China's Regions: Northeast

China’s Regions: Northeast

Wednesday, November 29, 2006 6:03

Posted in category China Logistics, China's Other Cities, From the Factory Floor, Going to Market, Invest in China, The Big Picture

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Previously one of China’s most prosperous regions, the Northeast provinces of Jilin, Heilongjiang, and Liaoning are now known as the rust belt.
However, as many SOEs in this area have been privatized or shut down, this area has suffered greatly. With the highest rates of failed SOEs, unemployment levels in these areas can be very high and in the face of these challenges the government has looked for new ways to bring in investment (local and international) so as to catalyze growth in this area.
To date though, Dalian has garnered nearly all of the attention through Korean and Japanese investment in the high technology sector. Shenyang has also been successful at developing opportunities within the auto sector (OEM and parts).
Unfortunately for the area, central and southwestern areas are currently on the front burner for many firms in China. As such, the Northwest will find it difficult to turn the tide in their favor without more incentives from the government or the rapid development of a consumer market to attract domestic and foreign investors.

Government Promotion Policies: Revitalize the Northeast
In an effort to promote growth, the Central Government created the “Revitalize the Northeast” policy in 2003 that provided financial and political incentives for investing in the northeast provinces. While still considered a failure, investment has gone down in many of the areas since the policy was implemented, it has been a boom for Dalian as it is seen as the only safe haven for investments in the area.
Primary growth cities:
Dalian – The shining star of the northeast has been Dalian, which has been a recipient of 20.3 Billion USD in foreign direct investment since 2000 (9.9 was actually invested). Whereas the surrounding areas were largely dependent on producing goods for heavy industry, Dalian was able to reinvent itself by leveraging its port and attracting high technology investment from Korea and Japan.
Industrial strengths are in various high value electronics from Japanese and Korean companies, but a new kind of investment that has been going in is on the services side with outsourced call centers supporting global operations like GE.
2005 Quick Stats: Population: 5.65 million / GDP: 20.05 billion USD/ Contracted FDI: 4.6 billion USD / Per capita Disposable Income: 11994 RMB
Shenyang – Second to Dalian, Shenyang has also performed well by attracting large investment into the auto and auto parts sectors. The city itself is quite polluted,but that is to be expected with any town of heavy industry, and is in line with Wuhan and Chongqing.
Being so close to Dalian, one of Shenyang’s key advantages is the access it has to the port, and this will become even more important as auto manufacturers look to expand China sales and export from China to other markets. Shenyang is also positioning itself in chemicals, biotechnology, and agriculture.
2005 Quick Stats: Population: 6.98 million / GDP: 22.04 billion USD/ Contracted FDI: 6.17 billion USD / Per capita Disposable Income: 8924 RMB (2004 figure)
Other Cities: Jinan, Harbin
Wrap-Up:
Being from the midwest of the U.S., I can associate with the people from the northeast of China. We are considered to be some of the most hard working and honest people, but investment is hard to come by. Comparing Jinan and Akron really is not that much of a stretch if you look at how heavy industrial complexes, while once a necessity to build the infrastructure for future growth, they failed to continue to improve themselves to attract customers and investors.
Dalian and Shenyang are the real stories in these areas, and the rest will find it difficult to get investment until those cities get too expensive to stay in. for the supporting cities around Dalian and Shenyang, there are opportunities to open facilities to support the auto sector, but care should be taken. Many of the old SOE companies that have closed, but are looking to be revitalized, are very difficult to acquire, assess, and manage.
With this in mind, I believe that most foreign investors will end up sticking to Dalian and Shenyang as safe havens for investment, while the other cities will first see local Chinese investment and then home to get some of the foreign FDI.