The Revitalization of The Old Northeast Industrial Bases

Du YuantaoQiao Shuhui

contents

• The formation of the Northeastern China industrial base.

• The reasons of falling behind

• The policies of revitalization

• The prospects of Northeastern China.

The formation of the Northeastern China industrial

base

The advantages of Northeastern China---rich mineral resources

• Hei Longjiang: 134 different kinds of mineral resources, accounts for 57.2% within China.

• Ji Lin: more variety mineral resources in Ji Lin, many of resources is in the first place in China

• Liao Ning: already found a variety of 110 mineral, more than 2000 oilfiled.

The advantages of Northeastern China---plenty of labor resource

• Hei Longjiang: total 36,890,000 people, 15-64years old people have total 27,930,000 accounts for 75.68%

• Ji Lin: total 27,279,900people,15-64 years old people have 21,163,000,accounts for 77.58%

• Liao Ning: total 42,380,000 people, 15-64 years old people have 31,570,000,accounts for 74.49%

The history background

Stage 1.The heavy industry boom in the Manchukuo(满洲国 ) period. To meet the huge demand of the war, Japan built the northeast China to the heavy industry base.

the ratio of northeast china’s production to the entire china in 1943

Coal production 49.4%,Iron production 87.7%,

Steel 93%,Electricity generation93.3%,

Cement production 66%,Mechanical production95%

Stage 2.The rapid growth in the first 5 year

plan in China

The important strength

to form a complete industrial system

Promoting the national fast

economic growth, and provides

generous tax revenue to

national finance

Providing valuable experience to establish and

improve Chinese industrial enterprise

management system

The important strength to form a complete industrial system

Promoting the national fast economic growth

• Y= A Ka L1-a

• In the first 5 year plan， China meet with success at different fields.

The cradle of China's automobile industry--Changchun automobile factoryChina's first large chemical industrial base--Jilin chemical industry company Daqing oilfield—change the appearance of China’s oil industry.

• Neo-Confucianism in the first 5 in plan.

• 1.devote and sacrifice themselves to country

• 2.thrift

• 3.hardworking

Wang Jinxi

The fact of the falling behind

the reasons of the falling behind of The Northeast China

We begin to look for the reasons by looking at the number of K

Y=(L K, T, Institution) Harrod-Domar Model

Why does it like this???

What can we draw from these

• 1 As the change of the Chinese government policy. The government investment went to the coastal area, The Northeast China can’t get as much as they got in the past.

• 2 The Northeast China didn’t have enough attraction for both domestic and foreign funds.

why can’t they attract founds?

• External reasons----policy-----Chinese government wanted to stimulate costal area, the lower taxes and other preferential policies make coastal area more attractive.

• Internal reasons—lack of competitiveness , which could reflect on the lack of the efficiency of K

MPK

• To prove this, we first do quantitive analysis

• We calculate the MPK which is the

• dy/dk=dy/investment

• All the data are in the table are from

• Statistic yearbook of Liaoning, Jilin, Heilongjiang, Zhejiang, Guangdong, Fujian

• We all know the Marginal Diminishing Effect • It holds separately among northeast china

provinces or coastal area provinces

Average GDP and investment from 1980-2001

Liaoning > Heilongjiang>Jilin

So the MPK is Jilin>Heilongjiang>Liaoning

Average GDP and investment from 1980-2001

Guangdong>Zhejiang>Fujian

So the MPK is Fujian>Zhejiang>Guangdong

• But Marginal Diminishing Effect doesn't hold between these two areas, the investment in northeast china provinces are lower, they had the lower MPK than the coastal area.

How to explain it?

• In the Harrod-Domar Model, besides Marginal Diminishing Effect there are two more factors are really do matters to the efficiency of the investment (the MPK).

• Y=(L.K;T Institution)

The problems

• Lagging behind of technology • Y=(L.K;T Institution)

• The improper environment for investment. Y=(L,K;T institution)

• So they make the MPK lower in The North East China, even it has lower Investment amount.

T• 1 the plants backwardness---the plants in many factories

are backward and old. More than 1/3 machine should have been eliminated.

• 2 the technology backwardness---the tradition industry sector like steel and mechanical industry lack intensive technology progress; the emerging industry sector like electric and computer industry develop very slowly.

• For example, In Jilin province, only 15% enterprises have technical skills are equivalent to 1990s’ level, 60% belongs to 1970s or 1980s, 15% even belongs to 1950s or 1960s’ level.

• 《东北现象的特征及形成原因》 Li Chenggu and LI zhengquan March 1996 http://wenku.baidu.com/view/02f308c48bd63186bcebbc32.html

• 《老东北”图再次振兴 拉开新“辽沈战役”之幕》   Gao guangzhi And Xing Luxu• http://www.people.com.cn/GB/jingji/8215/29839/29848/2096270.html

Institution

Basic industry Administration system Planned economy

1 The lag behind of Basic industry and infrastructure

• the speed of development of the basic industry like transportation, post and communication are much slower than the heavy industry. And the heavy industry really need the support of the good basic industry and infrastructure. During 1978-1994, the speed of the basic industry and infrastructure’s development is only 24.6% of the heavy industry.

•   《东北现象的特征及形成原因”》 Li Chenggu and LI zhengquan March 1996 http://wenku.baidu.com/view/02f308c48bd63186bcebbc32.html

2 the lag behind of administration

system

In the government In the enterprisesBetween the enterprises

In the enterprise

• Government-owned enterprises account for huge part in northeast china’s economy.

• As we all know, the administrative system in Chinese government-owned enterprises has many drawbacks.

• 1 the bloated administration system (too many department and officials)

• 2 overconcentralization of power • 3 inadequate laws and rules in administration.• 4 backwardness of H R management. • (深化国有企业行政管理体制改革问题研究 )• http://wenku.baidu.com/view/c4bf8718a8114431b90dd8b3.html?from=rec&pos=3&weight=3&lastweight=3&count

=4

• Between the enterprise

• Different factories belongs to different administrative department.

• (no cooperation, lack conducive connections)

The example of Jinxi oil refinery and Jinxi petrochemical plant

• “东北现象的特征及形成原因”  Li Chenggu and LI zhengquan March 1996 http://wenku.baidu.com/view/02f308c48bd63186bcebbc32.html

• They were close, but the oil refinery did not supply raw materials to the petrochemical plant.

3 the aftermath of the planned economy

• Northeast China is the area which is called the fortress of the planned economy.

• The planned economy enhanced The Northeast China to accomplish glorious achievement, but now, it also constrains this area in the new era.

• The most obvious aftermath from it is the improper industry structure and lack of market mechanism in this area.

• 《东北现象的特征及形成原因》  Li Chenggu and LI zhengquan March 1996 http://wenku.baidu.com/view/02f308c48bd63186bcebbc32.html

improper industry structure

• As The Northeast China was looked as the material supply and heavy industry centre in the planned economy. The other industry sectors in Northeast China was constrained for long time. Long time development under the centre’s planned make the northeast china industry structure extremely abnormal.

lack of market mechanism

• (1)the monopoly economy caused by state-owned economy.

• NE China has the highest proportion of state-owned economy in china. In 2001,Jilin Province, the properties held by the state-owned business account

for 86.2% which it is 65% in the rest of China. The high ratio of state-owned economy constrains the development private-owned business which lead the lack of market competition.

• Data from http://www.people.com.cn/GB/jingji/8215/29839/29848/2096270.html

• (2)administrative restriction

• The administrative restriction constrains the state –owned enterprises to make the rational decision under the market.

• As the center of heavy industry and raw material, NE China have the responsibility to provide various products and material to the rest of china under the administrative order without only charge.

• http://sq.k12.com.cn/discuz/thread-376124-1-1.html

The fact we see

Inadequate of K Y=(L,K;T)

Government investment Domestic loan and foreign funds

The change of policy No attraction for K

No efficiency for K

Lagging behind of T The improper institution

The policies of the revitalization

• The plan of the revitalization of the Northeast China was put forward in 2003.

• 100 projects all together, with 61 billion RMB are distributed in this area.

• As we discussed before, the infusion of capital is just the beginning and the easiest step.

• Data from http://doc.mbalib.com/view/3f9a9feae75cf4fce60ae579e64d4976.html

1 Capital infusion led by government 2 Improve Institutions and introduce new

technology can make a difference in effectiveness and efficiency of capital

3 Make this attractive for capital

4 Generate innovative technology and wealth continuously.

5 Revitalize the northeast china

Suggestion of further implementation the northeast china reform from the state

council (number 33)

Improve the institution

and technology

To strengthen the construction of infrastructure

Optimize the economic structure,

establish modern industrial system

To speed up the enterprise technological

progress, Improve the

ability of Independent innovation

Deepening reform and opening in

Various aspects.

To strengthen the constructionof infrastructure

Building the comprehensive transportation system, linked to large and medium-sized cities

Speed up the construction of railway networks and airports, improve the transport abilities of land, water and pipes.

Framework of freeway network

Framework of water transport network

Optimize the economic structure, establish modern industrial system

• Speed up the enterprise merger and reorganization, optimize allocation of resources.

• Strengthen the pillar industry • Developing the service industry.• Supporting key industry cluster areas to

accelerate development

The achievements

• In 2011, in the service industry, Hei Longjiang’s growth rate is 12.6%,both Liao Ning and Ji Lin’s growth rate is 10.3%

• In 2011, in the pillar industry, Hei Longjiang, Liao Ning, Ji Lin’s growth is 13.6%, 15.1% and 20%.

• Data from： provincedata.mofcom.gov.cn/people/disp.asp?pid=77

To speed up the enterprise technological progress, Improve the

ability of independent innovation

• Enhance Independent Innovation Ability

• Promoting industrialized achievement of independent innovation

Deepening reform and opening

• opening the market to the outside world• Strengthen the market mechanism in this area.

Stimulate the development of private enterprises, and deepening reform the state-owned enterprises( which is the hardest work in the revitalization) the reform of state-owned enterprises involves centre and local government, employees, debtors and may cause a big shake in local economy.

The assessment of the reform cost

• (1) the cost of splitting the social function from the enterprises(8billion)---Liaoning

• (2) the cost of splitting the big collective enterprises(10-15billion)----Liaoning

(3) the cost of shift of the employee’s identity that means buy off the contract years.( 1.5 billion for approximate 150 thousands workers)---Liaoning

(4) the cost of employment insurance and lowest welfare subsidy.(3.3 billion)---Liaoning

       《东北老工业基地振兴前景展望》  written by Pro Li Kai http://doc.mbalib.com/view/3f9a9feae75cf4fce60ae579e64d4976.html

achievements

Until 2010, 90% State owned enterprises(nearly90000) finished the reform.

Data from： provincedata.mofcom.gov.cn/people/disp.asp?pid=77

prospects of Northeastern China

Hoping to be the fourth pole of China’s economic growth

Four rapidly developing regions in China• Chang Jiang delta (including Shanghai city,

Jiang Su and Zhe Jiang province)-takes up 1/4 GDP

• Zhu Jiang delta (including Guang Dong province )-1/10 GDP

• Jing-Jin-Tang region (Peking, Tientsin, and north of Hei Bei)

• The north east of China(Hei, Ji,Liao)

Formed the regional cooperation pattern which is led by

 industrial chain• Automotive industry chain

• Equipment manufacturing industry chain

• Industry chain of steel materials

• Shipbuilding industry chain

• Petrochemical industrial chain

• Logistics supply chain

• ……..

The formation  sub-economic regions with the central cities as the

core

• Shenyang Economic Zone :Shenyang, Anshan, Benxi, Fushun, Liaoyang, the features are the equipment manufacturing and materials industries, expected to become important industrial base in northeast China

• …..

Increase cooperation with South Korea

• The industry which South Korea invest:

Toys, shoes, textiles, cement, furniture, household appliances, semiconductors, steel products, biotechnology, telecommunications transmission…….

Increase cooperation with South Korea

• Korean industry is transforming into a knowledge and technology-intensive industries, focus on developing next-generation growth industries, industrial restructuring has intensified, forcing a large number of enterprises ready to move overseas. Which gave the northeast old industrial base revitalization that provides a good opportunity for development.

South Korea bring numerous K

• South Korea now is investing a lot of K in china. 480billion in 2010. Northeast China has the geography advantages to attract the K from South Korea, so NE China has big potential power to gain K from South Korea.

• South Korea's oil industry in oil development, storage, refining facilities, and other aspects have advanced technology, become the northeast oil industry important direction of foreign investment to upgrade and technological innovation

questions

• 1 what makes the diminishing marginal effect do not hold between NE China and coastal areas in china.

• 2 what are the important reasons to make NE China lack market mechanism.

• 3 how can China and South Korea help each other in the NE china market.

Thanks for your listening

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