Liaoning worst performer as China’s northeast lags behind country’s economic growth

China’s ailing northeast continued to underperform the national economy in the first half of the year, official data showed, with the rust-belt province of Liaoning by far the country’s worst performer.

Liaoning, Heilongjiang and Jilin, which are dominated by heavy industries such as machinery and mining, have long struggled to keep up with rapidly growing hi-tech manufacturing regions on the east coast and a 14-year government “rejuvenation” programme has failed to arrest the decline.

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The economy of Liaoning grew by 2.1 per cent in the first half of the year from the same period in 2016, the local statistics agency said, far slower than the national rate of 6.9 per cent.

Heilongjiang was China’s third-worst performer, with growth of 6.3 per cent, while Jilin saw a 6.5 per cent expansion over the period.

“We expect headline growth in northeast China to remain weak over the coming quarters as the three provinces in the region will continue to suffer from structural problems such as overcapacity and the depletion of natural resources,” said BMI Research in a recent note.

The political risks stemming from the region’s proximity to North Korea could also weigh on growth, although it could benefit from a revival in trade with neighbouring Russia, it said.

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According to state media, nominal GDP in Liaoning in the first half fell by 19.6 per cent compared with the same period in 2016. The province has been forced to revise previous growth figures in the wake of a scandal involving years of inflated fixed asset investment data.

Liaoning reported a 31.4 per cent year-on-year decline in fixed asset investment in the first half of 2017. Its economy shrank by 2.5 per cent over the whole of last year.

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Liaoning and the rest of the northeast face mass layoffs as a result of various state campaigns to slim down state firms, curb industrial overcapacity and ease pollution.

With birth rates still low, the region is also facing a spiralling pension and social security burden as young workers flee and the number of people retiring multiplies.

China launched a “rejuvenate the northeast” campaign in 2003 in a bid to provide new forms of growth for the region, once the mainstay of the country’s economy.

Critics say the programme failed to handle the root causes of decline, with heavy infrastructure spending serving to bolster the state sector rather than reduce it.

Analysts also warn aid could now dry up as Beijing focuses on other projects like the “One Belt, One Road” initiative to link China with Europe, or the integration of Beijing, Tianjin and Hebei.

Local governments are now under pressure to stimulate the private economy in the region. China is also promoting partnerships between the northeast and other more prosperous cities, with Shanghai and Shenzhen set to team up with Dalian and Harbin respectively.