Traditional powerhouses splutter as inland regions go full throttle

Growth in central and western regions was stronger than the traditional coastal powerhouses in the first six months of the year.

The shift was due mainly to the transfer of technology and manufacturing, a focus on infrastructure and declining exports, analysts said.

A total of 22 provinces, autonomous regions and municipalities published their first-half growth figures, after the National Bureau of Statistics reported 7.8 percent national growth earlier this month.

Guizhou province, in Southwest China, registered the highest first-half growth of 14.5 percent, while Beijing and Shanghai were neck and neck with 7.2 percent expansion, the lowest score, in the first six months.

While these figures would be remarkable in almost any other country they do represent a relative slowdown.

"This is due to global conditions and measures initiated by local authorities to transform the economy, which, have made progress," Yan Jun, chief economist at Shanghai's municipal bureau of statistics, said.

Shipped exports from Shanghai dropped 5.1 percent year-on-year, but non-store retail sales jumped 52.3 percent.

"The service sector has contributed 6 percentage points to the 7.2 percent growth," Yan said, adding that the proportion of the real estate sector in the city's economy fell by 0.9 percentage points.

Most regions in East China, apart from Tianjin and Fujian, reported growth lower than 10 percent, while inland provinces were growing above that level.

Guangdong province remained the largest in terms of economic clout but even here growth fell by 2.7 percentage points to 7.4 percent for the year.

"Shrinking exports are having a bigger impact on costal provinces, such as Guangdong and Zhejiang," said Zhang Qizi, assistant director of the Institute of Industrial Economics at the Chinese Academy of Social Sciences.

"It will be hard for these costal provinces, with their small manufacturers, to see a quick rebound in growth," Zhang said.

Xu Fengxian, also an academy researcher, said that national growth targets would be harder to meet.

"The eastern provinces accounted for more than half of the country's overall economic output, so if their growth drops below 7.5 percent it will be a difficult for the country to achieve its GDP growth target for the year."

Zhu Haibin, chief China economist at JP Morgan Chase & Co, said policy fine-tuning in the next two months will be crucial for the survival of manufacturing companies along the coastal area.

"The most dangerous threat for the economy in the next six months will be consecutively declining corporate profits, which are expected to reduce company investment and weaken domestic demand," Zhu said.

JP Morgan recently lowered the growth outlook for the whole year to 7.7 percent from 8.2 percent.

"The economic slowdown was an aftereffect of the massive stimulus taken in previous years, which was like giving a cardiotonic shot to the patient, he will have to digest the side-effect after all," Zhang said.

However, it seems that the short-term stimulus is still on the cards for western provinces.

Most economic growth in Guizhou province in the first half was driven by fixed asset investment. Guizhou's investment picked up 60 percent, year-on-year, to 346 billion yuan ($54 billion), while another 400 billion yuan is scheduled for the second half.

Ministry of Commerce data showed that foreign capital flowing into central and western regions increased by 14 and 28 percent, while nationally the figure grew by 10 percent.

To restore growth, investment remains the key component in areas such as infrastructure, the environment, new energy and affordable housing, said Zhu, who expected an additional fiscal easing in this year's budget.

"In the long run, the government's policies need to shift to reduce the role of public investment and encourage private capital to inject into growth-support investment projects," he said.

"Investment-driven growth is still the most effective way to boost growth for the western regions, as it has a higher marginal effect than in the east," Zhang said.

"The western provinces are following the same development pattern as the eastern regions did a few decades ago, receiving relocated manufacturing.

"But in the long run, the western regions will eventually face the same problem the eastern provinces are facing today," he said.

But for business owners of coastal enterprises, survival is the immediate concern.

Jiang Lei, who runs a shaver company in Wenzhou, East China's Zhejiang province, said he is struggling to keep his factory running.

Orders have shrunk by two thirds.

"I have to lay off employees or I cannot make it," he said.

Contact the writers at weitian@chinadaily.com.cn, chenjia1@chinadaily.com.cn and xieyu@chinadaily.com.cn