Northeast China, a former heavy industry hub, is in deep trouble as the country struggles to transform its economy.
The three northeastern provinces — Liaoning, Jilin, Heilongjiang — used to be the heartland of China’s steel, energy, chemical, heavy machinery, automobile, shipbuilding, airplane and defense sectors.
But a lot of these industries have been mired in excess capacity as China’s economic growth has moderated over the years.
Private sector investment in the three provinces slumped 30 percent in the first three quarters last year from the year before, according to an official of the National Development and Reform Commission.
By contrast, private investment rose 2.5 percent nationwide, showing how seriously northeast China is lagging behind.
Weak investment has set off a vicious cycle. When companies are reluctant to invest, fewer jobs will be created. When job opportunities are scarce, young locals have to leave their hometowns to find jobs elsewhere.
The northeast region recorded a net population outflow of two million in 2010 compared with a net inflow of 360,000 in 2000.
Population outflow drains the local talent pool, hurts consumption and depresses home prices.
Shenyang, Changchun and Harbin, capital cities of Liaoning, Jilin and Heilongjiang, respectively, rank in the bottom part of the home price growth chart.
The property market was red-hot last year. Top-tier cities did tremendously well and some second-tier cities like Hefei, Xiamen and Nanjing posted more than 40 percent home price gain.
Home prices in Shenyang, Changchun and Harbin rose between 1.6 percent and 3.5 percent, ranking 47th, 51st and 60th among 70 medium-sized to big cities.
The housing sector is a key pillar of China’s economy. But northeast provinces can hardly count on building more homes to prop up the regional economy when the population and the job market are simply not supportive.
The topic has been talked about for many years but it seems little progress has been achieved. The government has pledged to step up efforts.
Reviving northeast China will be critical to the country’s successful economic transformation, as well as to the fate of major state-owned firms in the region, including China First Heavy Industries (601106.CN), Dalian Huarui Heavy Industry Group Co. (002204.CN), Fushun Special Steel (600399.CN), Harbin Electric Co. (01133.HK) and Northeast Electric Development Co. (00042.HK).
This article appeared in the Hong Kong Economic Journal on Jan. 13
Translation by Julie Zhu
[Chinese version 中文版]
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