Engine of Chinese economy pressurized by growing pains

Beijing (China)—The booming eastern regions of China, the Yangtze River Delta and the Pearl River Delta in particular, or the engine of Chinese economy, are being compelled by a string of thorny problems to kick off a transformation of economic growth pattern.
It is believed that the problems, including mounting production costs and aggravating environment, will conspire toward weakening stamina for the regions to maintain their rapid growth that astonished the outside world impressively over the past two decades. In the first three quarters of this year, both the deltas continued to post fast economic growth. The growth rate for Shanghai and the provinces of Zhejiang and Jiangsu in the Yangtze River Delta ranged from 12 percent to 15 percent.
But economists took an ambivalent attitude towards the growth. The price hike for energy worldwide, which began in 2001, reached the climax this year, driving up production costs for Chinese enterprises. Local statistical bureau said in the first half of this year, industrial enterprises in Jiangsu witnessed 15.7-pct rise in prices of fuels and power supply, and their overall production cost soared 29.8 percent. Following suit, oil and related products were priced 35.8 percent higher in the first three quarters, and building materials, 72.5 percent.
In the first ten months this year, industrial enterprises in Shanghai paid 4.3 percent more, as compared with a year earlier, for raw materials, fuels and power supply. In contrast, the ex-factory prices for their products climbed up 0.3 percent timidly, according to sources with the municipal bureau of statistics. The picture was not rosy either for Guangdong Province in the Pearl River Delta. Local statistical sources said between 2000 and 2005, consumer price index went up 15.4 percent, while ex-factory prices for industrial products declined 2.6 percent for the same period. The two factors combined to erode profitability of businesses.
“Energy and raw materials, such as oil, iron ore and copper, had their prices surged, which shored up a price hike for transport and power and water supply as well as for a wide range of products, including home electrical appliances, decorative materials, wooden goods, and farm produce. This was rarely seen over the past 10 years,”said Tian Boping, head of the economic and social consulting center under the Jiangsu Academy of Social Sciences.
The economic structure in the two deltas is still supported by manufacturing industry, which started and thrived with low cost and now features low technology, low price and low profit. Most of the enterprises there had weak tolerance against increasingly higher cost. “With the advent of a high-cost era, it is imperative for China to shift from the traditional low-cost-based growth mode to an innovation-based one,”Tian concluded. The shift process will take time, however, Tian said. “The coming few years will be a period of readjustment for the two deltas, which will have their economic growth slow down but economic quality improve.”
Extensive economic growth will continue to exist for a certain period to come in the regions, Tian added. Another thorny problem behind the growth mode is environmental pollution. The prosperous township economy once won reputation for both Yangtze River Delta and Pearl River Delta in business circles around the globe. But the rural industrialization there was achieved at expense of environment. Most of township enterprises there engaged in processing, galvanizing and dyeing. Moreover, heavy chemical industry, which ensures high profit but causes heavy pollution, has thrived over recent years in eastern China. Out of the major 16 cities in the Yangtze River Delta, nine cities have designated the heavy chemical sector as one of the pillars for their economic development.
Shen Manhong, an economist with the Zhejiang University, believes industrialization process in eastern China was much quicker than developed nations, thus threatening environment more seriously. Shen cited Zhejiang as an example. It took the province only 10 years to increase its per-capita GDP from 1,000 U.S. dollars to 3,000 U.S. dollars. In comparison, the process took Japan 50 years and Germany and the United States even 80 years.

—Daily Mail, People’s Daily news exchange item