China Focus: Investment reform to renew growth of NE China

China's northeastern region is struggling with a shrinking market. Once the industrial powerhouse of the nation, experts agree that investment-centered policy is the only way to revitalize the area.

Li Te, from Liaoning Province, was forced to close his iron company half a year ago after orders ground to a halt.

"There are still some overdue payments and inventory that cannot be sold. Some equipment has never been used, and I am still struggling to pay back the bank loans," he said.

His story is not unique, across the provinces of Heilongjiang, Jilin and Liaoning, infamous for dirty, heavy industry from steel, petroleum to coal, business is tepid as demand has waned.

In Fuxin City, Liaoning, the construction of a coal-based natural gas factory was forced to stop half way despite investors channeling some 14 billion yuan (2.2 billion U. S. dollars) into the project. Jiang, vice head of the company, explained that the project was suspended because of the stagnant market and depleting coal reserves in the area.

The region as a whole is plagued by wasted investment and overcapacity, and it is not uncommon to see residential areas uninhabited, half-completed buildings, and equipment left to rust in closed factories.

Zhou Jianping, from the National Development and Reform Commission, said that the region needs investment-driven growth. Among the three major driving forces of growth, foreign trade accounts for a small fraction of the region's economy, while consumption takes time to grow, leaving investment, he said.

During the past decade, investment has played an important role in stimulating regional growth. Between 2002 to 2012, the proportion of fixed-asset investment in region's GDP grew from 30 to 82 percent.

The downward pressure has reduced the returns on investment. According to Zhang Tianwei, a researcher with Liaoning Academy of Social Sciences, the ratio between the region's fixed assets investment and its returns was 1:3.28 in 2002, compared to 1:1.22 in 2012.

Statistics show that investment in industrial fixed assets in Heilongjiang grew by 23.3 percent annually from 2011 to 2013, but it saw a sharp decline of 7.3 percent in 2014. Fixed asset investment in Liaoning during the first half of this year dropped by 13.3 percent from last year.

Some steps have already been taken to optimize investment structure and transform investment models in the region, with the central government mulling an industrial investment fund to fuel the regional growth.

Meanwhile, local governments have also been establishing funds to support industrial restructuring. In an joint effort between China's Ping An Bank and Liaoning Provincial Investment Group, a 60 billion yuan industrial investment fund was established last year. Heilongjiang Province also announced that it plans to cooperate with private investors to launch an investment fund for emerging industries.

Liu Yongsheng, general manager of a fund company in Dalian, Liaoning, said that previously the region's industrial development was mainly supported by easy money or subsidies, while profit-oriented industrial funds would operate in accordance with market rules, meaning money will be more effectively used.

The mass entrepreneurship and innovation trend, championed by the central government, is also helping shore up growth in the northeast. Jilin Province reported that newly-registered enterprises in the first quarter grew by 6.8 percent year-on-year. About 72 percent of fixed asset investment in Liaoning came from the private sector during the first half of this year, up by 0.5 percentage points from last year.

Liu said the region should further stimulate the enthusiasm of private investors by lowering the investment thresholds of the private capital. Endi