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Policy Brief Shaanxi Province Economics Essay

The recent “Open Up the West” program in Shaanxi Province represents only the latest in a series of attempts to integrate the province into the Chinese national economy. Shaanxi Province’s central location made it the historical crossroads connecting the east, central, northwest and southwest parts of China. The Kuomintang government first tried to integrate Shaanxi with the Longhai railroad to Xi’an in 1935 and Baoji in 1938. During the Second World War, the Wei River valley became an important military, economic and administrative base for the war effort against Japan. China’s first Five Year Plan relocated many coastal industries and designated Xi’an as the main industrial center of north-west China. [1] Shaanxi Province also benefited enormously from the central government’s “Third Front” strategy of the 1960’s and 1970’s, which created much of Shaanxi’s coal mining, electricity production, defense industries, precision machinery and building materials industries. [2] The economic situation in Shaanxi Province, however, has changed dramatically since the reform era of the 1980’s.

Shaanxi’s tradition of State-Owned Enterprises (SOE’s) did not prepare it for a market economy during the reform era of the 1980’s. As a result, Shaanxi lagged behind the phenomenal growth experienced in the mainly eastern provinces. Its share in national investments dropped from over 4.5% in the late 1970’s to 1.7% in the 1990’s. Urban per-capita disposable net income was 10% below China’s national average during 1978 and 1990. This income gap had more than doubled by 1998. Rural income lagged behind the national average by 22% in 1990. This deficit increased to 35% in 1998. These shortcomings undermined economic and social stability. Shaanxi’s industrial output value grew 24% less than China’s average between 1990 and 1998. [3] By around 2000, Shaanxi’s Leaders attempted to reverse this lagging performance by promoting the “Open Up the West” strategy.

The “Open Up the West” campaign represents a more comprehensive attempt at national economic integration than earlier measures. While the campaign apparently returns to the greater planning of the pre-reform era, there are significant differences with past policies. Shaanxi Provincial leaders now realize that enterprises that can compete in the market economy rather than government can sustain long-term economic development. The “Open Up the West” plan seeks to develop infrastructure, extract natural resources while protecting the environment and to increase domestic and international tourism. The plan aims to develop advanced technology industries, reform former SOE’s into stronger domestically and internationally competitive firms and augment foreign trade. Lastly, the plan desires to reduce both urban and rural poverty by reducing the wage gap. While the exploitation of its abundant natural resources still provides the driving force behind Shaanxi’s economy, development proceeds in a largely liberalized market.

Shaanxi Provincial leaders also aim to strengthen both national unity and social stability through the “Open Up the West” strategy. It seeks to create employment for the laid-off SOE workers, reduce poverty by bridging the urban-rural wage gap, raise educational levels to prepare young people for jobs outside agriculture, and make the Shaanxi economy more competitive against coastal industries.

The potential success of Shaanxi Provinces “Open Up the West” strategy depends on tailoring state support to 37.62 million people living in three economic regions: north, central and south. Its three distinct geographical regions are not integrated economically. The developed central region, the Wei River valley, has 60% of Shaanxi’s population, 85% of its GDP and 90% of its industrial output. Shaanxi’s provincial capital, Xi’an, alone accounts for 40% of Shaanxi’s GDP. [4] The Xi’an area’s growth traditionally relied on SOEs that manufactured building machinery, textiles or armaments. Since the 1990’s, however, food processing, electronics, trade, tourism, communications, finance, high-tech, and the development of township and village enterprises have grown.

South Shaanxi, however, has found it difficult to cultivate the “soft” environment. Consequently it remains largely economically restrained by low population and few viable industries.

North Shaanxi’s remains relatively poor, but its abundant natural resources have led to a resurgent local economy. New power lines, pipelines and railways have linked its booming oil, gas and coal economy to north and east China. [5]

A majority of the population inhabits rural areas (57.9%). Even though fifty-four minorities live in Shaanxi province, Han ethnicity accounts for 99.5% of the total population, so there is very little social instability due to ethnicity. [6] Shaanxi Provincial leaders have been the most effective force in formulating and implementing the “Open Up the West” campaign to overcome these economic, social and environmental problems.

Provincial Leadership

The Shaanxi’s provincial leadership reflects the traditional Chinese Peoples Republic of China (PRC) structure with a Governor, Vice-Governors, a General Secretary and a Party Secretary. Governor Yuan Chunqing and Party Secretary Zhao Leji are Shaanxi’s top leaders. Vice-Governors include: Zhao Zhengyong, Hong Feng, Zhu Jingzhi, Zheng Xiaoming, Wu Dengchang, Yao Yinliang and Jing Junhai. The Shaanxi General Secretary is Qin Zheng. Several Shaanxi officials appear qualified for promotion within Shaanxi, to more influential provinces or Beijing. They include Governor Yuan Chunqing, Vice-Governor Zhao Zhengyong and Party Secretary Zhao Leji.

At 58 years-old, Governor Yuan Chunqing stands as one of China’s prominent “Fifth Generation Leaders.” Joining the party in 1971, he has risen through the ranks. His career benefited from 17 years of work in the Chinese Communist Youth League (CCYL) Central Committee (1980–97). This probably led to direct contact with the current President of China, Hu Jintao. Hu Jintao was a member of the Secretariat of the CCYL Central Committee between 1982 and 1985, while Yuan’s posts were Deputy Head of a section, Director of the Student Federation Office of the School Department and Deputy Director of the School Department. Yuan also served as a member on the Central Committee of the Central Commission for Discipline Inspection (CCDI) between 1997 and 2002. Yuan was later transferred in January 2004 to Shaanxi to serve concurrently as Deputy Secretary in March 2001 and Party Secretary of Xi’an, Shaanxi. [7] In 2006 he was appointed acting Governor of Shaanxi Province, which gave him full membership in the 17th Central Committee. He was elected to his current position of Governor of Shaanxi Province in 2008.

Governor Yuan Chunqing has a strong possibility of promotion within the Shaanxi provincial leadership to Party Secretary. Yuan has many factors that favor advancement. Yuan doctorate degree puts him in the 21% of fifth generation leaders with PhD’s. [8] While Yuan was in a lower position, Yuan had a relationship with Hu Jintao during his work in the CCYL. Yuan’s time in the powerful CCDI’s Central Committee can only help his résumé. While Yuan may be older at 58, he still has several more years until the mandatory retirement age of 65. His most likely promotion would be to replace Zhao Leji as Party Secretary of Shaanxi Province. Promotion to a leadership role in a more influential province remains a possibility as well.

If Governor Yuan Chunqing of Shaanxi were to move up as Party Secretary of Shaanxi, his successor is likely to be Zhao Zhengyong. [9] A native of Ma’anshan, Anhui, Zhao also served as a CYL cadre at the local level. He served consecutively as Deputy Secretary of the Ma’anshan Iron and Steel Corporation CYL Committee and Secretary of the Ma’anshan Municipal CCYL Committee. He was Secretary of the Political and Legal Commission of Anhui before he was transferred to Shaanxi in 2001. [10] He was appointed Vice-Governor of Shaanxi in January 2005 and has been Executive Vice-Governor of Shaanxi and a standing member of the Shaanxi Provincial Party Committee. At 60, he would likely remain in that position until his retirement. [11]

Shaanxi Party Secretary Zhao Leji also has promotion opportunities. At 53 years-old, he previously held various positions in the Qinghai provincial government since he joined the CCP in 1975. Zhao served a variety of lower level functions within the Qinghai Provincial Government until he became Assistant-Governor from 1993 to 1994. In a quick succession, he held or rose to such positions as Vice-Governor in 1994 to 1999, Deputy Secretary of Qinghai Province in 1997 to 2003, Secretary of Xining City in 1997 to 1999 and finally to Acting Qinghai Governor in 1999. He served as Qinghai’s Governor from 1999 to 2003. Thereafter, he was promoted to Qinghai’s Party Secretary from 2003 to 2007. He then was transferred to be his current position as Shaanxi’s Party Secretary. Zhao’s young age and various high level provincial positions make it a possibility that he has the potential to be promoted to an even more influential province or possibly rise above provincial leadership [12] .

Shaanxi’s leaders have released two reports that identify current economic, social and environmental problems and outlines actions that should be taken to address those issues. They are “Work Report of Standing Committee of Shaanxi Provincial People” (6/1/2008) and “Basic Thought of Shaanxi’s ‘11th Five Year Planning’” (5/8/2005). [13] Shaanxi leaders seek in the 11th Five Year Plan to continue with economic reform by reforming SOE’s and encouraging investment by opening up to investment by improving the “soft” environment. They seek to resolve the socially destabilizing “agriculture, countryside and peasant” problem by decreasing the urban-rural income gap and by protecting the environment. [14] They believe that they can realize sustainable development by fixing these problems.

Economy

Shaanxi’s Leaders have enthusiastically embraced the economic aspects of the “Open Up the West” strategy. As a consequence, the province has grown economically. Shaanxi Province’s GDP increased 15.6% to 685,132 billion yuan in 2008. Foreign trade improved 21.5% to $8,368 billion, with a favorable trade balance of $2.446 billion. Over 155 foreign investment projects increased 14.6% to a total value of $1.37 billion in 2008. State-owned Enterprises, once in abundance, have been slowly reformed, merged or brought into the marketplace. Shaanxi Province’s abundant natural resources underlie much of this economic growth. Shaanxi Province ranks first in the country with one-third of China’s reserves. A total of 87 mines and 726 mineral areas are listed in the mineral resource reserve list with a potential value that exceeds 4200 billion Yuan. These mines contain the important coal, petroleum, natural gas that fuel economic growth. [15] While Shaanxi has made many gains, economic problems still persist.

Economic reform of State-owned Enterprises has been a key to the “Open Up the West” strategy. They state, “The emphasis is to continue with deepening the reform of state-owned enterprises.” [16] These reforms are meant to make these industries profitable again. They showed a loss of .8% in 2001. The reform drastically reduced the number of SOE firms from 4,735 SOE’s in 2001 to 1,235 in 2003. [17] The reform process slowly introduces the SOE’s into the market system so that they become both domestically and internationally competitive. Reforms have significantly helped the profitability of these companies and ushered in growth.

To help the unequal geographical centers of the Shaanxi Province, leaders have tried to adopt industrial programs that address the north, central and south. For example, leaders have pushed for the North Shaanxi Energy Chemical Base, Guanzhong Equipment Manufacturing and High-Tech Base (central), Weibei Fruit Base (south) and South Shaanxi Green Industry Base. [18] The Province has sought to encourage the extraction of the abundant natural resources in the north by encouraging industrial investment. Conversely, the government has encouraged High-tech investment in the central and green industry in the south. By facilitating investment in these areas, Shaanxi leaders hope to boost economic development.

Shaanxi’s leaders have also focused on reinforcing the “soft” environment of the province to promote investment. They have revised and reformed the legal infrastructure of the province through the Judges Law, Procurators Law, and Legal Aid Ordinance in order to make the courts a more even playing field for investors. [19] To fundamentally change the direction of economic development, the provincial Standing Committee enacted Patent Protection Regulations, Application of Scientific and Technological Achievement, Quality Inspection Agency Manage Ordinances, Safe Production Ordinance and Regulations on the Protection of Power Facilities and Energies. [20] These laws are designed to facilitate both foreign and domestic investment in Shaanxi companies.

Increasing domestic and international tourism has been a focus for Shaanxi’s leaders. “Tourism is one of the province’s characteristic industries with huge potential.” [21] Both domestic and international tourism have grown enormously. Shaanxi’s foreign exchange earnings from international tourism has alone increased from $139 million in 1995 to $511 million in 2006. Shaanxi Province ranks 7th in international tourists and 11th in tour income. [22] Shaanxi’s leaders believe that these figures could substantially increase through facilitating the construction of resorts and improving the ecological environment of the province.

Environment

Leaders recognize that Shaanxi’s industrialization drive has adversely affected the environment. Shaanxi leaders walk a fine line as they wish to promote heavy industries while simultaneously protecting the environment so that tourism can flourish. Shaanxi’s region, northern China, has the highest historical per-capita exposure to air pollution. None of Shaanxi’s urban residents are in the cleanest, Class I, category of air pollution exposure. 12.19% lie in Class II, 59.69% in Class III and 28.13% exceed Class III. Shaanxi falls in the top 10 provinces with polluted water with an estimated 520.5 million cubic meters. [23] In comparison to other Chinese provinces, Shaanxi’s pollution could be called moderate to high. Hence provincial leaders wish to further reduce these numbers in order to promote tourism and healthy living for its Shaanxi residents.

As a consequence, Shaanxi’s Standing Committee has established a series of regulations in order to protect the environment. They include the Energy Conservation Ordinance, Construction of Energy-Efficient Housing Polices, Plan Environment Impact Polices, Qinling Mountains Protection Ordinance, Water Pollution Control of Hanjiang and Danjiang Valleys, Desertification Protection, Wetland Reserve Ordinance and Water Laws. [24] Many of these laws have not only sought to restrict the harmful effects of industry on the environment, but to turn farmland back into forest. There were 51 natural reserves in Shaanxi Province in 2008 that accounted for 5.2% of the total land area of China. [25] Leaders believe tourism will flourish by restoring land to its natural state and combating pollution.

Stability

Shaanxi leaders know that economic liberalization and industrialization has created many potential hotspots for instability. The reform and closing of SOE’s has lead to massive and rising unemployment. The urban-rural gap in income and living standards have been steadily widening. Additionally, villagers have protested lax industrial pollution standards that have allowed the poisoning of their villages. Leaders state that, “failure to resolve these problems effectively will impact directly the rapid harmonious development of the economy society and the social stability.” [26] Shaanxi leaders have enacted legislation and initiatives to counteract the dangerous social problems.

Urban Shaanxi faced an employment crisis between 1997 to 1998. When the campaign to “Open Up the West” started, Shaanxi had already reduced the work force in SOE’s by 20% to 2.7 million. By 2001, a further 12% reduction in employees occurred. Many laid-off workers were reassigned on a temporary basis to state service units, but loss of employment in SOEs was not compensated by gains in the private sector. Shaanxi proudly noted that since 1999 its investment in fixed assets was the largest of all western provinces. However, employment dropped by 1.3% to 17.85 million while those of working age increased by 4.5% to 25.17 million between 1999 and 2001. Protests about unemployment and privatization of SOE’s have occurred across Shaanxi. [27]

Shaanxi leaders also fear the widening living standards between the urban and rural areas. They often refer to this problem as the “agriculture, countryside and peasant.” Leaders divulged that, “the income gap between urban residents and rural residents has been further expanded from 3.5 times in 2000 to 4 times in 2004; the ratio of per capita GDP in Guanzhong [central Shaanxi], North Shaanxi and South Shaanxi is 1.0:0.66:0.48; the province’s Gini coefficient is 0.46, exceeding the ‘alert line’…rural residents fail to obtain the basic social securities.” [28] Another source states the 2003 per-capita net disposable income of rural household at 1,675.7 yuan. This is slightly less than one fourth of urban household income at 6,806.4 yuan. This 4.1 multiple puts Shaanxi as one of the 5 provinces with the greatest disparity between urban-rural incomes. [29] Leaders have responded to this “non-harmony” through legislation. They enacted the Enterprises Wage Payment Ordinance, Labor Inspection Ordinance, Chinese and their Families’ Protection Ordinance, Women’s Rights Protection Ordinance. [30] These seek to help alleviate both rural and unemployment poverty. Shaanxi’s leaders understand that the best way to narrow the gap, however, is through employment and economic growth.

Conclusion

The “Open Up the West” program in Shaanxi has started the economic liberalization and growth that is needed to achieve sustainable development. Shaanxi’s leaders understand that this can only achieved by be creating competitive firms and a vibrant local economy. By encouraging mineral extraction in the North, high tech industry in the Center and green industry in the south, Shaanxi can move forward. This, however, will not occur without growing pains. The Shaanxi leadership is very aware of both economic and social inequalities, which could lead to instability.



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