Premier Zhu Rongji sacked millions of state workers in the region in a state sector reform push, leading to serious social unrest.

The central government launched supportive measures to address the region’s woes, and an economic rebound took place in the early 2000s, but that momentum has fizzled away in recent years.

Since 2013, growth in the industrial output of the northeastern area has fallen behind the national average.

Provincial economic growth in the area has been stuck near the bottom of regional gross domestic product rankings in recent years.

Liaoning, for instance, reported a rare 1 per cent fall in its GDP growth in the first six months of the year. Its GDP growth last year was 3 per cent, the lowest in 23 years.

Zhou Jianping, head of revitalising the northeast under the National Development and Reform Commission, has said that the new stimulus plan, which is aimed at economic restructuring, is different from the plan of 2003 that aimed at “survival”.