Li Shantong, Feng Jie & Liu Feng

In March 2004, the Development Strategy and Regional Economy Research Department of the Development Research Center of the State Council, the Asian Development Bank Institute (ADBI) and the Development Research Center of Jilin Provincial Government jointly sponsored two international seminars in Beijing and Changchun respectively on revitalizing old Northeast industrial bases. The seminars raised several issues with significant importance in this regard, which are listed below as proposals to be considered for decision making.

I. Create Better Institutional Conditions for the Prosperity and Development of the Northeast

The problems of Northeast China are shaped in time, and cannot be solved overnight. The key issues include development and reform, and development is the objective. Only through reform can we establish new systems suitable for the development of the market economy, and realize sustained development and prosperity. After the problems of the Northeast emerged in the late 1980s, the State adopted a series of policy measures (such as infusing large amounts of capital into the state-owned enterprises) to revitalize old industrial bases in the Northeast. To some extent, these policies eased many conflicts in the development process of the Northeast, but they had very limited impact as they were not well incorporated with reforms. Under the new historical conditions, to implement plans to revitalize old industrial bases in the Northeast, we must combine development policies with reform strategies, promote development with reform, and provide long-term development impetus by establishing new systems. In particular, we must nurture new market actors in the strategic restructuring of the state-owned economy; complete corporate governance structure during state-owned enterprise system reform; set up and perfect the new social security and public-good provision systems in the process of separating the major and side business operations of enterprises; effectively transform the function of government in the process of separating enterprise and government administrative responsibilities, and shift the focus of government effort to the creation of good investment environment and safeguarding fair competition environment; and, in the process of reforming old industrial bases in the Northeast, gradually establish a regional economic revitalization and development pattern dominated by large, medium-sized and small enterprises.

II. Promote State-owned Enterprise Reform in an Orderly Way by Types and by Steps

There are over 4300 state-owned and state-controlled industrial enterprises above designated size in the Northeast. In 2002, their gross output accounted for around 70% of total output of the state-owned and non-state-owned industrial enterprises with economy of scale. One of the key issues of revitalizing the Northeast is the SOE reform and development, and the important content of state-owned enterprise reform is the exit of state capital from some competitive areas. As the Northeast holds large amount of state assets, which covers wide areas and provides lots of jobs, the exit of the state capital may generate serious turbulence. Therefore, it is imperative to find out which competitive areas that the state capital should exit from, and when, how and at what costs should it exit. The restructuring of the Northeast economic strategies is a very complex process. It is necessary to research and formulate a set of careful exit plans and programs, so as to reform and restructure the SOEs on the basis of guaranteed rights and interests of the state capital and the due interests of the original staff and workers.

III. Create More Space for the Development of the Small and Medium-sized Enterprises

Prosperity of regional economies can never be independent from coordinated development of large, medium-sized and small enterprises, as well as their mutual cooperation and support. Historically, the enormous and the sophisticated system of the state economy in the Northeast limited the SME development. To revitalize old industrial bases in the Northeast, it is imperative to promote synchronized development of large, medium-sized and small enterprises.

The large size of the state-owned enterprises in the Northeast was determined by two factors. One is the characteristics of industries in the Northeast. The other is the infinite expansion of operation and social responsibilities of the enterpriese. While the former is a reasonable determinant, the latter is not. For the Northeastern region, one of the important directions of SOE reform is to raise the levels of specialized production and social labor division through separation of major and side businesses and improve the supporting production and service systems. On the one hand, enterprises’ social responsibilities should be lifted step-by-step; government responsibilities (such as providing compulsory education) should be handed over to the government; and social responsibilities (such as running hospitals) should be discharged to the society. On the other hand, side businesses with no industrial association to enterprises, or with industrial association but no operation advantage, should be separated from the enterprises. Thus, more space will be created for the development of the small and medium-sized enterprises, as well as preconditions to increase the core competitiveness of large-sized enterprises.

IV. Refine Market Targeting of the Equipment Manufacturing

Industry Currently, China is already a large consumer of products of the equipment manufacturing industry. In 2002, the total value of import for machinery and transportation equipment reached around US$140 billion. The development of the equipment manufacturing industry is backed up by a huge potential demand. Having been an important equipment-manufacturing base in China and with its rich human resources and strong R&D capability, the Northeast region possesses certain foundations for further development of the equipment manufacturing industry. The equipment manufacturing industry is an enormous industrial system. The more the progress of technology, the larger and the more complex the system becomes. With global integration, there is no region or country that enjoys production advantage in every linkage of equipment manufacturing, and there is no need to possess such an advantage. The development of the equipment manufacturing industry in the Northeast must take into account of the broad background of global integration, as well as the equipment manufacturing capacities of other regions in China, especially the new capacity generated during industrial restructuring in the coastal regions. It is imperative to re-assess and determine the advantages and development orientations of the manufacturing industry in the Northeast, identify certain linkages in the chain of equipment manufacturing industry through detailed division of industries and markets, adopt clear and unified approaches, and produce strong international competitiveness as soon as possible.

V. Establish Opening Up Concepts that Integrate the Northeast into the Global Economic System

With gradual economic globalization, worldwide regional cooperation has also become more active. Bordering Russia, Mongolia, the People’s Republic of Korea and the Republic of Korea, the Northeast is China’s front line in the regional cooperation of Northeast Asia, and has the conditions and potentials to cooperate with neighboring countries and regions. However, the opening up of the Northeast should target on a broader area, and aim at integrating into the global industrial chain and industrial systems.

VI. Establish a Regional Cooperation Framework and Pattern for the Three Northeast Provinces with Its Own Characteristics

Strengthening cooperation among the three Northeast provinces is conducive to the revitalization of the Northeast. On the one hand, cooperation among the three provinces will promote cross-province asset restructuring and factor movement as well as optimize economic restructuring in the whole region through strengthening of overall planning and unified planning of infrastructure construction, and environment restoration and protection. On the other hand, given the weak complementarity and strong homogeneity of the economies of the three provinces, when establishing the new industrial division and cooperation systems, the three provinces must attach great importance to the internal horizontal division of industries and manufacturing industries, and realize competition in opposite positions through division and heterogeneity of homogeneous industries.

Moreover, the three Northeast provinces must also attach importance to cooperation with other regions in China, such as cooperation with regions around Bohai Sea, and with Inner Mongolia in the areas of energy, ecology, agriculture and animal husbandry.

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