1. Economics
October 9, 2017updated 17 Mar 2022 5:35am

Make Manchuria great again: Can China’s rust belt be revived?

By Michael Hill

In 1949, Mao gave China First the role of making China great again from its base in North East China. Ignoring his Soviet advisors, Mao believed that China’s path to prosperity was through heavy industry: that meant building on the industrial base left by the Japanese Empire in Manchuria.

For decades, China First and similar state-owned companies provided secure, well-paid employment to Manchurian workers whose ‘Iron Rice Bowl’ was the envy of the nation. Many of China First’s early recruits were still working there in the 1990s.

Today, things don’t look so good. After a decade of lay-offs, its losses are still growing, and stood at $850m last year. Chairman Wu was found hanged in his office during a corruption investigation in 2015. While the region’s GDP per capita is about average for China, it is in relative decline.  In 1978, China’s north east provinces of Liaoning, Heilongjiang and Jilin were the 4th, 5th and 8th richest. Now they are 14th,21st and 12th. What’s gone wrong?

The administrative divisions of China. Manchuria consists of the three provinces in the far north east. Image: Wikipedia.

Mao’s heavy industrialisation policy may have made Manchuria rich – but since his death, nowhere has followed the Manchurian path to prosperity. Instead, Deng Xiao-Ping’s model had privately-owned textile factories, rather than state-owned steel mills, in the vanguard.

These new factories didn’t come to Manchuria: investors were looking for cheap labour, and Manchuria had the most expensive workers in the country due to its Mao era economic success. Instead, they came, initially, to China’s coasts.

Now those regions that started off as sources of cheap labour for Japanese investors have moved on. Shanghai and Guangzhou are major global financial centres. Hebei Province is the steel capital of the world. So why was Manchuria, which started a few stations down the track, unable to get on the Deng Xiao-Ping train as it passed them by?

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Firstly, imagine a combination of what John McDonnell thinks about bankers and what Ian Duncan Smith thinks about welfare claimants: that is how north-easterners are seen by large numbers of other Chinese people.  Most Chinese believe they worked for their own prosperity, but the three north eastern provinces were gifted prosperity by Mao, and now stay afloat via subsidy and corruption. Good Maoists make for bad capitalists. Whether this is fair is beside the point: it deters investment.

Secondly, geography. Being at the crossroads of the Communist world may have been an advantage in 1950; but now it puts Manchuria in the middle of an economic nightmare zone, between the crashing Russian economy and North Korea which keeps on North Koreaing.

Finally, demographics. Even before the One Child Policy of 1982, Manchuria’s fertility rate had fallen below the replacement rate. That policy was also more effective in Manchuria than anywhere else, with fertility rates falling to just 0.75 births per woman by 2010. It’s not surprising that, in the provinces with the highest rates of government employment, more people would obey government policy. On top of this, there has been huge net migration: 2m workers left the north east for southern provinces between the 2000 and 2010 censuses.

So, as Lenin asked, what is to be done?

The Chinese government has had two main strategies. First is transport. My hometown of Yanji (about the size of Bristol) boasts several 150mph+ services a day to cities in the region hundreds of miles away, as well as a daily service to Beijing (about as far as Bristol to Berlin).

Over 1,500 miles of highspeed railway has opened in Manchuria in the last 5 years, and more is being built. Buses to smaller towns in the region are cheap, regular and mostly travel along motorways built in the last 20 years.

No doubt this growing connectedness has helped the local economy – but it has not stopped Manchuria falling behind the coastal provinces, largely because new motorways and high speed rail are national megaprojects.

China’s rail network. Click to expand. Image: Howchou/Wikimedia Commons.

The second strategy is keeping the order books of local government-owned factories full. New trains roll off the production lines in Changchun, tanks in Qiqihar and steel pretty much everywhere. However, this has not closed the gap either.

Some have bold plans, but it is not clear they’d be effective. Justin Yifu Lin, former chief economist of the World Bank, argues that the region should target those light industrial businesses that set up on the coast decades ago and are now on the move again looking for cheap labour. He also suggests greater efforts to get workers out of the fields and into the cities.

But it is not really clear why a business owner would opt for remote, moderate wage Manchuria over better located, lower wage provinces further west – nor why farm workers shouldn’t just move south as they have been doing for decades.

Government economist Fan Hengshan hinted in an interview with the China Economic Times that he believes Thatcherite style shock therapy – privatise the state owned companies and fire the planners – will boost growth. It is not made plain why these companies would be better at updating the regions decaying industrial base than the government.

Economist Andrew Batson suggests opening branches of the China’s best universities to boost the local skills base and partially reverse the population decline.

But Manchuria already has three of the country’s top 25 universities. The problem is that local students see admission as their ticket out of Manchuria, while those from outside the region rarely stay. A brief non-scientific survey of undergraduates I know from my town’s university found no-one originally from outside the province who intends to stay after graduation: one laughed at the suggestion. 

Manchuria resembles the rust belts of the western world and the problems seem similarly intractable. Just like in the west, relative decline has provoked a political backlash, though it takes a different form than in the west. (As annoying as I am I have not yet sparked an anti-immigrant backlash.)

Industrial decline has created workers’ movements. As China is a worker’s paradise, trades unions are illegal, so keeping track of what are by definition wildcat strikes is hard. The government likes to pretend strikes afflict only foreign owned companies, and certainly never state ones.

Nevertheless thousands of strikes are recorded every year by the Chinese Labour Bulletin. The regions heavy industries were described as “a disaster area” for not paying employees on time by the People’s Daily in January. Miners have been striking and protesting in large numbers in the city of Shuangyashan. This may intensify as the government has announced ‘restructuring’ plans that will lay off almost 2m steel and coal workers.

In Manchuria it will be difficult for the newly unemployed to find work. Manchuria’s reign as China’s richest region is over – but after four centuries at the centre of Chinese history it might not be quite ready to step aside yet.  

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