Economic Development Policies for Central and Western China
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Economic Development Policies for Central and Western China December 2010 in recent years. The composition of China’s hina launched two strategies to develop its industrial structure is undergoing a major central and western regions in the last transformation in which traditional industries, C decade. The PRC State Council launched such as low-end or energy-intensive the Western Development Strategy, China’s first manufacturing, are losing policy support from the comprehensive regional development plan to coastal provinces. As a result, central government boost the economies of western provinces, in 2000. officials have adopted a different development Premier Wen Jiabao announced the Rise of model that seeks to direct foreign investment to Central China Plan, a development strategy to meet specific needs. The PRC government is thus coordinate regional growth in six central now more focused on promoting the central and provinces, in 2004. To achieve the broad goals western regions. For example, the National outlined in the plans, the PRC government has Development and Reform Commission (NDRC) in implemented strategic programs, developed 2008 revised the Catalogue of Encouraged industry-specific plans, created industry-specific Industries for Foreign Investment in Central and catalogues of preferred technologies, and Western China to guide foreign investors to announced new incentives to attract investment to sectors that the government intends to develop: the central and western regions. Though both high value-added, environment-friendly, energy- plans have limitations, they provide important efficient industries that take advantage of local guidance—and specific incentives—for foreign resources, as well as areas in which China lacks companies looking to expand in China and gain the capabilities necessary for development access to potential customers in untapped regions. (Appendix I). The revised catalogue opened to foreign investment sectors that had been Push for Regional previously restricted or prohibited, or that had Development Plans been restricted in the more developed coastal regions. Examples include auto components manufacturing, value-added telecom services, and Economic development in China’s central and natural resource exploration. western provinces has lagged far behind progress on the booming coast. PRC data show that Western Development Strategy China’s gross domestic product (GDP) increased nearly 17 times, and GDP per capita rose 12-fold between 1978 and 2008. Most of this growth was Passed in March 1999, the Western Development generated by a handful of eastern and southern Strategy was the first central government-directed provinces, however. The average income in development program for China’s western region. central and western China was roughly 77 percent The strategy calls for the central government to of the national average in 1999, and increased only invest in infrastructure development and natural slightly to 80 percent of the national average by resource exploitation, and set market 2008. liberalization policies to create regional economic development centers. The push to develop China’s hinterland has gained more traction within the PRC government © 2010, The US-China Business Council 1 With the first 10-year phase of the Western Development Strategy coming to a close—along From 2000 to 2008, the western region’s GDP with concerns about the damaging effects of the grew by an average of 11.7 percent annually. But global recession—the central government began these robust numbers mask the shortcomings of to call for a new round of regional development in the Western Development Strategy. From 1999 to 2008. The purpose was not only to support 2009, high-volume growth in western China was ongoing efforts to build basic infrastructure, but limited to just three major cities: Chengdu, also to call attention to the broad industries the Sichuan; Chongqing; and Xi’an. Average annual central government wanted to prioritize for incomes in the western region remain below the development. The government added new energy, national average. equipment manufacturing, new materials, biotechnology, pharmaceuticals, aerospace and The Rise of Central China Plan defense, and information technology (IT) to the list of encouraged industries. These additions In 2009, the State Council released the Rise of joined traditional sectors that had previously Central China Plan with the clear goal of dominated economic activity in the western transforming central China into a production base region, such as petrochemicals, energy, mining, for four major industrial areas: grain production, and minerals processing. energy and raw materials, equipment manufacturing, and high technology. The plan In addition to revising the catalogue, the PRC also aims to develop the region into a major government has also designated three economic transport hub. clusters in western China to spur regional development: the Chengdu-Chongqing Economic To support the 2009 plan, the PRC Ministry of Zone, Guangxi-Beibu Gulf Economic Zone, and Commerce (MOFCOM) in May 2010 issued the Guanzhong-Tianshui Economic Zone. Regional Central China Foreign Investment Promotion Plan plans have been released for two zones— (2009–14) and six related provincial sub-plans that Guangxi-Beibu (2008) and Guanzhong-Tianshui cover Anhui, Henan, Hubei, Hunan, Jiangxi, and (2009)—and media reports indicate the plan for Shanxi (see Box). Each provincial plan contains a the Chengdu-Chongqing Economic Zone will be foreign-investment promotion strategy that focus- released in late 2010, though no official es on specific industries. For example, the Henan confirmation has been made. The clusters will Promotion Plan encourages foreign investment in encourage economic development in surrounding chemicals, electronic equipment, equipment areas and, over time, will connect to create manufacturing, high technology—especially IT— widespread growth across the western region. and mining. Policymakers intend to allocate certain industries Industries encouraged in the Central China to core areas to match industries with local Foreign Investment Promotion Plan include a mix capabilities and resources. For example, under the of traditional and emerging industries, including Guanzhong-Tianshui plan, Xi’an, Shaanxi, aims to become a national center for science and • Agricultural products and food production; technology research and development (R&D), as • Clothing, food, light industry, electronics, and well as a base for high- and new-tech industries other labor-intensive industries; and advanced manufacturing. Baoji, Shaanxi, is slated for development as a base for new- • Electronic information, biotechnology, new materials R&D and production, and as a center for energy, new materials, and other high-tech machine-tool manufacturing, heavy-auto industries; manufacturing, non-ferrous metal processing, and • Energy and raw materials; retail industries. Shaanxi’s resource-rich cities of • Farm machinery, vehicles, and shipbuilding; Tongchuan and Weinan encourage investment in the energy, coal-to-chemical, and agricultural • Logistics, transportation, and other modern processing industries. For the province’s services; and remaining areas that are largely rural, govern- • Mining, metallurgical, and petrochemical ment efforts will still focus on basic infrastructure equipment. construction to foster urbanization. 2 © 2010, The US-China Business Council The Rise of Central China Plan has a few outweigh the benefits of tax breaks and other characteristics that set it apart from the Western financial incentives available to foreign-invested Development Strategy. Notably, central China enterprises (FIEs) that relocate to central China. development policies seek to exploit the region’s agricultural advantages and develop industries More Policies on the Horizon such as agriculture machinery, food processing, logistics, and petrochemicals. Signs indicate that the PRC government is pushing for further development in the country’s The Rise of Central China Plan has already shown central and western regions. China’s 12th Five- some positive results. In 2009, the average GDP Year Plan (2011–15), which is currently being growth rate of the six central provinces reached drafted and is scheduled to be finalized in March 11.6 percent, exceeding the 11.1 percent growth 2011, will devote significant attention to rate of coastal provinces. Industrial value-added developing central and western China. Though and fixed-asset investment in the region also details of specific policy initiatives are not yet demonstrated robust growth in 2009. Indeed, public, the policies will likely emphasize balanced impressive economic growth in the central region regional economic growth instead of focusing on appears to be generating domestic demand and generating rapid economic development. driving policymaking toward the region. As an indication of a renewed commitment to Yet companies have expressed doubts about the development in central and western China, the business operating environment in central China. State Council approved in June 2010 a plan to Many complain about the region’s poor establish the Liangjiang New District in infrastructure and fragmented logistics networks Chongqing. The district was modeled after relative to the coast. Higher transport costs and Shanghai’s Pudong New District and Tianjin’s relative isolation from supply chains may Binhai Development Zone, offering all the same incentives, including