Investment rejuvenates ageing industrial base in China

As China's online retailer giant JD.com launched its digital economy industrial park in northeast China's Liaoning Province, the old industrial base was brought back in the limelight once again.

More than 50 enterprises signed up to settle in the JD industrial park, the largest in northeast China, when it opened last Tuesday.

Northeast China, including Liaoning, Jilin and Heilongjiang provinces, has long been struggling for growth due to shrinking resources and industrial overcapacity.

Currently, a flood of investment has been helping to restore the region's former glory, as the country stepped up to revive the old heavy industrial hub with the emerging manufacturing industry and new energy.

More than half a month ago, China's e-commerce giant Alibaba reached a strategic cooperation agreement with the provincial government of Heilongjiang.

Earlier in May and June, China's real estate conglomerates, Wanda Group and Evergrande Group also announced to invest about 80 billion yuan (about US$11.34 billion ) and 120 billion yuan respectively in Shenyang, capital of Liaoning Province.

"JD.com saw the fastest growth in orders in northeast China last year," said Li Bin, general manager of the company's logistics in northeast China region.

In Liaoning Province alone, JD.com saw fixed asset investment exceeding 2.6 billion yuan, and the company plans to invest more than 8.2 billion yuan in the province over the next three years, according to Li.

Not only are private Chinese companies cashing in on the region's economic revival but foreign capitals are also attracted by the old industrial base's huge potentials.

In March, the global oil giant Saudi Aramco invested over US$10 billion to build a joint venture petrochemical company in Liaoning's coastal city of Panjin.

The old saying "investment does not go beyond the Shanhaiguan Pass" used to compare the Shanhaiguan Pass, a traditional geographical division separating the northeast region from the rest of China, to a development gap between the old industrial base that suffers from the stagnant economy and the other thriving provinces.

However, as investors are swarming into the area and local governments are reforming to streamline administrations and improve services, the old saying has become far from the truth.

Five years ago, the economic growth rate of the three northeast provinces had seen an obvious decline. Among them, Liaoning, which accounted for almost half of the economic volume in northeast China, once experienced negative GDP growth.

Starting from 2018, the provinces gradually pulled out of the downturn. In the first half of this year, Liaoning reported a GDP growth of 5.8 percent, and its added value of industries above a designated scale exceeded the national average.

Encouraging momentum has also taken place in the economies of Jilin and Heilongjiang provinces.

The economy of northeast China is seeking progress while maintaining stability and the value of investment is emerging, which is the most direct reason for investors to pay attention to the old industrial base again, according to Li Kai, vice president of the China Academy of Northeast Revitalization.

Northeast China is speeding up its all-round revitalization through industrial transformation and upgrading, which has promoted the Evergrande Group to invest in the region.

New energy vehicles are the key target of the group's investment in Shenyang. The city is a rising modern "Motor City," as it has a solid equipment manufacturing bases, strong parts supporting capacity and a complete automotive industry system, said the group.

In November 2018, the German carmaker BMW also chose the city to locate its new factory, and the plant is expected to mass-produce the brand's pure electric cars for the global market.

Since the founding of the People's Republic of China in 1949, there have been three relatively concentrated capital inflows to the ageing industrial base, all of which are also the country's key periods of economic development.

The first was during the country's implementation of its first five-year plan from 1953 to 1957 when more than one-third of the country's 156 key projects were located in the region. The second time began in 2003 when the country launched the Northeast Revitalization strategy. And this is the third time, experts said.

It is worth noting that, compared with the previous two rounds, this new round of investment in northeast China has attracted more and more diversified investors, with foreign and private capital playing the leading role.

In the first half of this year, private investment accounted for more than 70 percent of the fixed asset investment in Liaoning and the investment from the private sector increased by 5.1 percent over the same period last year.

The investments are more based market choices rather than government-led ones, as there are not many large-scale investments from state-owned enterprises, experts said.

The new round of revitalization also highlights higher-end investment structure, as the traditional petrochemical and manufacturing industries are making more efforts to upgrade and extend their industrial chains.

Evergrande Group, which has long been focused on real estate in northeast China, has now shifted its focus to the emerging manufacturing industry and developing vehicles, batteries and wheel hub motors powered by new energy.

The newly-established petrochemical company by Saudi Aramco in Liaoning, is expected to produce 15 million tonnes of refined oil, 1.5 million tonnes of ethylene and 1.3 million tonnes of paraxylene per year, which will play an important role in promoting the structural adjustment of the province's petrochemical industry and optimizing the industry's distribution in China.

"This is only a good start and the region's economic recovery is still not stable enough. In particular, the investment mainly comes from big companies that are located in big cities," said Chang Xiuze, a professor with the Chinese Academy of Macroeconomic Research, think tank of National Development and Reform Commission.

Chang added that, as China's old industrial base, northeast China has a high proportion of state-owned capital and enterprises, and relies mainly on heavy industry and traditional industry, which will remain a challenge and headache for it to restructure its economy.

"The recovery in investment shows new hope for northeast China's economic growth. But there's still a long way to go before the old industrial base takes on a new lease of life," said Li Kai.