Another RMB 1.6 trillion has been injected—how far is Northeast China from revitalization?

　　Recently, with the issuance by the National Development and Reform Commission of the Three-Year Rolling Implementation Plan for Revitalizing Northeast China and Other Old Industrial Bases (2016–2018) (hereinafter referred to as the “Plan”), the revitalization of the Northeast economy has once again become the focus of attention across society. In particular, the provision in the Plan that “the state will invest RMB 1.6 trillion in the Northeast” has sparked intense public debate.

　　In fact, since the launch of the National Revitalization Plan for Northeast China, the government has poured in massive amounts of funding to provide support—but the results have been disappointing. This suggests that revitalizing the Northeast cannot be achieved merely by throwing money at the problem. Whether it is policy support or financial assistance, the key lies in fundamentally reinvigorating local enterprises, so as to enhance the efficiency with which the RMB 1.6 trillion in investment is utilized. Over the past six months, an innovative financial model—“debt-equity integration”—has gradually taken root in the three northeastern provinces. By shifting from “blood transfusions” to “hematopoiesis,” this approach is fostering endogenous growth drivers among local firms and illuminating the future of the three northeastern provinces.

　　Thirty Years of Bills—How Could “1.6 Trillion” Possibly Capture the Whole Picture? When it comes to the Northeast’s economy, whether in its heyday or in its current decline, it has consistently been a focal point of attention for the entire nation and the central government. Nestled between the white mountains and black waters, this region boasts vast land resources and abundant mineral deposits; once one of China’s most prosperous areas, it has now become the country’s “Rust Belt.” According to the first-half economic data for this year, although the GDP growth rates of the three northeastern provinces have shown some signs of recovery, they still rank among the lowest nationwide, with Liaoning recording a negative growth rate of –1.0%, making it the only province in the country to post negative growth over the first six months.

　　Over the past three decades, the Chinese government has consistently accorded paramount importance to the Northeast’s economy at every stage—ranging from the sweeping state-owned-enterprise reforms of the 1990s to the launch of the “Revitalization of the Northeast” strategy in 2003, from reducing government intervention and advancing SOE reform to supporting the private sector. Each of these policy initiatives could be meticulously itemized, with their underlying objectives and priorities laid bare one after another; yet despite this, the Northeast’s economy has remained mired in stagnation.

　　“Your illness is still at the level of the skin and muscles; if left untreated, it will only grow deeper.” The Northeast has long had a high share of state-owned enterprises in its economy. Yet, as the past 30 years have amply demonstrated, if revitalization plans continue to rely on mere financial infusions and the concentration of resources in large state-owned firms while neglecting the most dynamic small, medium, and micro enterprises, it will be exceedingly difficult to achieve economic transformation and upgrading. Fortunately, the newly released “Plan” differs from previous revitalization initiatives by setting out, on an annual basis, 137 priority tasks and 127 major projects, which appears to have rekindled hopes for a new takeoff of the Northeast’s economy. In response to public attention surrounding the figure of RMB 1.6 trillion, an official from the Department for the Revitalization of the Northeast and Other Old Industrial Bases under the National Development and Reform Commission clarified that the projects covered by the three-year rolling plan are neither fully funded by the state nor represent a “blood-transfusion” style of capital injection.

　　The east wind has already arrived; all that’s left is for everything to be in place.

　　For many years, the Northeast’s economy has been “plagued by underlying ailments,” and the introduction of this new Plan can be seen as a much-needed prescription to address these issues. Officials from the Revitalization Department pointed out that the investment outlined in the Plan will come from a combination of enterprise self-financing, local government matching funds, and state subsidies. In addition to state-owned enterprise reform, the Plan also focuses on key sectors, with the aim of fostering new drivers of growth to strengthen the Northeast’s economic foundation and develop a number of emerging industries that are both promising and in high demand.

　　The east wind has already arrived—so is the Northeast now fully prepared for whatever lies ahead? As things stand, the Northeast’s economic problems are both systemic and structural. Beginning with the planned economy established after the founding of the People’s Republic, the region followed the Soviet model of prioritizing heavy and chemical industry, which fueled a boom in infrastructure development and the rapid rise of resource-based industries. Subsequently, speculative real estate investment took center stage, placing immense pressure on urban operating budgets. Experts point out that the Northeast’s economy has now fallen into a vicious cycle: “rigid institutional frameworks and mechanisms—economic downturn—brain drain—fiscal strain—inadequate social security—declining birth rates—further economic decline.”

　　It is readily apparent that, in addition to its overly monolithic industrial structure, the current economic situation in Northeast China is even more troubling due to population outflow and aging. Comparing data from the fifth and sixth national censuses, the region lost a total of 2 million residents over the past decade—more than twice the population of Fiji, which made history this year by winning its first-ever Olympic gold medal at the Rio Games. With its large number of state-owned enterprises, Northeast China has a retirement-to-working-age ratio far above the national average; meanwhile, the birth rate has declined once again, falling even lower than Japan’s already persistently low level.

　　Liu Guangdong, President of Guanqun Chicheng, has for many years been at the forefront of supporting small and micro enterprises. At investment and financing conferences, he has emphasized that the most critical factor in corporate development is human capital—particularly the acute challenges faced by local small and micro businesses in recruiting and retaining talent, which are severely hampering regional economic growth. This reality has been amply demonstrated in Northeast China. According to a nationwide graduate employment survey released by the Chinese Academy of Social Sciences, fully 40% of graduates from two “high-paying” universities in Liaoning Province go on to work in Beijing, Shanghai, and Guangzhou. Even more troubling is that young people from Northeast China who do not gain admission to university are also reluctant to stay; instead, they choose to migrate elsewhere in search of work. In Beijing, Shanghai, and Guangzhou, you can find Northeasterners in virtually every line of business—running hair salons, guesthouses, restaurants, and more.

　　Why is it so difficult to retain talent in Northeast China? At the root of the problem is the region’s inability to offer favorable living conditions and employment opportunities. The brain drain from Northeast China, coupled with the sluggish development of private enterprises, has resulted in the coexistence of labor shortages and difficulty finding jobs. If this trend continues, the region’s aging population will accelerate, reducing the number of consumers with purchasing power. Under these circumstances, how can Northeast China’s economic recovery capitalize on favorable policy support?

　　Where is the third hand?

　　Today, the revitalization of Northeast China’s economy can no longer rely solely on state-owned enterprises. “Small, medium, and micro-sized enterprises are instrumental in creating a vast number of jobs in our country, and their contribution to GDP accounts for half of the national total. Without them, we simply could not address issues such as housing and healthcare, nor could we possibly realize the ‘Chinese Dream,’” said Liu Guangdong. Yet the survival of these enterprises remains a significant challenge across China—and an even greater one in the Northeast.

　　The “investment beyond Shanhaiguan” curse has long been circulating in the investment community. According to a report by Caijing Magazine, many small and medium-sized enterprises in southern China that had been providing supporting services to Liaoning’s state-owned enterprises have either withdrawn their investments and returned home or shifted their operations elsewhere. After entering Northeast China, numerous private firms have found themselves grappling with a wide array of non-operational expenses, coupled with severe funding constraints, forcing them to seek loans from local banks just to keep their operations running. Yet the banks’ stringent lending criteria effectively bar tens of thousands of owners of small, micro, and tiny enterprises from accessing credit.

　　“Difficult and expensive access to financing, challenges in business development, and difficulties in recruiting and retaining talent” have become the most pressing issues facing small, medium, and micro enterprises in Northeast China—and, by extension, the region’s economy as a whole. However, the currently highly acclaimed “debt-equity hybrid” innovative financial model, when applied to small, medium, and micro enterprises in Harbin, has injected new momentum into the Northeast Chinese economy. This “debt-equity hybrid” model was launched by Guanqun Chicheng, a firm that has long been committed to supporting the growth of such enterprises. According to reports, the model not only provides financial support but also offers value-added services—including talent development, channel expansion, resource integration, and innovation—to help these businesses identify solutions tailored to their specific needs and growth trajectories. Liu Guangdong of Guanqun Chicheng stated: “The ‘debt-equity hybrid’ model was designed in light of the current realities faced by small, medium, and micro enterprises. We aim to leverage the advantages of internet finance to cultivate a cohort of scaled-up, innovative, technology-driven, and distinctive enterprises, thereby boosting economic growth and achieving mutually beneficial outcomes for society.” It is reported that this model has already been implemented in cities including Changsha, Xi’an, Huizhou, Shanghai, Shenzhen, and Chongqing. Its components—such as talent-development programs and corporate-management support—are now being closely watched to see whether they can effectively bolster the Northeast’s economic development and facilitate structural transformation. There is no doubt, however, that the introduction of the “debt-equity hybrid” model has awakened the intrinsic motivation of local small, medium, and micro enterprises, offering a fresh approach to addressing the longstanding challenges of “difficult financing and limited growth” faced by these businesses through internet finance—and perhaps this very approach represents the “third hand” we have been seeking.

　　The introduction of this Plan demonstrates the state’s unwavering determination and confidence in the development of the Northeast economy. In particular, the measures outlined in the Plan to improve the investment environment will not only facilitate sound reforms of state-owned enterprises but also create unprecedented opportunities for the robust growth of small, medium, and micro businesses. With the effective implementation of the Plan, we are confident that the Northeast economy will undergo a transformative “blood-renewal” process.