Three years on, China's northeast regains its shine

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Tower cranes rise against the sky, dump trucks shuttle back and forth, and yellow excavators and bulldozers hum at a construction site in the coastal city of Dalian, northeastern China's Liaoning province.

A worker works at a plant of Dongbei Special Steel Group Co., Ltd. in Dalian, northeast China's Liaoning province, April 1, 2019. [Photo/Xinhua]

In two years time, two 41-storey buildings will rise above the Donggang business district of Dalian, creating a new commercial complex for Japan's Orix Corporation, a global financial services group.

Guo Xiaodong from Orix China Investment Corporation said Orix was optimistic about Dalian's geographical location and development prospects, and it was building a large financial holding group with a total asset of 100 billion yuan (around US$14.5 billion) centered in the city.

This corner provides an economic snapshot of northeast China, the country's old industrial base consisting of Liaoning, Jilin and Heilongjiang provinces.

In April 2016, the central government rolled out new measures to revitalize the region struggled with industry decline, falling investment and daunting business environment. Reforms are carried out, with a series of supporting policies released, a free trade zone set up in Liaoning, administrations streamlined and the business environment improved.

The latest economic data give reasons for optimism. The economy grew by 6.1%, 2.4% and 5.3% year-on-year in the first quarter of 2019 in Liaoning, Jilin and Heilongjiang respectively, with Liaoning picking up a 6-plus percent of growth for the first time in four years.

"The economy of northeast China is bottoming out as a whole," said Li Kai, vice president of China Academy of Northeast Revitalization. "It shows that the new round of revitalization strategy has achieved initial success."

No breaking, no making

In 2018, annual steel output of the Dalian-based Dongbei Special Steel Group Co. Ltd. exceeded 2.3 million tonnes, a 72.9% increase compared with a year earlier.

The historical breakthrough in yield was also accompanied by a return to profitability, which happened just three years after the 114-year-old state-owned steelmaker collapsed and entered a bankruptcy restructuring process in 2016.

"I'm just making this company look like a real company," said Gong Sheng, who was appointed as chairman of the Dongbei Special Steel by Shagang Group, the largest private steel enterprise in China and the largest shareholder of the once-bankrupted behemoth that turned to mixed ownership.

The lack of efficiency and incentives for innovation in the northeast is largely because of the high proportion of state-owned enterprises in the region, said Chang Xiuze, a professor with the think tank of National Development and Reform Commission, the country's top economic planner.

Chang suggested that the only feasible solutions lie in reform of state-owned enterprises and the supply-side structural reform.

In Changchun, capital of Jilin, China's leading automaker FAW Group has made a dent in a series of "surgical reforms" related to its personnel system and brand reconstruction.

The old system, under which there was no difference between more or less work and good or bad results, has been abolished. Those who were incapable or could not do a good job were removed from leadership.

Competition brought a sense of crisis, thus a significant improvement of efficiency in management and operation. The company's revenues hit 593.7 billion yuan in 2018, up 26.4% annually.

Based on advantages in talent and R&D, the northeast industrial heartland is also accelerating its pace to incubate high-tech startups.

Founded in 2015, Liaoning Dralong Technology became an eye-catching exhibitor at the 2018 Hannover Messe with its fuel-powered drones. Sales expanded 40 times from 2016 to 40 million yuan last year and are expected to exceed 100 million yuan in 2019.

Dralong's core technology is the precise control of petro-fuelled UAVs, which have much longer flight duration and a larger load compared with electric ones, said Zhang Li, general manager of Dralong.

In Jilin, the number of high-tech enterprises soared 69.8% last year. A more diverse and innovative industrial structure has taken shape.

A strong comeback

Thanks to the deepened reform, improved business environment, and commitment to further easing market access for foreign investors, a growing number of foreign-invested enterprises have settled in the region.

Yaskawa Electric (Shenyang) Co. Ltd. is a Sino-Japan joint venture focusing on the manufacture and service of servo motors and related components. At present, the total investment of the company in Shenyang, capital of Liaoning, has exceeded US$1.4 billion. Last year, construction of the company's third plant in Shenyang started.

"We'll introduce the latest production management system in the new factory to achieve real-time management of production status. This is exactly what the local enterprises lack," said the company's general manager Masahiko Okura.

So far, Japanese companies have invested more than US$24 billion in nearly 7,700 projects in Liaoning, according to the Liaoning Provincial Department of Commerce.

"These projects mainly involve industries such as high-end equipment manufacturing, new energy, and electronic information, and require relatively high standards on quality. This is what Liaoning needs for economic transformation and development," said Tang Shenfei, deputy head of the department.

Global investors are also attracted by other northeastern regions. Jilin attracted more foreign capital in 2018, with its actual use doubling year on year to US$702 million. More than half of foreign direct investment flowed into industries such as railway and ship transportation equipment manufacturing, and oil and gas exploitation.

Liang Qidong, vice president of Liaoning Academy of Social Sciences, said that northeast China had been building a business-friendly environment by streamlining administration and adopting a service-oriented approach. It still faces uphill challenges, including unsound industrial chain and a talent shortage, to build an ecosystem suitable to future industrial development.

"Although the economy of northeast China is recovering, there is still a long way to go to achieve high-quality development," Liang said.

The prospects are very bright. As the region is getting more involved in the Belt and Road construction, it may become a major platform in opening up thanks to its geographical location and industrial advantages.