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Widened Economic Gap between Southern China and Northern China: Causes and Countermeasures

Dec 16,2019

Jia Shen

Research Report Vol.21 No.6, 2019

China’s economic development in recent years has been marked by the rise of the South and the decline of the North. As China strives for the coordinated development among regions, it is necessary to study the main driving forces behind this trend and develop targeted policy measures accordingly.

I. A long-term Pattern of China’s Regional Economic Development since Reform and Opening up

Since the reform and opening up, northern China has seen its position in the national economy going through a four-stage change: from 1980 to 1995, its GDP accounted for an increasingly smaller proportion of the national GDP, dropping from 45.9% to 41.4%; from 1995 to 2002, the ratio remained largely stable, ending 41.7% in 2002 and with a change within 0.5%; from 2002 to 2008, there was a slight rebound and the figure rose slightly from 41.7% to 43.2%; and from 2008 to 2018, the ratio plunged from 43.2% to 38.5%. Generally speaking, the rise of the South and the fall of the North has been a long-term pattern of China’s regional economic development since the reform and opening up (Figure 1).

The secondary industry has played a major role in the change. From 1980 to 2018, the northern region has taken an increasingly bigger part of the added value of China’s primary industry (from 39.4% to 41%), but a decreasing proportion of that of the tertiary industry (from 44.7% to 38.7%). However, the biggest decrease took place with the secondary industry, diving from 50.2% to 37.8%. In the latest stage of the change in China’s regional economic pattern from 2008 to 2018, the proportion of the added value of northern China’s secondary industry in the country’s GDP has plunged by 6.9 percentage points. In contrast, the tertiary industry has seen an increase of 3.6 percentage points.

II. The Fall of the North is largely due to its Long-term Dependence on Upstream Industries

Northern China is blessed with most of China’s reserves of petroleum, coal, iron, and other resources. During the planned economy period, it was the pioneer in industrialization as resource and energy sectors provided the basis for industrial development. Northern China used to play a major part as China strived for industrialization and productivity enhancement.

Since the reform and opening up, the northern region has seen rapidly growing upstream industries, but the development of its downstream industries has significantly lagged behind those of the southern region. A look at how much northern China has accounted in the national output of typical industrial products will show us the drastic differences in the industrial structure between the north and the south. 12 industrial products have been selected for our study, including crude oil, natural gas, coke, steel, cloth, chemical fiber, color TV, refrigerators, air conditioners, automobiles, mobile phones, and microcomputers, covering sectors of varied degrees of industrial complexity, capital intensity, and consumption attributes and typical industries of the first three major industrial revolutions in human history, i.e. the steam technology revolution, the power technology revolution, and the information technology revolution.

Table 1 shows that when China began reform and opening up, the output of most typical industrial products in the northern region accounted for 40%-50% of the country’s total, except for petroleum and coke. This was basically in line with the share of the northern region in China’s national economy and population and reflected a relatively balanced industrial structure. In the years following the reform and opening up, the northern region has not seen significant changes in terms of the proportions of output of upstream industrial products, except for natural gas and steel where the ratio has witnessed an increase. However, when it comes to downstream products, the northern region has been struggling with a sharp decline. In 2018, northern China produced 91%, 64%, 78%, and 59% of the country’s crude oil, natural gas, coke, and steel, only 20% and 7% of its cloth and chemical fiber, 16%, 15%, and 20% of its color TVs, refrigerators and air conditioners, and 35%, 22%, and 2% of its automobiles, mobile phones, and microcomputers. In general, clear signs since the reform and opening up show that northern China is still at the initial stage of industrialization (Table 1).

Too much dependence on upstream industries has largely contributed to the fall of the North. Our analysis of the growth rate of the total national output of 12 typical industrial products over a period of time shows that since the reform and opening up, downstream industries have been growing at a significantly higher speed than upstream industries and representative industries of a latter industrial revolution much faster than those of the previous industrial revolution (Table 1)[ In the last column of Table 1, data are only provided after the year 1996. That’s because for some of the 12 selected industrial products, data before 1996 are not available.]. Since the mid-1990s, the average annual growth rate of the output of such industrial products as crude oil, coke and natural gas has been less than 10%, which forms a sharp contrast with the over 10% average annual growth rate of such electrical appliances as refrigerators, air conditioners, and automobiles and the 30% average annual growth rate of mobile phones and microcomputers.

Thanks to the relatively rapid growth of China’s upstream industries from 2003 to 2008, the northern region saw a temporary rebound in terms of its share in the national economy, only to be reversed by a sharp drop after 2008. As shown in Table 2, 6.9% and 9.1% of the revenue of industrial enterprises above designated size came from the mining industry and the ferrous metal smelting and rolling processing industry in 2008, up 1.9% and 2.0% respectively from 2003. In the same year, industrial enterprises above designated size derived 6.6% and 8.6% of their total revenue from the transportation equipment manufacturing industry and the communications equipment, computers, and other electronic devices manufacturing industry, down 1.1% and 2.5% respectively from 2003[ In Table 2, the industrial structure is measured by the operating income of industrial enterprises, simply because there are no complete data concerning the output of each industry from 2003 to 2018. As the value of operating income is close to the value of sales output, it is chosen as a fit alternative for measuring the industrial structure.]. In 2018, revenue from the mining industry and the ferrous metal smelting and rolling processing industry only accounted for 4.2% and 6.3% of the total revenue of industrial enterprises above designated size, an decrease of 2.7% and 2.9% respectively from 2008. As for the transportation equipment manufacturing industry and the communications equipment, computers, and other electronic devices manufacturing industry, the figure was 9.0% and 10.4% respectively, an increase of 2.4% and 1.7% from 2008 (Table 2).

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