A Tale of Two Chinas

choi

Andrew Browne, A Tale of Two Chinas; In the country's divided economy, state-owned industries stagnate in the heartland while private companies on the coast race ahead in the service of growing consumer demand. Wall Street Journal, Mar 5, 2016.
http://www.wsj.com/articles/chinas-two-speed-economy-1457110331

Quote:

(a) "Lopsided growth in a nominally socialist country is an especially thorny problem.

(b) 抚顺市:

"For a decade, the city boomed as China embarked upon the greatest building spree in history. A voracious nationwide demand for steel offered dreams of riches, even to workers picking for [metal] scraps * ** Once a national laggard, Liaoning province saw its growth peak in 2007 at 15% and continued to outstrip the national average until 2014. Then the property market [nationwide] started to crumble. The region paid the price for the colossal overbuilding spurred by a credit stimulus that Beijing unleashed when export markets collapsed after the 2008 global financial crisis. Liaoning's growth last year was just 3%. The city of Fushun is shrinking.

"A sense of betrayal adds to the distress of a protracted recession. A wide avenue that connects Fushun to the nearby provincial capital of Shenyang suggests what might have been. Civil engineers installed an electrified light-rail system on the middle of the thoroughfare. Real-estate developers threw up luxury condominiums on either side. But the anticipated influx of buyers never materialized. These days, people are fleeing the area, not arriving. Gleaming trams, mostly empty, glide past ghostly developments with names like 'Green Sunshine City' and 'Thai Garden Bay.'

"Much of the region's [Manchuria's] growth came from building infrastructure, not from economic activity it generated. Trickle-down economics was an illusion. So was the theory that inland areas were set for a new golden era as high land and labor costs drove investment away from the coast. 'Everyone said the baton of growth would pass to the interior,' says Andrew Batson, the China research director of Gavekal Dragonomics. 'It totally has not happened.'

(c) China’s eastern seaboard—Shenzhen, Guangzhou, Shanghai, Beijing:

"At the same time, however, some of the world's smartest investors are making the opposite wager: They are piling in. Last year, China attracted up to $37 billion in venture capital, much of it for technology hubs along the coast. That is more than the US typically draws in a year and multiples of what Europe usually pulls in.

"Gary Rieschel, the founder and managing director of Qiming Venture Partners 启明创投 [founded in 2006 and based in Shanghai], has just raised $648 million from a group of investors that includes Harvard, Princeton, Duke and the Massachusetts Institute of Technology. He ranks Chinese entrepreneurs as highly as any in Silicon Valley, and he says that China will lead the world in technologies like electric vehicles. 'It’s hard to deal with the rate at which things change,' he says.

(d) back to Manchuria:

"Who’s right? Politics will largely determine the outcome. * * * In the 1930s, Japanese militarists turned the area [Manchuria] into a puppet kingdom and built car plants, aircraft factories and chemical works. Later, Mao Zedong made Manchuria the industrial heartland of his command economy.

* * *

"China is still urbanizing. Its capital stock per capita—factories, locomotives, bridges and so on—is only a fraction of America’s, which means that demand for basic industrial goods won’t dry up. But the country may have reached peak demand; coal production is already declining. Fushun’s coal mines are exhausted.

(e) last paragraph: "If China fails, it will not be for lack of investment funds, talent or ambition; it will be largely because Mr Xi failed to open up the heartland to harsh market forces and risk social turmoil. It will be because he decided to surrender his economy—and the rest of the world—to the icy winds that howl through Fushun this time of year. It will be a Manchurian winter.

My comment: The essay is quite lengthy. There is no need to read the res, which is familiar to us.