Wang Mingyuan on China's Northeast

Wang Mingyuan, “Why Have Repeated Efforts to Revitalize the Northeast Failed? Rethinking the Twentieth Anniversary of the Strategy of Revitalizing the Old Industrial Base Areas”[1]
 
Introduction and Translation by David Ownby
 
Introduction
 
Wang Mingyuan is a law professor at Tsinghua University and the Executive Director of Center for Environmental, Natural Resources and Energy Law at the same law school.  Wang has not been on my radar, but a loyal reader who like to keep a low profile sent me a couple of his essays, and I decided to translate this one, which analyzes the lagging underperformance of the economy of China’s Northeast.  This region is of course China’s “rust belt,” which was once at the forefront of China’s economic development but has since gone the way of Pittsburgh and Detroit, resisting any number of revitalization efforts.  Wang published this essay on his WeChat platform (it was subsequently picked up by other online venues) and provided a helpful summary of his argument’s major points:

"1. Since 2003, financial transfers, special subsidies, and project funds provided by the central government to the three provinces of the Northeast have amounted to no less than 10-20 trillion RMB (approx. 1.4 to 2.8 trillion USD).

2. Although the central government's massive support for the Northeast has succeeded in solving any number of pressing problems, overall, the region’s capacity for independent development has declined, and in these twenty years has fallen from a position near the top among all Chinese regions to one near the bottom.  The region’s tendency to rely on the central government is increasingly obvious, and it is steadily becoming, along with the Northwest, the region that receives the greatest amount in subsidies from the central government.

3.  There is no single explanation for the regional decline of the Northeast; this decline is instead the result of the latest iteration of globalization, the evolution of economic and geographic patterns, population factors, and the international environment, among other things.  The accumulation of these issues hindered the development of new industries in the Northeast so that it completely missed the new waves of industrial development over the past two decades.

4. The proportion of state ownership in the economy of the Northeast is still too high, the SOEs of the region have the lowest operating efficiency in the country and have long been losing money.  In 2020, the profits and taxes generated by the SOEs of Liaoning, Jilin, and Heilongjiang were less than 1% of those created by the SOEs of the Shanghai municipality, and the nearly 10,000 local SOEs of the region pay less than one-third of the tax revenues of the single company of Huawei.  A second reform of SOEs in Northeast China's economy will be necessary to create the space for growth.

5. For many years, the divisive confrontations in Northeast Asia have seriously impeded the development of the Northeast, making the region more and more of an "island" within China.  China must change the situation in which North Korea and Russia take no initiative in regional economic integration and trade liberalization.  Only by integrating a regional development strategy of the Northeast with an international strategy for Northeast Asia will we solve the difficult issues currently impeding the Northeast’s participation in globalization and in the global technology trade system.

6. The history of the Northeast over the past two decades is a preview of a larger domestic version of “getting old before getting rich” and the "middle-income trap," and the lessons of the Northeast deserve to be fully absorbed at central and local levels, because the future danger for many poorly run cities in China is that of “turning into Hegang[a famous mining center in Heilongjiang that has since fallen into decline].”

I found Wang’s argument interesting for a number of reasons.  First, he attributes much of the region’s underperformance to the heavy footprint of central planning and state-owned enterprises that continue to dominate the region and which, according to him, occupy the space where markets should do their work.  Second, Wang’s text is not just an argument in favor of markets, but a warning that all of China may well be headed in the direction the Northeast has taken, given falling birthrates and slowing economic growth, perhaps a recognition that China’s rise is leveling off.  Finally, Wang notes that the Northeast has been slowed by its regional proximity to Russia and North Korea, which have stayed largely outside of the most vibrant parts of the world economy.  It is hard not to read this as a warning to China’s leadership to remain faithful to reform and opening and to not embrace ideas of “national economic sovereignty” even if other countries do.

Note:  I have corrected numerous errors in RMB to USD conversions in the initial publication of this translation, errors largely due to my unfamiliarity with very large numbers.  The exchange rate on December 20, 2023, the day I entered the corrections, is 1 USD to 7.14 RMB.
 
Translation 
 
One
 
In October of 2003, the CCP Central Committee and the State Council formally issued a document entitled “Opinions on the Implementation of Revitalization Strategies for Old Industrial Base Areas such as Northeast China and Elsewhere,” which marked the beginning of efforts by the central government to revitalize the Northeast rustbelt. It was also one of the three major regional development strategies put forward by the Central Committee at the turn of the century to address the problem of unbalanced regional development (the other two being the opening up of the West beginning in 2000 and the rise of Central China beginning in 2004).
 
The strategy of revitalizing the Northeast has been in place for 20 years, during which period central authorities can be said to have been highly focused on the issue, sparing no effort to provide support in every area.  They have issued four overall plans, involving hundreds of preferential support policies.  Members of the Central Committee have visited the region repeatedly in order to witness the unfolding of events and have offered advice and encouragement.  Looking simply at the financial support involved, we note the huge investment the country has made in the revitalization of the region, inputs which can be roughly divided into the following categories:
 
The first is fiscal transfer payments. Between 2003 and 2022, The central government’s total transfer payments to Liaoning, Jilin, and Heilongjiang amounted to 3.2553 billion RMB (approx. 456 million USD), 2.8628 billion (approx. 401 million USD), and 5.8847 billion RMB (approx. 824 million USD) respectively, with the cumulative transfer payments reaching nearly 11 trillion RMB (approx. 1.54 trillion USD).

Of course, these three provinces also pay considerable taxes to the central government every year, but according to the comprehensive data from the past ten years, the average annual central net transfer payment received by Heilongjiang has been roughly 250 billion RMB (approx. 35 billion USD), and that of Jilin about 130 billion RMB (approx. 18.3 billion USD). Liaoning has also transformed from a net financial contributor to a net subsidy province, and in 2020, the amount of transfer payments to Liaoning reached 94.4 billion RMB (approx. 13.2 billion USD). The net transfer payments received by the three northeastern provinces that year thus amounted to 548 billion RMB (approx. 76.7 billion USD). A rough estimation is that the three northeastern provinces have received 6 to 7 trillion RMB (between 846 and 987 billion USD) of central net transfer payments over the past twenty years.
 
The second category is key project construction support. This is mainly used for major infrastructure construction, transformation of resource-exhausted cities, and key livelihood protection projects. For example, in 2014, the State Council issued the "Opinions on Major Policy Initiatives to Support the Revitalization of the Northeast in the Near Future," containing 139 major projects, with a total investment of nearly 2 trillion RMB (approx. 280 billion USD); in August 2016, the National Development and Reform Commission issued a three-year rolling plan for the revitalization of old industrial bases like the Northeast, which contained 127 major projects, amounting to a total investment of roughly 1.6 trillion RMB (approx. 224 billion USD). Among these various projects, those related to the transformation of resource-depleted cities and to people's livelihood security are generally funded by the central government, while airports, high-speed rails, highways, etc. are jointly financed by the central and local governments. Judging from the implementation of certain projects, the central government is responsible for roughly one third of the funding.

The third type consists of targeted assistance projects for SOEs and the support of state-owned financial institutions. For example, in June of this year, the State-owned Assets Supervision and Administration Commission (SASAC) held a symposium on the assistance of SOEs to the revitalization of the Northeast, as a result of which the participating SOEs signed 111 cooperation projects with three northeastern provinces and one region, with a total investment of more than 500 billion RMB (approx. 70.5 billion USD), for the development of new manufacturing, new energy, agriculture, and other industries; in 2006, four major state-owned commercial banks wrote off 311 billion RMB (approx. 43.4 billion USD) of historical debt held by SOEs in the Northeast; in 2018, 16 banks, including the China Construction Bank, the Industrial and Commercial Bank of China, and the China Development Bank, granted a one-time credit of 1.015 billion RMB (approx. 142 million USD) to the China FAW Group [a state-owned automobile company located in Jilin] to help the group get out of trouble and invest in new projects; in September of this year, the Industrial and Commercial Bank of China, the Agricultural Bank of China, the China Development Bank, and other important institutions signed a strategic agreement with the Liaoning provincial government to grant a credit of 5 trillion RMB (approx. 700 billion USD) to that province over the next three years, which will be used for the construction of key projects.

The fourth category includes other special allocations from the central budget as well as tax exemptions. For example, in 2004-2005, the central government allocated 38.7 billion RMB (approx. 5.4 billion USD) in subsidies for bankrupt industrial enterprises in the three Northeastern provinces and 24 billion RMB (approx. 3.36 billion USD) in subsidies for food and agriculture; in 2006, the State Council approved the exemption of historical tax arrears of enterprises with operational difficulties, amounting to tens of billions of RMB, and the exemption of taxes and fees on the purchase of various machinery and equipment, an amount of 9.36 billion RMB (approx. 1.3 billion USD), which was used to support an increase in production capacity; in 2011, the central government accorded special employment grants and employee pension insurance subsidies amounting to 62.1 billion RMB (approx. 8.7 billion USD), urban and rural low income insurance subsidies of 12.9 billion RMB (approx. 1.8 billion USD), and water conservancy special subsidies of 8.7 billion RMB (approx. 1.2 billion USD); beginning in 2014, central authorities have provided 2.35 billion RMB (approx. 329 million USD) per year to support the cessation of commercial logging in pilot forest areas of Heilongjiang; in 2015, the central government allocated 47.4 billion RMB (approx. 6.63 billion USD ) for the support of guaranteed residential housing projects and urban infrastructure, the reconstruction of the old urban industrial zones and independent industrial and mining zones, etc.
 
Clearly, the central government's support can be described as widespread, including efforts to develop the economy and to secure people’s livelihoods, as well as to protect the environment.  The sources of support were also diverse, including central ministries and commissions, as well as central SOEs and financial institutions. Although we do not have access to data concerning all measures of support, a rough estimate would put it between 10 and 20 trillion RMB (approx. 1.4 to 2.8 trillion USD).

So what have the results of all of this been? It is undeniable that these inputs have played a very significant role in relieving the difficulties of SOEs, improving the livelihood of laid-off workers, and easing the decline of resource-exhausted cities and industrial and mining areas, and that there has been a marked improvement in the industrialization of agriculture in the Northeast and in the operating level of a few key SOEs.

But overall, the state’s goal of creating endogenous economic growth, restoring economic development momentum, and providing the Northeast with the foundation necessary to serve as a "fourth pole" of China's economy has not been achieved. In fact, the Northeast's capacity for independent development has consistently declined in recent years, and a region that was once close to the top in a national context is now close to the bottom.  The trend of increasing reliance on central finance has become increasingly obvious, and the Northwest has now joined the Northwest as the region receiving the most subsidies from the center.
 
Concretely, in terms of total GDP, the three northeastern provinces have declined in terms of their national share from 11.4% in 2002 to 4.8% in 2022, a fall of more than half.  Whereas 20 years ago the three northeastern provinces' total GDP was on a par with Guangdong's, today it stands at roughly 75% of Zhejiang's and 90% of Henan's.

In terms of per capita GDP, the three northeastern provinces stood at about 133% of China’s national level in 2003 (national level, 9,030 RMB, the Northeast, 12,900+ RMB), but fell to 69% in 2022 (national level, 85,700 RMB, the Northeast 59,400 RMB). In 2003, Liaoning, Jilin, and Heilongjiang ranked 8th, 13th, and 10th, respectively, but by 2022 had declined to 19th, 27th, and 30th. If we lengthen the scope of historical comparison, prior to reform and opening, Heilongjiang had the second highest per capita income of any province (excluding the three special municipalities) and is now the second lowest, just above Qinghai.  In less than half a century, Heilongjiang thus fell from the top to the bottom, a dramatic change rarely seen in history.

In 2002, the three provinces of Liaoning, Jilin, and Heilongjiang had 17, 6 and 9 enterprises that ranked among China’s top 500, and while the numbers were not large, Liaoning still ranked 7th and Heilongjiang 10th, and thus were situated in the upper reaches in the overall national context. By 2022, the number of enterprises on the list of the top 500 enterprises in these three provinces shrank to 4, 1, and 1 respectively, and the rankings fell to 23rd, 26th, and 26th [tr. I guess Jilin and Heilongjiang tied?]. This shows that while the Northeast used to be the most densely populated region in the country in terms of large enterprises, its influence has declined sharply. This phenomenon reflects the serious marginalization of the Northeast in the national industrial system.  In the 1980s and 1990's, Northeast-made machinery, equipment, and components were indispensable to factories across the country, but today’s supply chains do not include the Northeast and their former dominance has disappeared.
 
In terms of urban competitiveness, in 2002, three cities in the three northeastern provinces ranked among the top 20 in the country, and five cities ranked among the top 30. Although Dalian and Shenyang had already been surpassed by Suzhou, Hangzhou and other late-comer cities, the overall gap was not large, and in terms of total economic output, Dalian and Shenyang were only about 20-30% behind, and still ranked higher than Nanjing (the GDP of Hangzhou, Dalian, and Nanjing was 178.2 billion, 140.6 billion, and 129.8 billion, respectively). By 2022, all of the cities in the Northeast had fallen out of the top 20, and there were only three in the top 50, Dalian being the highest at 29, its GDP the equivalent of only 35% of that of Suzhou or 44% of that of Hangzhou; if Dalian were one of Jiangsu’s 13 prefecture-level cities it would be in 7th place.

Following the tax-sharing reform of 1994, the fiscal self-sufficiency rates of Liaoning, Jilin, and Heilongjiang provinces between 1994 and 2002 were 64%, 45%, and 54%, respectively, which were at the mid-range of the country; by 2022, they had slipped to 40%, 21%, and 24%, and the fiscal self-sufficiency in Jilin and Heilongjiang provinces is among the lowest in the country, just above Tibet and Qinghai, which are special cases, and quite a bit lower than Guizhou (32%) and Xinjiang (33%), which receive huge subsidies. If it makes sense for the Western border areas to be highly dependent on the state because of the region’s limited population and barren land, in addition to the number of strategic national defense establishments located there, that the Northeast, which has the country's best natural endowment and industrial base, is also reduced to relying on financial transfers to survive boggles the mind.

In short, the state has made a huge investment in the revitalization of the Northeast but compared with the similar investments in the West and the Center, the results in the Northeast have been dismal. At present, while there are still many development problems in the Center and the West, at least we see the rise of emerging economic zones such as Chengdu-Chongqing, Guanzhong, Changsha-Zhuzhou-Xiangtan, Wuhan-Xiangyang-Yichang, Hefei-Wuhu-Maanshan, etc., becoming second-tier or near first-tier centers attracting lots of young people, having an impact an industries and enterprises throughout the nation, while nothing worth talking about is happening in the Northeast.
 
Two
 
So why is it that the decline of the Northeast has become “irreversible?” Economists have never engaged in any serious discussion of the question, and often blame things on the heavy footprint of the planned economy or on the unhealthy business environment, and arguments like this have been the go-to consensus for some time now.  This is surely an important part of the answer, but not a decisive part, because otherwise how do you explain why heavy industrial centers like Beijing, Nanjing, Xi'an, and Wuhan, which were equally part of the planned economy, have now moved on to prosperity?
 
Ronald Coase's (1910-2013) theory of "marginal revolution" or Wu Jinglian's 吴敬琏 (b. 1930) theory of incremental reform can provide a good perspective for analyzing the decline of the Northeast. Both Coase and Wu believe that the development of new incremental or marginal forces, such as the private economy and foreign investment, has been the basis for the success of China's economic reforms, while the state-owned economy, which traditionally was the core of the economy, has consistently lagged behind the development of the economy as a whole. From the perspective of the provinces, wherever incremental reforms have been properly carried out, the economy has developed quickly (see the Southeast Coast for example); by contrast, where incremental reforms have been done poorly, the economy declines (see the example of the traditional industries in the North).
 
From the perspective of the country as a whole, the Northeast is the region where the incremental reforms have fared the poorest.  Why is this? Fundamentally, the planning system is well-developed and quite stubborn, and in addition, the size and structure of the population in the Northeast are not conducive to the creation of the kind of incremental factors seen elsewhere. The Northeast has the most centrally planned economy of any region in China; in the mid-1990s, there were some 28,000 SOEs in the three provinces, with an average of more than one hundred in each county. Although by the turn of the century, the Northeast had undergone market-oriented reforms like the rest of the country, the proportion of the state-owned economy remains much higher than that of other regions; for example, the proportion of SOEs generating significant revenues, which averaged 27% nationally, reached 43%, 65%, and 51% respectively in Liaoning, Heilongjiang, and Jilin.
 
The Northeast is also the region that urbanized the earliest in China, reaching a rate of about 50% as early as 1990, 21 years earlier than the heartland, and hence was also the earliest region to enter the era of declining birthrates and an increasingly elderly population.  According to the 1982 census, the overall fertility rate in Northeast China had already fallen below the replacement rate of 2.1, and by 2000 it had fallen to below 1, meaning that the population had begun to shrink earlier than elsewhere in the country.  In addition, the Northeast is a newly developed area with a very small population; taking the population of the three provinces together only equals that of a populous province in China proper, and the rural labor force that remains in the villages is very small, only about 15 million.

Without exception, China’s township and private economies took root in poorly planned villages, where there was no strict unified purchase and marketing system, and where rationing was inadequate, all of which provided space for the emergence of the private economy. Given the well-developed condition of the state-run planned economy in the cities of Northeast China at the beginning of the reform period, and the fact that the countryside was sparsely populated, the region from the outset lacked the conditions necessary for the development of the private economy (for the same reason that the revolutionary strategy of encircling the cities from the countryside could not be realized in industrialized countries).

Beginning in the 1990s, the main growth space for the private economy has been the development of consumer services, real estate, and other industries created by urbanization, but there was little space for urbanization in the Northeast at this point.  Once we subtract the population that left the region, the urban population only increased by about 16 million between 1990 and 2010 (only 40% of the increase in Jiangsu), and the limited growth of the urban economy further limited the space for growth of the private economy.
 
At the same time, because the rural labor force in the Northeast was very small (equivalent to only 10% of what we find in the Yangtze River Delta), foreign investment, which at the outset sought to invest in labor-intensive export processing, found the Northeast far less attractive than the coastal provinces in the heartland.  Dalian and Shenyang were able to attract a bit of foreign investment at the beginning, but the rest of the region came to be seriously detached from the new globalized industrial system that was taking shape, and being cut off from foreign capital not only meant the loss of capital, but also meant being out of touch with the entire global technological and financial system, which only retarded all the more the upgrading of the economy of the Northeast. These two points are referred to as the region’s "congenital deficiencies."
 
During the reforms of 1998-2002, the Northeast pushed through a large-scale bankruptcy and reorganization of SOEs, which withdrew from some areas. Nonetheless the basic situation in which SOEs control the main economic resources of the region remains unchanged, which means that the market cannot do the basic work it is meant to do.  The Northeast remains an economic system where the state takes the lead, meaning that the private economy relies on the state, existing as a complement to the system, not as an independent force. This state of affairs places serious constraints on the growth of the private economy and stifles the possibility of market innovation.
 
We can use the three state-owned automobile companies SAIC, GAC and Changchun FAW as a comparison. The GAC Group and the SAIC Group rely on private and foreign companies for 90% of their supply chains. This has created a healthy interactive ecosystem of state-owned enterprises, private companies, and foreign companies. It gives the private economy space to develop and at the same time reduces the burden on state-owned enterprises, allowing them to focus on R&D and marketing.

By contrast, Changchun FAW has its own supply chain, including engines, axles, gearboxes, diesel engines, parts factories, foundries, mold factories, electroplating heat treatment companies, paint factories and others (in the central planning era, FAW’s rate of self-made vehicle parts exceeded 80%).  Thus we can see a paradox: Changchun is the birthplace of the national automotive industry, and has been in operation for almost 70 years, but its impact on the supply chains of private automotive enterprises is extremely limited, and the vast majority of the automotive industry is concentrated in the Yangtze River Delta and the Pearl River Delta regions, which only got started 30 years ago.
 
Looking at the overall situation, although the private economy in the Northeast has achieved a certain scale over the past 20 years, the fact that this private economy can only "grow in the cracks" unoccupied by the state economy has prevented the formation of competitive industrial clusters. This is an "acquired weakness," which must be added to the “congenital deficiencies.”  In addition, the large number of old state-owned enterprises and the general aging of the population add the problem of the "two olds" to the equation, meaning that Northeast was not only doomed to failure from the outset, but over the past 20 years has continued to eat up social resources, becoming a heavy burden and making transformation all the more difficult.
 
For example, SOEs in the Northeast have been accumulating losses for a long time; according to the statistics of the State-owned Assets Supervision and Administration Commission (SASAC), in 2020, locally owned SOEs in the three northeastern provinces had a total loss of 16.5 billion RMB (approx. 2.3 billion USD), and made only 34.1 billion RMB (approx. 4.78 billion USD) in tax payments; the capital utilization rate of Northeastern SOEs is less than one-fifth of that of Shanghai, and their profit and tax capacity is only equivalent to 4% of that of Shanghai; and the amount of tax payments of all SOEs in the three northeastern provinces is only equivalent to about one-third of that of the single company of Huawei.
 
As another example, the Northeast is also the region with the heaviest pension burden in the country, with the dependency ratio of employees to retirees already reaching 2.5:1 by 2022 (compared to 5.8:1 nationally), with 14.73 million employed in Heilongjiang province and 6.56 million retired (compared to Guangdong's 70.39 million employed with only 7.52 million retired), leaving the province with a pension insurance gap of 64.1 billion RMB (approx. 9 billion USD) in 2022, equivalent to nearly half of the province's fiscal revenue for that year (129 billion RMB = approx. 18.1 billion USD).  In short, the "two olds" problem is consuming the Northeast’s already insufficient resources, making economic transformation and incremental breakthroughs all the more difficult and pouring salt in the wound.  We might say that the Northeast is moving forward with a heavy burden. This is different from the southeastern coastal areas where the historical burden is relatively light.
 
Three
 
The international economic and political environment is also extremely unfriendly to the Northeast. The most obvious example of this is the global decline of the heavy industrial belt in the middle temperate zone as part of the most recent iteration of globalized production. China's Northeast industrial belt was one of the five major heavy industrial belts that arose with the heavy industrialization of the global economy in the late 19th and early 20th centuries, all of which were concentrated in the coal and iron resource-rich areas of the global mid-temperate zone.  These regions boasted some of the most gigantic factories in the world at the time, which were seen as representatives of state-of-the-art productivity.
 
But beginning in 1960s, with the rise of the electronics and information industries, the mid-temperate heavy industry belt gradually went into decline (later on, people used the term "rust belt" to describe these regions). The Great Recession began in the Great Lakes area of the United States and the Ruhr valley in Germany, followed by the Czech-Polish southern industrial belt in Eastern Europe and the Urals industrial belt in the Soviet Union (the dramatic changes in Eastern Europe and the collapse of the Soviet Union were actually very much related to this). China’s Northeast, where the main industry is heavy industry, was no exception, except that the decline came 20 years later because the original industrialization was 20 years later as well. 
 
The ingredients necessary for the subsequent development of new industries were a free and loosely regulated environment, favorable climatic conditions, a well-developed education system, and convenient sea and air transportation, all of which the Northeast lacked. Moreover, due to the strong legacy of central planning, the Northeast is one of the old heavy industrial belts that has been slow to revitalize (the same is true of the Russian Ural industrial belt). Pittsburgh and the Ruhr Valley have achieved a healthy revitalization, but the Northeast has almost completely missed out on emerging industries.
 
The constraints of the international environment in Northeast Asia are another important factor hindering incremental growth in the Northeast, even if this is often overlooked. The Northeast is in a complex geographical environment, and its rise and fall depends largely on changes in the political and economic structure of Northeast Asia. The development of the Northeast is more seriously affected by this international environment than are the provinces in China proper.
 
At the turn of the 20th century, Northeast China became the region with the strongest economic growth, following its early development. This benefited from a short-term period of economic integration and liberalization in Northeast Asia. According to the Treaty of Aigun (1858), Chinese ships were free to sail on the Heilongjiang and Ussuri rivers, and more than 100,000 Chinese merchants gathered in Vladivostok, establishing a well-developed trade network allowing products from the Northeast to be conveniently shipped to the rest of the world through the ports of Russia or North Korea, which in turn stimulated the emergence of pillar industries such as soybeans, coal, and iron and steel.
 
The prosperity of Northeast China in the early years of the founding of the People's Republic of China was also attributed to the short-lived existence of the Northeast Asian version of the Economic and Mutual Exchange Council, which consisted of the Soviet Union's Far East, northeastern China, and North Korea. However, with the outbreak of the Korean War, the general international geopolitical environment of the Northeast deteriorated.   The war and the division of the Korean peninsula meant that the former ties between the Northeast and Korea and Japan were cut off for a long time, and the Northeast was forced to rely on the sole port of Dalian to maintain maritime transportation.  The Heilongjiang and Tumen Rivers originally had the right to access to the sea, and the loss of these rights cost Heilongjiang its most convenient maritime access. 
 
North Korea's frequent nuclear tests in the early 21st century, as well as the complex competition and confrontation between China, Russia, the United States, Japan, and South Korea in Northeast Asia, have further worsened the environment for Northeast China. Although the Northeast can trade with North Korea and the Russian Far East, such trade and economic ties are limited due to the gradual impoverishment of these two inward-looking economies, and the total combined exports of Heilongjiang and Jilin in 2022 will be only half of Xinjiang's (104.7 billion RMB – approx. 14.6 billion USD vs 209.1 billion RMB – approx. 29.5 billion USD).

With Xinjiang exporting to the very economically underdeveloped Central Asia, and the Northeast’s exports falling far below Xinjiang's, it is not hard to perceive the low level of economic activity in the Russian Far East and North Korea. In addition, given that these countries increasingly fear competition from China, they have been very resistant to economic integration and trade liberalization, and the joint development of what is known has the Vladivostok free trade corridor has been very slow.
 
As a result, the Northeast is in essence gradually becoming an "island" surrounded by the solid barrier of North Korea and Russia, and although it has the advantage of a coastline, its degree of participation in the global technology and trade circulation is very low. In 2022, the trade dependence of the three northeastern provinces was only 19%, which is far lower than the 34% level of the country as a whole, and the trade dependence of Heilongjiang and Jilin in particular will be only about 10%. In 2020, the total actual utilization of foreign capital of the three northeastern provinces is 3.6 billion U.S. dollars, which is only equivalent to 2.5% of the country as a whole, or 8% of Jiangsu, 26% of Beijing, 36% of Sichuan and 43% of Shaanxi, which shows that its foreign economic connectivity is not only lower than that of coastal areas, but also lower than that of many central and western provinces without access to the sea.

Had the Northeast been dealing with a peaceful and open Northeast Asia, its fate could have been vastly different, and despite its many accumulated problems, there could have been enough foreign capital, technology, and trade to drive the creation of new industries and the lessening of the domination of SOEs, so that the Northeast could have become a “fourth pole” of the national economy, alongside the Beijing-Tianjin region, the Yangtze River Delta, and the Pearl River Delta. However, the Northeast enjoyed few of the dividends of globalization in the past three decades, and its closed economy has solidified the weaknesses of the original system and exacerbated the decline of the region.

​From the above analysis, we can see that the decline of Northeast China is by no means a simple factor of poor business environment. Instead, it is the result of the intertwining of multiple factors such as movements in global industrial trends, the evolution of economic and geographical patterns, the economic system, population variables, and the regional geopolitical environment. Had any one of these variables been positive it would have stimulated the creation of new economic growth points. However, in reality, none of these factors has been beneficial to the Northeast. During this period, most places in China have undergone earth-shaking progress, while the Northeast has been like a world out of time and has completely missed out on the changes happening elsewhere.
 
Four
 
So what does the fact that the Northeast lost touch with world changes over the past 20 years have to teach us?  It teaches us that we have to abandon the strategy of revitalization of the Northeast through financial transfusions from the center, and instead carry out fundamental reforms so as to create the space for the economy to create growth.  It teaches us that it is not feasible to revitalize old industries and businesses by shuffling the deck, and that instead we must focus on creating incremental growth.  It teaches us that we cannot revitalize the Northeast by looking at it from a purely national developmental perspective, and that instead we must stand at the strategic level of Northeast Asia as a whole and resolve the dilemma of Northeast Asia's participation in globalization in order to open the pathways for the Northeast to thrive. Stop-gap measures, no matter how many there are and how they are employed, will not arrive at a solution. We must learn from the experience of reform and opening and conceive key reform measures so that the people of Northeast China and the people of the whole country can see substantial changes. Only then can society's confidence in the development of Northeast China be gradually increased.
 
For example, we should implement a second wave of state-owned enterprise and state-owned assets reform to solve the problems that were not properly handled in these reforms at the beginning of the century. If these problems are not handled well, there will be no revitalization of the Northeast.  For example, the Northeast must seize the new industrial wave and create one or two industrial highlights or one or two central cities (it can learn from the experience of the Ruhr Valley and Pittsburgh's revitalization), so that it can gradually accumulate industrial resources; another possibility is to make efforts to coordinate the realization of the Northeastern Border-Tumen River Delta-Vladivostok Free Trade Economic and Trade Zone, since Russia is subject to Western sanctions and is becoming increasingly dependent on the development of the east.
 
At the same time, we should also see that history is once again moving in ways that might favor the Northeast.  Throughout the world we note an emphasis on national reindustrialization and on economic sovereignty.  There is also the trend of the digital economy empowering physical manufacturing, and the fact that the aging of the population in the Northeast is about to peak (it is estimated that by 2030, the annual increase in the elderly population in the Northeast will be half of the current level). If the Northeast can seize this historic opportunity, it will have no problem maintaining fiscal self-sufficiency and moderate levels of development, like the Central Plains states of the U.S.  If it continues to waste time, however, it could continue to "rust" indefinitely, like its northern neighbor, the Siberian industrial belt.
 
Finally, let me note that people outside the Northeast should not be smug about its problems. The decline of the Northeast, like its early industrialization and urbanization, is just a preview of "getting old before getting rich" and the "middle-income trap" which is the future of poorly managed cities, any number of which may become the next Hegang [a famous mining center in Heilongjiang that has since fallen into decline]. The Northeast had the advantage of declining as the rest of the country experienced its rise, which meant that the central government had the financial resources to bail out the Northeast.  In the future, we may not be so lucky, so we should all think about the seriousness of the issue and how to deal with it!
 
Notes

[1]王明远, “东北为何屡振不兴？老工业基地振兴战略20周年再思考,” first published on Wang’s WeChat portal on Oct. 16, 2023, subsequently circulated widely elsewhere on the web.