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    China Business
     Jan 7, 2006
Slowing Yangtze delta lures Taiwanese

BEIJING - China's dynamic Yangtze river delta, with Shanghai as its hub, has lost some momentum due to the bursting of the property bubble, but authorities expect its economic expansion - though slower - to become more efficient and sustainable.

The combined economic output of 16 cities in the region, including Nanjing, Hangzhou and Suzhou, grew at an average pace of 14.1% in the first three quarters of 2005, down 1.9 percentage points year-on-year and one fifth of a percentage point from the first six months, official figures show. This was blamed on the roller-coaster real estate market, as the value-added from

Shanghai's real estate sector in the first half of the year grew only by 4.5%, plummeting an annual 15.5 percentage points, whereas in the delta provinces of Zhejiang and Jiangsu, the decreases even reached 20-30 percentage points.

But some economists disagree, arguing that the property sluggishness is the normal outcome of China's macro-control measures, a term referring to efforts made by the central government to cool down a number of overheated sectors in the economy over the past years.

To exaggerate the negative impact of the property slowdown is just like the inverse of the hysteria for its "underpinning" role in economic growth some years ago, they maintain. The delta's downsliding, though somewhat attributed to poor property performance, is primarily the "outburst of structural problems", analysts say.

Unlike most developed economies, which depend greatly on consumer spending, the Chinese economy - already Asia's second biggest after more than two decades of reform and opening-up - is driven largely by the growth of investment, especially spending on fixed assets such as property, roads and other infrastructure, as well as factory equipment. This has resulted in energy supply bottlenecks, especially of oil, which threatens the economy's sustainable development.

Total fixed assets investment in the Yangtze river delta, with macro-controls taking effect, added 1.16 trillion yuan (US$143.4 billion) in the first three quarters of 2005, up 19.5% year-on-year. The increase fell by 8.7 percentage points from 2004 and was for the first time lower than the nation's average growth, by 6.6 percentage points. The region also posted a drastic slowdown in real estate investment growth - from 35.3% for the same period in 2004 to 20.8%, again, 1.4 percentage points lower than the national average.

A research fellow with the Shanghai Municipal Economic Committee told Xinhua that he believes the delta should undergo a "revolution in the pattern of economic growth". The current real estate "cooling" and the downslide of economic growth can also be interpreted as "lending the Yangtze river delta an opportunity to restructure its economy," he said. "A temporary slowdown may not be a bad thing, if the region really seizes the chance to make its economic growth more efficient, improve local firms' innovative capabilities and sharpen the competitive edge of its industries."

Spokesman Zheng Jingping for the National Bureau of Statistics echoed his remarks, predicting earlier that the Chinese economy, which grew at a stunning 9.4% annual rate in the first six months of 2005, would slow to a pace of around 9% for the whole year. "A modest slowdown, if conducive to long-term, stable development, is very good."

In a recently mapped-out blueprint for China's development over the next five years, the Chinese Communist Party demanded domestic enterprises step up their "independent innovation", as the nation is liberalizing its market under World Trade Organization requirements.

The Yangtze river delta includes Shanghai and another 15 fast growing cities in neighboring Jiangsu and Zhejiang provinces, all of which are located at the mouth of this longest river in China. The region accounts for one fifth of China's total gross domestic product.

Yangtze allure for Taiwanese
The Yangtze Delta has replaced the Pearl River Delta as the region that attracts the most investment from Taiwanese entrepreneurs, China's media said in December.

Jiangsu province and Shanghai attracted 55% of Taiwanese investment in the mainland in 2004, up from 26% in 1993, while the corresponding figure for Guangdong province in south China and Fujian province in east China, both in the Pearl River Delta, decreased to 28% from 48%, according to the Taiwan Federation of Industries.

The Taiwanese investment in Jiangsu, Zhejiang and Shanghai in 2004 alone accounted for one third of the total Taiwanese investment in the mainland, estimated the investment commission of Taiwan's economic affairs authorities. The per-capita GDP of the Yangtze River Delta exceeded the US$4,000 level in 2004, roughly the same as that for a middle-income nation.

"The Yangtze River Delta has proved its status as the economic powerhouse of China, and it is highly possible it will become one of the powerhouses of the Asian and world economy in the next 20 years," said Shen Qingjing, a Taiwanese businessman who decided to "do big business in the mainland" 14 years ago. Shen studied other cities in the Delta after settling down in Shanghai, just the same as other Taiwanese entrepreneurs. He began investing in real estate in Yangzhou, a city in Jiangsu province, earlier in 2005.

The delta has overall superiority in attracting Taiwan investment, as it has advantages in the electronics and information industries, as well as in location, infrastructure, economic scale and human resources crucial for trade and investment promotion. "There is still considerable room in the delta for Taiwanese to invest," said Lu Xiaoyan, vice secretary general of the Shanghai Taiwan Institute.

In the delta, Shanghai acts as a bellwether for its outstanding status and influence. Shanghai signals trends in finance, the modern service industry and high-tech manufacturing for Taiwanese investment in the coming years.

Last year, the service sector in Shanghai realized 356.5 billion yuan (US$43.9 billion) in value added output. Different from Shanghai, which endeavors to develop a modern service industry, Jiangsu attracts Taiwanese investment by its mature industrial sector.

"Kunshan was attractive because it is near Shanghai, now the mature [industrial sector is] the key factor," said Qi Daofu, chairman of the Taiwanese businessmen's association in Kunshan, a city in Jiangsu. The electronic information and precision instrument industries are new areas for Taiwanese investment in Zhejiang, and the scale of investment is growing.

The Pearl and Yangtze river deltas have become two powerful engines for economic growth, accounting for one-third of China's total gross domestic product and 60% of the country's foreign trade, according to a recent Economic Daily report.

(Asia Pulse/XIC)

Growth cools in Yangtze river region (Jun 2, '05)

Haves vs have-nots in Yangtze River debate (Jul 24, '04)

China: tale of two deltas (Sep 6, '03)


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