Northeast revival key test of supply-side reform

China's northeast, home to the old industrial bases for long, is on the brink of a major economic transformation. The once robust industrialized region which, over the decades, has declined to a "rust belt" is now being revived anew. And, the rejuvenation is making rapid strides as scripted in the plan for revitalization of these industrial bases.

A policy document released on April 26, 2016 reiterated China's resolve to revitalize the northeast "rustbelt" region through more reforms and economic restructuring. According to the document jointly brought out by the Communist Party of China (CPC) Central Committee and the State Council, the policy thrust is to: modernize the region's equipment manufacturing sector; restructure state-owned enterprises (SOEs); provide more support to private companies, high-end industries, the modern service sector and modern agriculture; and, ensure that development is driven by regional cooperation.

As the document emphasized, expediting the revitalization of the northeast, a major "pole" of China's economic growth, "is a significant part of the country's modernization drive and overall economic restructuring." This seems to be an integral part of the efforts of President Xi Jinping and Premier Li Keqiang to rebalance the economy through supply-side reform.

To grasp the centrality of this revitalization to the reforms now underway in China, the policy needs to be viewed in perspective. The northeast was one of the first regions in China to become industrialized. It has a long history of heavy industry including steel, automobile and aircraft manufacturing, shipbuilding, oil drilling and petroleum refining.

Currently, however, the once thriving industrial base is suffering the worst of a slowdown, more than the rest of China. The northeast is lagging behind the national average of GDP growth. The decline of this region is also because, in today's conditions, the resource dependence of the past is no longer sustainable. The region faces problems of excess capacity and environmental pressures. A region that was once the industrial engine of development and growth has become a drain on public resources.

This downtrend, though in greater public focus of late as part of supply-side reforms, has been a matter of official concern for quite some time. As early as 2003, the central government mooted a revitalization strategy spelling out a number of supportive measures for the region covering Heilongjiang, Jilin and Liaoning provinces and Inner Mongolia.

Ten years later, in April 2013, the strategy was again to the fore. The National Development and Reform Commission (NDRC) declared that China will expand an urban regeneration plan for ageing industrial cities as part of efforts to restructure the economy and promote more sustainable growth. The plan, to run from 2013 to 2020, was to cover the region that was once the core of China's heavy industry, and envisaged investments for upgrading technology of former industrial centers and creating13 million new jobs.

It is against this background - and the downward pressure on growth in the northeast - that the April 2016 document assumes importance.The aim is to revitalize the region's traditional industry and, at the same time, expedite structural reforms, regional cooperation, creation of an environment-friendly economy and efforts in education and healthcare.

So, what may be expected by way of revitalized outcomes?

First and foremost, industries in recession would reverse the trend and return to the growth path. Second, the regions held back by dwindling resources would bounce back and the depletion of resources would be checked by the new industries to come up by 2020. Third, the economy and environment of cities covered by revitalization would be driven by new strategic industries - in fields like advanced equipment manufacture, new materials technology, energy conservation, bio-technology, clean energy vehicles and information technology. Finally, a region trailing behind in GDP growth would have achieved medium-to-high growth. The northeast, like the rest of China, would be on course to meet the target of a moderately prosperous society by 2020.

These results are envisaged in the policy document which lists even more long-term goals, such as northeast China, in less than 10 years, emerging as the manufacturing hub for advanced equipment; a strategic core for technological equipment; a source of new raw materials; and, high-end innovation.

In sum, the strategy for regional revitalization at an estimated budget of RMB 1.6 trillion yuan is expected to unleash economic vitality that would bring about new levels of efficiency and productivity through technology, restructuring and management in an environment sustained by clean energy.