China’s uneven regional economic development has been turbocharged by the coronavirus pandemic, despite a broad-based national recovery, representing a long-term challenge for the nation’s leaders.
The economy has bounced back from draconian lockdowns early in the year, led by industrial production and infrastructure investment, with consumer spending slowly catching up.
Activity in China’s industrial sector expanded for the seventh consecutive month in September, according to the official purchasing managers’ index, while profits among the country’s largest industrial firms grew for the fourth straight month in August.
Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.
But only 14 of China’s 31 provincial-level jurisdictions recorded industrial profit growth in the first eight months of the year, according to the data from the National Bureau of Statistics (NBS).
The best performing provinces are concentrated on the east coast, with industrial profits in Guangdong and Jiangsu, the two largest provincial economies in China, growing at 1.2 per cent and 2.9 per cent, respectively.
Industrial profits in the other 17 provinces continued to contract for the year to date. Most are located in China’s inner west and the northeastern rust belt region, except the central province of Hubei, the original epicentre of the coronavirus outbreak.
In the northeastern province of Heilongjiang, the contraction in industrial profits widened to 38.1 per cent in the first eight months.
Industrial profits in the western Xinjiang Uygur autonomous region declined 17.4 per cent in the January-August period, although this was smaller than the contraction of 24.6 per cent seen in the first seven months.
“Some areas faced the dual pressures of the pandemic and floods in August, creating great turbulence,” said China Lianhe Credit Rating agency in a note on Tuesday.
Heilongjiang was hit by typhoons, then floods over the past two months, while Xinjiang emerged from a new outbreak and lockdowns earlier this month.
The gulf between China’s prosperous eastern coastal regions and relatively undeveloped west has long been an issue.
Coastal areas like the Pearl River Delta bordering Hong Kong, and the Yangtze River Delta that includes Shanghai, have been the main beneficiaries of China’s rapid economic growth since it embraced international markets and the US-dominated financial system four decades ago.
The northeastern provinces of Liaoning, Jilin and Heilongjiang, which were once home to China’s heavy industry, have gradually seen their fortunes dim thanks to an inability to shrug off an entrenched state-planning mindset and transition away from industries that rely on dwindling resources.
However, the impact of the coronavirus pandemic has made regional imbalances more visible not only in terms of industrial profits, but by income and spending.
The gap in per capita disposable income between the top and bottom provincial-level jurisdictions - Shanghai and the Tibet autonomous region - widened by 1.9 per cent in the first half of the year compared to a year earlier, according to NBS figures.
Average consumer spending by residents in Inner Mongolia shrank 12.81 per cent in the first half of the year, while spending in the eastern coastal province of Zhejiang dropped by 4.47 per cent.
Fiscal revenues have also taken a hit in many cities across the country, with sharper declines in central and northeastern provinces than near the coast.
Harbin, the capital of Heilongjiang province, saw a decline of 20.7 per cent in the first seven months of the year, while mining cities like Ordos in Inner Mongolia and Yangquan in Shanxi province, also reported sharp drops, Chinese media group Yicai reported.
Aggregate financing to the real economy, a metric of business demand and activity, rose 82 per cent in the southern province of Guangdong, but declined 86 per cent in Liaoning and plunged 2,717 per cent in Tibet, according to the People’s Bank of China.
In May, Beijing introduced a “dual circulation” economic strategy that aims to use domestic demand to offset the damage from the pandemic and escalating geopolitical tensions with the US. That has made the economic success of China’s western and northeastern provinces even more critical.
During a tour of Jilin in July, President Xi Jinping again stressed the need to revitalise the northeast. The central government also announced a revamped western development plan in May.
The prosperity and development of the western region is indispensable for dual circulation
“The prosperity and development of the western region is indispensable for dual circulation,” said Chen Yuan, former vice-chairman of the Chinese People’s Political Consultative Conference, at an economic forum in September.
“It is related to the smoothness and safety of domestic circulation, but also an important starting point for linking China and the international market.”
Gu Xueming, president of the Chinese Academy of International Trade and Economic Cooperation, said China must pay more attention to boosting reform and opening up in the central and western regions.
He also said the government should “encourage Chinese and foreign-funded enterprises in the eastern coastal areas to move to the central and western regions”, according to the official Xinhua News Agency on Tuesday.
More from South China Morning Post:
- China’s economic recovery underlined as manufacturing, services outlook remains positive
- China’s industrial giants see profit growth for fourth straight month in August, but still down in 2020
- China’s economic recovery continued in August, but analysts warn of ‘pent-up demand’ running out of steam
- China economy’s broad recovery from coronavirus continues, as retail sales grow for first time in 2020
- Coronavirus: China’s economic recovery path uncertain after mixed industrial production, retail sales data
This article China’s coronavirus recovery lays bare sharp regional economic disparity first appeared on South China Morning Post