From Andrew Batson's blog, September 1, 2017:
Over the past week or so, an impassioned debate has broken out over
what should be done to help China’s struggling rust belt in the
Northeast. Justin Yifu Lin, perhaps China’s most famous living
economist, sparked the debate when his think tank released a long (400+
pages!) report proposing an industrial policy strategy for Jilin, one of
the three Northeastern provinces. The report’s recommendations were
seemingly innocuous–develop more light industry, tourism, and
agriculture-related businesses–but they nonetheless attracted vociferous
online criticism.
Why? The summaries in the English-language press (see the SCMP and Caixin)
give the impression that it’s a debate over whether government policies
should promote light industry, or something else. If that were the
case, this would be a typical academic tempest in a teacup. In fact, a
lot more is at stake: the debate over what to do about the Northeast
(aka Dongbei, aka Manchuria) involves fundamental differences over how
to understand Chinese economic history and the development trajectory of
countries and regions really develop. The debate over how to help such
struggling regions is also one where conventional Western economic
wisdom has little to offer,
so the field is wide open. After doing some reading on both sides,
here’s my guide to the debate (warning: this is a long post).
Let’s start with the “Jilin Report” itself (the full Chinese-language text
is available at the Center for New Structural Economics, Lin’s think
tank at Peking University). I’ve only read the executive summary, which
is not particularly short either, but the main points are pretty clear.
The background for the report is the long-term economic decline of the
Northeast, once the most industrialized part of China, despite more than
a decade of national plans and programs aimed at “revitalizing” the
region. The core argument of the report is that the government needs to
learn from the mistakes of previous policies (this quote and all
subsequent ones are my translation):
Before the reform era [began in 1978], the old industrial
base in the Northeast benefited from the nation’s promotion of a
heavy-industry-focused catch-up development strategy. But in the reform
era, the Northeast has suffered from the legacy of this strategy, and
its industry, products and technological structure lack market
competitiveness. The “revitalize the Northeast strategy” therefore must
be a development strategy that is in line with the Northeast’s own
comparative advantage, and must not result in the launch of a new round
of the old strategy. …
To speak frankly, the first round of the “revitalize the Northeast
strategy” from 2003 to 2016 still relied on trying to strengthen this
old-style catch-up strategy that went against comparative advantage
rather than following it. A research project based on industrial
enterprise microdata from 1999-2007 shows that the strategy helped
enterprises expand output value, but did not increase profits. A
strategy that expands the output of enterprises that are not viable is a
strategy that goes against comparative advantage.
The importance of this statement has I think gotten lost in the some
of the ensuing debate over the report. It matters a lot that China’s
most famous economist has come out and said, in so many words, that the
decade-long government policy for revitalizing the Northeast has been a
complete failure and is fundamentally flawed. This judgment is in my
view absolutely correct, and in fact none of Lin’s critics are arguing
against it (if anything, they would likely be even more harshly critical
than he is). If the debate over the Jilin Report does nothing else, it
should make very clear that more aid to state-owned heavy industry is
not the answer to the Northeast’s problems.
What strategy should replace the old, failed strategy is less
obvious, and this is where opinions really diverge. Essentially, Lin’s
report argues that Jilin is an underdeveloped, low-income province,
whose industrial structure is excessively weighted toward heavy
industry. Therefore Jilin should do what underdeveloped, low-income
countries and regions that have successfully developed have all done,
which is focus on light industry. Jilin can do some of this by
attracting textile and electronics manufacturing facilities that are
being relocated out of high-income coastal provinces, but it can also
develop industries that take advantage of its particular natural
endowments, such tourism in its many wilderness areas. (Side note:
Changbaishan, an extinct volcano that straddles the border with North
Korea, is in Jilin province, and in fact it is one of the most
spectacular natural wonders I’ve ever seen, easily on par with national
parks in the U.S. The site is also extremely well maintained and managed
despite the huge volume of tourists.)
The article that helped spark the online storm of commentary focused
on this idea that light industry will relocate from coastal provinces
from Jilin. Written by Sun Jianbo, an economist at China Galaxy
Securities, it pulls few punches in going after the much more famous Lin:...MORE
