Old Northeast China Industrial Base Undergoes Major Reformation

Here is a rare picture: a customer walks into a pharmacy and cosmetics store, asks to buy something like a bottle of Aspirin, and the clerk coldly answers, "We have no stock." Why don't they restock when they run out of something? The clerk has a chilly reply to this, too: "We're operated by the government." Can being state-run be used as a reason for not restocking goods? This situation continues to exist in some cities in northeast China.

The three provinces of northeast China—Heilongjiang, Jilin, and Liaoning—are where China began its earliest development of an industrial base, back in 1946. The enterprises there were state-owned from the beginning, and the policy of reform and liberalization that was instituted 20 years ago did not have much of an effect; the ratio of private ownership in Jilin Province today is still only 28.2%, and this is somewhat of a drag on the economy. The biggest trouble is that "ownership by the state" is an empty term, and it is the provincial government that makes up 80% of the losses. The burden on the local government budget is extremely heavy, and the northeast is now being called the "old" industrial base.

The Heilongjiang Passenger-Vehicle Group is a faithful part of this "old industrial base," with an annual output of 4,000 cars that are exported to earn foreign currency. The company has assets of US$21.71 million, and its liabilities stand at US$20.64 million. Its operating revenue last year amounted to US$4.77 million, and its recorded profits were in the negative range to the tune of US$600,000. This is a classic "old industrial base" state-run enterprise, and it is a grave headache for the local government.

This old industrial base once had its season of glory, which the central government authorities in Beijing have never forgotten. This was the first part of China to be "liberated" by the communists, on Apr. 26, 1946. Shenyang was elevated to the status of a municipality under the direct jurisdiction of the central government; today, it has reverted to provincial jurisdiction and serves as the capital of Liaoning Province.

In the earliest years, all Soviet aid to China was used in the northeast, and the main force of the "resist America and support Korea" movement (China's participation in the Korean war) was centered here as well. During the 1950s and 1960s the strength of the entire nation was directed toward construction of the northeast, and one out of every 12 dollars in the government budget was used here. The northeast was booming, and it was the envy of all the country.

After 1970 the northeast could not escape the obligation of "the eldest son of the fatherland" to support the modernization of the interior. Today, 30 decades on, it has become "old" and unable to keep pace with the progress of the southeastern coastal areas; in addition, it still has to shoulder the burden of the "old" state-run enterprises. The central government leadership has found itself unable to countenance this, and in recent years has even raised the cry of "We've wronged this old base!"

At their 16th national congress, the Communist Chinese raised a proposal to support the old industrial base in the northeast in speeding up its restructuring and re-engineering, and in 2003 the State Council issued Document 17 calling for the development of the northeast into an important new industrial base for the country.

Action on this proposal was initiated in May 2004, when the State Council set up the ministerial-level Northeast Office and appointed Zhang Guobao, vice chairman of the national development and reform commission, as its chairman and Hong Xiaowu, head of the Macro Economic Research Institute, as its sole vice chairman. This unit constitutes an agency charged with promoting and implementing concrete policies and measures for revitalizing the old northeast China industrial base.

Party and government officials of northeastern provinces and cities have also roused themselves, formulating concrete methods, according to their own characteristics and needs, for carrying out the principles approved by the National People's Congress. A common point of all these measures is the disposition of state-owned enterprises through restructuring, reform, and sale. In this way, thorough solutions can be found for money-losing units like the Heilongjiang Passenger-Vehicle Group.

A key point of the program to revitalize the old northeastern industrial base is the re-engineering of state-run enterprises, and how this is to be done has become a focus of attention. For just about every provincial leader, the solution is the same: withdraw from all aspects of the state-run enterprises, including their original personnel and debts, so that existing plants, equipment, brands, marketing channels, and the other tangible and intangible assets that will be sold to private enterprises, without imposing any burden on the latter.

These leaders welcome domestic and foreign private enterprises and investors to seize the initiative and come in quickly to share in these resources. Beijing acted with alacrity, and the just-established Northeast Office invited a delegation of wealthy capitalists from Hong Kong and Macau , led by Liao Hui, head of the Hong Kong and Macau Office, to visit the Northeast in mid-June.

Jilin and Heilongjiang provinces provided information, for the reference of the delegation on 63 pieces of property for sale, including many prominent companies.

The city of Harbin in Heilongjiang Province offered machinery, vehicle-shaft bearing, lathe, industrial-ceramics, instrument, pharmaceutical, dairy-product, and foodstuff processing and manufacturing groups for sale. The province itself offered national treatment to investors from foreign countries as well as from Hong Kong, Macau, and Taiwan, with a series of such incentives as value-added-tax (VAT) offsets especially for the revitalization of the old industrial base. The response of the delegation, it is said, was that "better things were to follow.