China’s uneven coronavirus recovery inflames economic divide between north and south

Southern provinces showed the strongest first quarter rebounds after the coronavirus pandemic ravaged the economy early in 2020
The virus outbreak exacerbated regional economic gaps, which could worsen as coastal provinces benefit from export growth this year

China economy

Frank Tangin Beijing

Published: 7:11pm, 27 Apr 2021

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The coronavirus pandemic has reinforced economic divisions among China’s 31 provincial-level jurisdictions, with southern provinces showing a strong first quarter rebound while northern regions struggled to recover.

The regional imbalance, together with the uneven recovery in the service sector and among small businesses, could pose a threat to Beijing’s “dual circulation” strategy, which seeks to reduce the nation’s reliance on exports and rely more on its huge domestic market to power future expansion, analysts warned.

The central province of Hubei, which includes Wuhan, the original epicentre of the coronavirus and one of the hardest hit by lockdowns, displayed by far the strongest growth rebound in the first quarter, up 58.3 per cent from a year earlier. However, this figure was severely skewed by comparison with the implosion of the provincial economy in the first three months of 2020.

The provinces showing the next fastest growth rates were all in the southern part of the country: 19.8 per cent in Hainan, 19.5 per cent in Zhejiang, 19.2 per cent in Jiangsu and 18.6 per cent in Guangdong.

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China’s economy expands record 18.3 per cent in the first quarter of 2021

As with Hubei, the growth rates here were all skewed upwards because they came off a low base in the first quarter of 2020.

Overall, China’s gross domestic product growth (GDP) surged 18.3 per cent in the first quarter of 2021 from a year earlier, prompting the State Council to focus on a two-year growth average to eliminate the distortion.

Fast economic recovery in southern provinces – whose growth outpaced the national two-year average of 5 per cent thanks to strong exports and resilience in domestic demand – helped China record 2.3 per cent GDP growth last year, the only major economy in the world to do so.

Measured from 2019 levels, the southernmost island province of Hainan led the country with a two-year growth average of 7 per cent in the first quarter, followed by Guizhou on 6.8 per cent, Jiangxi province on 6.7 per cent, Jiangsu on 6.4 per cent and Hunan province on 6.2 per cent. All five provinces are located in the south of the country.

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By comparison, China’s three northeastern rust belt provinces – once the centre of industry but now struggling to keep up with the south – reported below average growth over the two year period.

Heilongjiang, which borders Russia and Mongolia, reported the lowest two-year average growth of 1.5 per cent, Liaoning registered a 2.1 per cent rise, while Jilin province reported slightly higher growth at 3.6 per cent.

Taken as a share of China’s total economy, the three northeastern provinces continue to see their importance decline. They accounted for only 4.5 per cent of China’s overall GDP in the first quarter of this year, down from 5.0 per cent last year.

Guangdong province, in China’s south, accounted for 10.9 per cent of the total economy alone, according to South China Morning Post calculations.

The divergence between east and west, and south and north, has existed for quite a long time – it’s an old issue

Yu Chunhai

Tianjin, a northern port municipality only 120km east of Beijing, also struggled with lower-than-average expansion in the first quarter.

While still China’s third most populous city – and an engine of growth between 2011-13 – it has dropped off the list of the country’s top 10 largest city economies, with its GDP level falling below Wuhan in the first three months of the year.

The western province Xinjiang, which has been hit by allegations of forced labour and abuses of Turkic-speaking Muslim Uygur people, saw its economy grow 12.1 per cent year on year to 340.2 billion yuan (US$52.3 billion) between January and March. The value of the region’s embattled agriculture sector – led by cotton production – rose 3.2 per cent from a year earlier to 12.6 billion yuan.

“The divergence between east and west, and south and north, has existed for quite a long time – it’s an old issue,” said Yu Chunhai, deputy dean of Renmin University’s school of economics.

But he added the gap is likely to widen further as coastal provinces continue to benefit from strong exports this year, while debt-ridden northern regions are slowing investment amid the central government’s debt reduction campaign.

Li Xunlei, vice-president of the China Chief Economist Forum, said last week the Yangtze River Delta centred on Shanghai and the Pearl River Delta in Guangdong are the only two regions with bright development prospects.

“The more the local private economy flourishes, the more vibrant their growth will be. It will also attract more resources to these regions,” Li said at a forum in Guangzhou.

In 2019, Chinese authorities acknowledged the key role city clusters played in economic development, which often have higher productivity given their better allocation of talent and capital.

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The country already has four main development areas, including the Guangdong-Hong Kong-Macau Greater Bay Area, the Yangtze River Delta, the Beijing-Tianjin-Hebei area, and the Chengdu-Chongqing economic belt in western China.

Beijing has tried for years to lift the growth potential of western regions and northeastern rust belt provinces, a process that has gained new impetus because of China’s growing economic rivalry with the United States.

During a field inspection last month, vice-premier Liu He hailed Liaoning province as being “strategically important” to national defence, grain output, the environment, as well as energy and industrial security.

“It sits in a golden place for economic development,” Lui told local officials and business leaders.