Despite being the most important industrial base in the 1950s, 60s and 70s, Northeast China Liaoning, Jilin and Heilongjiang provinces has been staggering along since reform and opening up.

The present conditions are at best tough, with shifting to new development models being extremely difficult.

The steel, machinery, chemical and energy industries in the region used to be of paramount importance to China's economy.

But this past glory has faded, and been replaced by the rapid economic rise of the Pearl River Delta and Yangtze River Delta regions, and the Beijing-Tianjin industrial belt.

The Northeast's contribution to economic volume has dropped over the last two decades or so. Analysts often cite the fact that in the late 1970s and early 1980s, the GDP produced by Liaoning Province was twice that of South China's Guangdong Province, but now the ratio has been turned on its head.

What is the root cause of the Northeast's decline?

Some attribute the slump to the drying up of industrial resources in the area. Others say the stiff planned-economy set-up arrested the region's vitality. Still more economists argue the local economic and social environs do not fit in with the development of a market economy.

In my opinion, it is the loss of orientation in choice of options for further development in new conditions that explains why the region is lagging behind.

Looking back, one can see the Northeast has been pursuing developmental models that were all the rage at a specific time during the past 20 or so years.

The region opted for township enterprises, which turned out to be successful in southern coastal areas. It tried to develop tertiary industries, which was once advocated nationwide.

The Northeast has tried not to be left behind by the fashion for setting up industrial parks for developing information technology. When private businesses were encouraged in other parts of the country, the Northeast tried to catch up.

It should not be said that each choice was wrong. But in the course of making all these choices, the Northeast's own advantages were overlooked and its role in the overall scheme of things became somewhat ambiguous.

But over the last couple of years the authorities have set about defining the region's role more clearly. The efforts are paying off.

Making full use of its own advantages and building the region into a manufacturing and raw materials base for the country, or even the world, reflects the new definition of the Northeast's role.

In Liaoning Province, the raw materials and equipment manufacturing sectors contributed a lot to provincial industrial growth in 2004.

Development needs money and requires the launching of further industrial projects.

Since the slogan "Reviving the Northeast" was put forward a few years ago, the National Development and Reform Commission has approved more than 100 industrial projects that require 61 billion yuan (US$7.5 billion) in investment. The majority of projects will enjoy preferential policies in terms of bank loans with discounted interest.

This is not wrong. But what is more important, in my opinion, is getting rid of the region's heavy burden left over by history and building up a mechanism for self-development, using this huge sum of money.

Resolving the social security crisis created by the millions of laid-off workers in the region, who lost their jobs as the result of realignment of the industrial structure, should be a priority. This is a pre-condition for the reform of State-owned enterprises (SOEs).

Tax cuts should be introduced to protect the Northeast, which is economically backward compared to other booming areas of the country. Tax breaks would also help create favourable conditions for attracting domestic and overseas capital.

Qualified entrepreneurs with managerial expertise and advanced knowledge would come along with funding, which the Northeast is crying out for.

In 2001 the central authorities launched a pilot project in Liaoning, trying to introduce the practice of individual enterprises issuing minimum life allowances for laid-off workers into the society-wide labour security system. The project was extended to cover Jilin and Heilongjiang provinces last year.

Shifting the tax levy focus from production links to consumption is another expression of mechanism-building. The enterprises will pay less tax when they buy production equipment and other forms of fixed assets, which favours expanding production.

The reform of SOEs is also vital to building up the inherent development mechanism.

Deep-rooted maladies are currently haunting SOEs. The Northeast is home to a concentration of many large-scale SOEs. But it must be remembered that SOE reform is not necessarily a synonym for privatization.

The Northeast does not enjoy conditions suited to the growth of private businesses. This is because the Northeast enjoyed top priority in terms of State investment in the 1950s, against the backdrop of China going all out to build up industrialization in the context of the planned economy. In the place where large State enterprises are densely packed there is not the right entrepreneurial atmosphere that booming private businesses feed off.

Taking the specific conditions of the Northeast into account, the government is supposed to play a leading role in reviving the economy. In reality, the government does so by attracting outside capital, re-organizing SOEs and formulating new industrial policies.

But a problem has arisen corruption. A number of large corruption cases in the region have been revealed recently, which are partly the result of government monopoly in economic matters.

The government playing a leading role in reviving the Northeast's economy must be based on honesty, self-discipline and efficiency.

The author is a professor from the Sociology Department of Tsinghua University.