Economy

China's economic core yet to shift inland: Economists

(Xinhua)
Updated: 2010-10-05 16:47

NANCHANG - In May, Liu Junwei, head of Refiner Technology Corp, moved his company to Nanchang, capital city of Jiangxi province, and away from the southern boomtown of Shenzhen.

Liu's company makes LED screens, which are exported to the United States, Japan and European countries. Rising labor costs and a shortage of labor in Shenzhen made him decide to shift inland.

"In Shenzhen, it has become impossible to hire a skilled worker for the usual monthly pay of 1,500 yuan ($223.8)," Liu said. The monthly minimum wage was 1,100 yuan for a worker in Shenzhen, but in Nanchang, the level falls to 720 yuan.

Liu has hired more than 130 staff in his new plant and planned to recruit 370 more workers. He anticipates revenues of $50 million this year.

Like Liu, increasing numbers of manufacturers are relocating their plants from China's east coast or building new plants in the inland region.

A main role of the inland region in China's boom of the past three decades has been to supply labor to the coastal areas. However, the industrial community is now moving inland from the eastern and southern provinces.

Economists believe the inland shift could be crucial to China's economic prospects. As the country seeks sustainable growth during increasing economic uncertainties, the accelerated development of the inland would provide a new boost, they said.

On September 6, the Chinese government released a directive to encourage the process of relocating industry inland. Taxation, finance, investment and land policies would be used to support the effort, according to the directive.

It warned local officials to adhere to a market orientation and avoid administrative meddling.

The preferential policies, improving transportation infrastructure and huge market potential all become the main attraction of the inland region, Zhang Zhiwei, an analyst at China International Capital Corporation, said in a report e-mailed to clients.

According to the report, since 2008 the Pearl River Delta and Yangtze River Delta regions have been less attractive for foreign investors, compared with the inland provinces, because of rising labor and land costs.

For the inland region, industry transfers would promote the increase in government revenue and residents' earnings, which would then boost investment and consumption, Zhang said.

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However, it is still not the time to say industry transfers would lead to an inland shift of China's economic core as many challenges remained, economists said.

After four months operating in Nanchang, Liu found the business reality was not as ideal as he previously thought. For him, the trouble is overall costs increased 20 percent because of higher logistics spending as he had to turn to Shanghai ports for import and export.

Further, workers' production efficiency was lower here, he said.

Considering the production efficiency problem, the inland areas' labor advantage would decrease, said Shen Minggao, chief economist for Greater China at Citigroup. Higher operating costs would also make the inland region lose its lustre, he said.

To help the central and western regions catch up with the coast, China has many regional development plans, including plans to develop the western region, to promote the rise of the central areas and rejuvenate the northeast industrial base.

However, in terms of infrastructure facilities, industrial coordination capability and investment environment, China's inland lags further behind the east coast, said Zhang Jianqing, deputy director of the Institute for the Development of Central China of Wuhan University.

There might be a long way to go before the inland region turns to the core of China's economy, he said.