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Economy

As China sneezes, its resource-dependent northeast catches cold

Heilongjiang Gov. Lu Hao, a rising star in China's Communist Party, woos Japanese investors at a June 16 event in Beijing.

DALIAN, China -- Three provinces in northeastern China are trying to shake up the structure of their struggling, resource-dependent economies. Heilongjiang, Jilin and Liaoning provinces are suffering from downturns in their key resource and shipping industries due to an increasingly sharp slowdown nationwide.

     The three were among the five slowest-growing Chinese provinces and centrally controlled municipalities in the January-March quarter. Heilongjiang, Jilin and Liaoning hope to promote tourism and other service industries, but they face a tough slog.

Sales pitch    

On June 16, Heilongjiang Gov. Lu Hao made a passionate pitch for investment to Japanese companies. At meeting between provincial officials and prospective investors at a hotel in Beijing, Lu spoke for an hour, touting Heilongjiang's economic potential and calling on his guests to get in on the ground floor.

     Lu stressed the advantages Heilongjiang offers in agriculture and information services. He also boasted of its highly trained labor force, citing the 80 universities located in the province bordering Russia.

     Lu is seen by many as an up-and-coming leader, and his presentation attracted a large audience. He is China's youngest-ever governor and it is widely rumored that he is being groomed for a top post in the Communist Party. As people thronged the banquet hall to get a peek at a future member of the elite, latecomers were forced to stand.

     But few of the business people who listened to Lu's speech stayed for the chat session afterward. One senior Japanese executive said that although people were eager to make the governor's acquaintance, they did not see a lot of opportunities in the province.

Old model

Heilongjiang's economy grew by 4.8% during the first three months of this year. Jilin did better, with growth of 5.8%, while Liaoning crept along at a 1.9% rate. But they were all well below the national average of 7.0%, and the numbers point to serious and unique structural problems in the northeast.

     One common ailment is an industrial structure that is out of step with a changing global economy. China's northeast was built on resources that came out of the ground -- coal, oil and iron ore. For decades, these industries thrived. Along with them grew a shipping industry to carry these riches to destinations in China and abroad.

     Now demand for these raw materials has withered and oil prices have plunged. The softening of the domestic and global markets for resources has been a body blow to mining and shipping in the region. And many of the major players are state-owned enterprises that are less than enthusiastic about reform.

Cracking the whip

In April, Premier Li Keqiang, alarmed by the slowdown, visited Jilin's capital, Changan. It was Li's first local inspection tour after the annual spring session of the National People's Congress. Li told the provincial chiefs the region's the dismal economic figures were "painful to the heart," pointedly reminding them that he once served as party secretary of Liaoning.

     He urged the governors to ensure that their provinces meet their economic targets this year, hinting they would be held responsible if they failed.

     Facing political pressure from Beijing, Heilongjiang, which up to now has not had close ties to the Japanese business community, is trying belatedly to attract Japanese investment.

     The three provinces are pinning their hopes on service industries such as tourism. Jilin has teamed up with Wanda Group, a major property developer, to build a leisure complex consisting of a hotel, a ski slope and a hot spring in Changbaishan, a mountain resort known for its beauty. Liaoning is focusing on caring for the elderly, hoping to cash in on China's graying population. But all three provinces have just begun reforming their economies; it will be years before they see results.

     Meanwhile, China's once red-hot economy is cooling fast. Many market watchers believe data due out in mid-July will show the country's GDP growth in April-June fell below 7%. Given these harsh conditions, the three northeastern laggards may have a difficult time catching up.

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