IN LINE FOR PROSPERITY

By RICHARD MULLINS

A look at the ongoing “5 points in 1 line” coastline development project in Liaoning, Northeast China

Liaoning Province in Northeast China was once the country’s industrial engine. Within a decade of New China’s founding, it was churning out everything from coal and steel to fighter jets. But the engine spluttered out in the mid-1990s, when many of Liaoning’s state-owned enterprises restructured or shut down completely due to bankruptcy, cavernous inefficiencies or new anti-pollution regulations. Millions were laid off, and as China was at that time concentrating on the eastern and southern seaboards, the outlook for Liaoning wasn’t pretty. However, a new drive to revitalize the Northeast, galvanized by closer economic cooperation between Northeast China, Japan and South Korea, is breathing new life into Liaoning and beyond.

In June 2005, China’s State Council unveiled a list of preferential policies including financial, land use and tax incentives aimed at attracting more foreign investment to Northeast China, as part of a comprehensive plan to revitalize the country’s old industrial bases. Given the proximity of Japan and South Korea to Northeast China – not to mention the spiraling wage and development costs in those two countries – it’s likely that much of that FDI will flood in from the pair. The volume of trade has been surging among the three nations and, despite certain political tensions, expansion continues to accelerate.

The resulting dramatic increase in transnational shipping has strained the capacity of the Northeast’s traditional port, Dalian. The bulk of Northeast China’s imports and exports have long entered and exited the country through Dalian, and the port’s already burdened infrastructure will not be able to handle the projected surge in foreign trade. Thus the State Council gave Liaoning Province the go-ahead to carryout its “5 points in 1 line” project – a large-scale coastline development project that is intended to exponentially increase the capacity of the five ports sharing the waters of Bohai Bay, as well as expanding existing industries and encouraging the development of new enterprises.

The “5 points” are Huludao/Jinzhou, Yingkou, Changxing Island, Huayuandao/Zhuanghe and the border city of Dandong. Each has its own set of strengths – some are competitive, but most are complementary. The five points are already involved in industries like shipbuilding, petrochemicals, machine manufacture, auto parts manufacture, aquatic products and much more, and plans are afoot to boost output in all of them. Moreover, the five points are encouraging new investment in high-tech and other clean industries.

The “1 line” is literally realized by a 1,443-kilometer-long world-class expressway that will soon extend from Huludao all the way to Dandong. Other areas of the region (the rest of Liaoning, Jilin, Heilongjiang and Inner Mongolia) are accessible by good and improving road and rail networks. Five highways currently link all the points from Huludao to Dandong, but these are internal transport networks. The new expressway will link all of the “5 points in 1 line”, facilitating the easy transport of goods between any two of the points and further into the hinterland.

The five points will comprise a competitive and cooperative heart that will pump business in and out of the region, and investors are already lining up. A host of domestic and foreign companies have signed investment agreements, and interest is starting to snowball. One hundred Japanese business leaders were invited to attend a recent investment exposition in Liaoning, but 300 showed up to investigate plans, proposals and prospects.

In large part the Japanese came to examine the “5 points in 1 line” project’s preferential policies, a comprehensive set of incentives developed to maximize competitiveness and attract foreign investors. The policies cover, among other things, income tax exemptions, credit services, financial support for export-oriented enterprises, business administration charge exemptions and tax refunds on reinvested profits. Moreover, each point on the “5 points in 1 line” project has certain policies tailored to suit its own particular strengths.

Development costs along the five points are astonishingly low – in some parts the cost per square meter of ground is RMB 60 (US $7.50). The bargain prices are due largely to the fact that the majority of the land is either wasteland, or is already zoned for industrial use. Vice Governor of Liaoning Province Li Wancai explains, “Most of the land to be developed is totally state owned. This allows us to develop our area without forcing farmers off their land.” Thus relocation and rezoning costs do not enter the equation when the development cost is being calculated.

It may be surprising to some, but the world’s most populous country is facing a shortage of labor – a shortage of skilled labor, at least. Nowhere is this situation more acute than in southern China, in and around the Pearl River Delta and Guangdong. These areas have thrived since reform and opening up, but most of the workers in the factories of today were tilling the fields of yesterday. Thus investors in these areas must fork out extra cash to bring workers up to speed, or pay top talents higher salaries to lure them to a new location.

However, labor is not a complication in Liaoning, with its tremendous advantages in human resources. According to Vice Governor Li Wancai, 1.87 million people lost their jobs when the state-owned enterprises closed down or restructured. But they did not lose their skills. With further training in the province’s excellent vocational colleges, Liaoning is generating a huge pool of skilled, professional workers for a competitive local job market.

But is there too much of an overlap in expanding five ports and industrial parks with similar advantages in such close proximity? Are too many pigeons chasing the same crumb? Not really, says Li Wancai. “At a glance, the five points do seem similar, and indeed there are congruities. But they also complement each other. Each point has its own strength, for instance shipbuilding in Huludao/Jinzhou, refineries and petrochemicals in Yingkou, so they are also very different. In any case, competition will be healthy for the area – it will not be malicious.”

What’s more, the “5 point in 1 line” project is underway while the Northeast’s inland industries are strengthening, the remaining state-owned enterprises are modernizing, and all the while trade is booming between China, South Korea and Japan. The ports even hope to support trade between Northeast China and Southeast Asia. Says Li Wancai, “I believe that by implementing this strategy, all five points in the line will be effectively used, at which stage we’ll explore further opportunities along the northern coast of Liaoning.”

So the great old giant of the Northeast stirs once more, and again, its strength will stem from Liaoning. The province boasts an attractive environment, abundant natural resources, and its responsible and creative leaders are determined to ensure the project’s success. Says Li Wancai, “The ‘5 point in 1 line’ project is just the starting point of Liaoning’s rejuvenation. It will be the driving force behind the development and common prosperity of the rest of the province.” If he’s right, that would be good news for the region and the nation as a whole.