China’s once great northeast is now a rust belt – and no one knows how to fix it

Critics warn that former World Bank vice-president’s proposals to lure lighter industries to Jilin lack common sense

PUBLISHED : Monday, 28 August, 2017, 7:37pm
UPDATED : Tuesday, 29 August, 2017, 6:25pm

A proposal by a prominent Chinese economist to revive the “rust belt” province of Jilin has triggered controversy among academics, underscoring the struggle to bring new life to an area saddled with debt and inefficient plants.

Justin Lin Yifu, who was the World Bank’s chief economist and a senior vice-president from 2008 to 2012, proposed that Jilin, on the border with North Korea, encourage light and textile industries to move from the country’s coastal areas, where labour costs are higher. Jilin should also consider expanding heavy industry and manufacturing.

The suggestions are part of a 300,000-word policy proposal published by a team headed by Lin, a Peking University professor who studies how less-developed areas can catch up with wealthier ones.

In it, the team suggest that Jilin – which lags behind China’s affluent coastal areas in terms of per capita GDP – should open its arms to manufacturers relocating from China’s more expensive areas.

By doing so Jilin could raise local incomes and improve its economic performance, it said.

But the proposals have been greeted with scepticism by other analysts.

Sun Jianbo, a former chief strategist from China Galaxy Securities, said the idea went “against common sense”.

Sun argued in an article published onlinethat Lin’s recommended approach would not work because the northeastern provinces of Jilin, Heilongjiang and Liaoning, did not have the basic economic conditions to support manufacturing.

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“Considering how many icy and snowy days a year shut down production, who knows how much higher the cost could be [in the rust belt] than southeastern coastal areas,” Sun said.

But Fu Caihui, a researcher from Lin’s team at Peking University’s Centre for New Structural Economics, said Sun’s argument was wrong because the products in question were made inside factories and not in the freezing open air.

“Those who still believe that the northeast should stick to developing heavy industry and coastal areas should hold on to light industry are still living in the planned economy era,” he said.

China’s northeastern provinces have been suffering from relative economic decline for years. Jilin reported 6.9 per cent GDP growth last year, but neighbouring Liaoning province reported a contraction of 2.5 per cent.

The central government started a campaign to revitalise the rust-belt zone in 2006, showering the region with subsidies and investments, but little progress has been made in turning the area back into a growth engine.

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Lin, who defected from the Taiwanese army to mainland China in 1979, is a respected economist and government adviser on the mainland.

With a doctoral degree in economics from the University of Chicago, he is known as a strong advocate of China’s state-led development model.