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China to tackle "fortress economies" in new super-region plan

Source : REUTERS
Last Updated: Wed, Jul 23, 2014 11:30 hrs
Commuters wearing masks make their way amid thick haze in the morning in Beijing

China is readying an assault on the "fortress economies" of local governments by creating a super region around Beijing, with proposals that sources suggest will be more aggressive than so far has been publicly revealed.

The plans, expected to be considered by Cabinet on Wednesday, will be the first time that standards for customs, tax, pollution and industry have been unified across local government areas, the sources say.

Combining bloated Beijing, the smog black spot of Hebei province and the port city of Tianjin will create a region with a population of 110 million and an economy the size of Indonesia's in a move that encapsulates President Xi Jinping's ambition to overhaul the world's second-largest economy.

By challenging the power of local leaders, Xi wants to produce better allocations of wealth and investment, and get an environmental dividend.

Academics involved in the policy discussions said the government wants to improve the "layout" of the region by shifting industries such as car manufacturing and chemicals out of the capital, giving polluted Hebei an incentive to clean up and congested Beijing the breathing space it needs.

The integration will be driven by unified customs regulations, social service provisions, industrial standards and environmental rules across the three local governments, as well as cross-regional markets for labour, resources and investment, researchers and officials involved in drawing up the plans said.

They say China's "every region for itself" approach to economic growth is a cause of a wide variety of problems, including over investment, pollution and corruption.

"Right now, every official will think of his own region first - from the construction of projects to investment," said Zhang Gui, deputy-director at the Centre of Beijing-Hebei-Tianjin Development Research at the Hebei Technology University.

"Officials think this is 'our money' that belongs to 'our region', and they are not going to think about investing Beijing's money in Hebei or vice versa - this is quite a normal way of thinking," he said.

MANUFACTURING UNITY

Hebei, after years of defying central government edicts on issues such as industrial overcapacity, has been the prime target of a campaign to smash "fortress economies" and put an end to the growth fixations of local bureaucrats.

China has 34 provincial-level governments, including those that run the cities of Beijing, Tianjin and Shanghai.

"Breaking down these administrative barriers needs to be planned and coordinated by the central government - we cannot be selfish because that will hurt everyone," Qin Boyong, the vice-governor of Hebei, said in Beijing in mid-June.

"Regional competition is normal, but if you ignore one's own conditions, the comparative advantages are wasted," he said.

Unlike the Yangtze River or Pearl River deltas, cross-regional cultural and economic ties in Beijing, Hebei and Tianjin are effectively being created from scratch, said Zhang of Hebei Technology University.

"The biggest challenge, one that will take years to overcome, is the formation of a unified, effective, lively regional market -- that's what integration means," he said.

The relocation of industries, already taking place, will help better distribute the spoils of growth. A number of car and chemical plants are scheduled to move, including those belonging to the Beijing Automotive Group, which said earlier this year that it was moving its plants to the city of Huanghua.

Zhang said the eventual aim was to move all of Beijing's "non-capital functions", including all primary and secondary industries, out to Hebei.

Xiao Jincheng, researcher with the Regional Economy Research Institute at China's National Development and Reform Commission (NDRC), said the rapid growth of Beijing has not spilled over into Hebei, with the capital's per-capita income now more than double that of its neighbour.

"That there are so many poverty-stricken people on the outskirts of such big cities is outrageous - the surrounding regions of big cities are normally highly developed," he said at a conference in the steel making city of Tangshan in June.

"BIG CITY SYNDROME"

For Beijing residents, the payoff of spreading their wealth would be some relief from what policymakers call the "Big City Syndrome", where its drive to be all things to everyone has generated a congested, chaotic, polluted industrial metropolis.

"People have always said Beijing is absorbing too much resources and attracting too much of the flow of people and energy, and other regions have not benefited enough," said Wang Tao, climate and energy researcher at the Carnegie-Tsinghua Center for Global Policy.

Beijing's addiction to industrial growth has seen its output rise sixfold and its population soar by two-thirds in 14 years.

The plan would not only shift Beijing's industry and some of its government functions, but could also involve the relocation of as many as 5 million residents, according to local media reports citing Beijing government officials.

"The Beijing municipality has limited space and resources but it enjoys advantages in high-tech industries and in scientific research and development," said Yu Jianhua, head of the air pollution office at Beijing's Environmental Protection Bureau.

"If we can keep the design functions of these industries in Beijing and distribute the specific aspects of the sector in spacious areas in Tianjin and Hebei, such an integrated approach will contribute towards the improvement of our economic structure as well as air quality," he said.

(Editing by John Mair)


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