Lu Zhongyuan

Research Report No 110, 2001

I. A brief review of industrial growth and restructuring in the western region

The current situation and changing trends of industrial structure in the western region have been closely related to the major strategic layout of the national economy and systematic changes. Since the founding of new China, there have been three periods of major industrial restructuring, which have a decisive impact on the formation and transformations of industries with local comparative advantages

In the period of the First and Second Five-Year Plans, a policy of inclining to the western region was followed in State investment. An intensive capital input was carried out there according to the guiding principle of "a gradual approach under a centralized layout, with coordinated basic construction and giving top priority to communication". Thus began the industrialization in the western region. Accordingly there appeared an initial shape of a comparatively integrated industrial system and an infrastructure network.

In the period lasting roughly a decade when State investment was focusing on building up "the Third Front" (strategic rear in the remote hinterland in the western part). Local industrial development thus received a powerful push. A number of new industrial centers sprang up in this period. A southwestern industrial base, composing of Sichuan, Yunnan and Guizhou Provinces, came into being. A machinery industrial base located in the western parts of Hubei, Hunan and Henan Provinces appeared. The period also witnessed the birth of a machine tool and bearing industrial base in Hanzhong district and a machine tool, implement and agricultural machinery industrial base in Tianshui district, both in Shaanxi Province. Simultaneously established were the instrument and machine tool manufacturing base in Yingchuan, Ningxia Province, and the machine tool, internal-combustion engine and tractor manufacturing base in Sining, Qinghai Province. In Panzhihua, Sichuan Province, an iron and steel base was born. And a large-scale coal mining and electricity base cropped up in western Guizhou Province. Furthermore, bases of newly emerging, high-tech and sophisticated products sprang up in Chengdu and Xi'an, capitals of Sichuan and Shaanxi Provinces. Ever since then, industrial production capacity in the western region has been playing a decisive role in the national economy with some provinces having a fairly well-equipped industrial system with all necessary departments. In the mean time, in building up "the third front", a large number of talents were assembled. Institutions of higher education and scientific research also mushroomed there.

The period of industrial restructuring there came with reform and opening-up initiated in 1978. Much has been done over the past two decades in readjusting local industrial structure left over from the long-term planned economy and investments originally purposed to prepare for war. Even so, structural problems and contradictions still plagued the vast region. In the shift from planned economy to market economy, some irrational high-cost, low-return projects launched under the planned economy, which used to rely on enormous state financial support, now have to depend on their own. Moreover, the early- start advantages of preferential policy and market competitiveness enjoyed by the eastern region in reform and opening sparked an eastward flow of production factors from other parts of the country. Thus faded the past superiority in factor injection of the west. And a worsening position ensued in growth speed, terms of trade and division of labor.

New and tremendous changes, however, are under way for the region both in the domestic and foreign economic environment and in the driving force for industrial restructuring. Much evidence shows the growing impact of economic globalization on China’s reform, opening and modernization. A transition has taken place from seller’s market to buyer’s market in supply and demand. Economic growth and industrial optimization and upgrading are gathering momentum in the eastern region. The large-scale development strategy for the western region has been launched, thereby broadening and deepening reform and opening, with calls running high for ecological and environmental protection. All this not only has put pressure on the western region for structural adjustment, but also has injected vitality to the region for quickening its steps toward restructuring.

II. Trends and features of the change of industrial structure in the western region since the 1990s

1. The overall picture of the industrial structure in the western region and the three periods of its structural changes

The process of industrial restructuring has evidently quickened in a basically correct direction for most provinces and autonomous regions, and the overall specialization of the industrial structure has been upgraded to varying degrees.

Firstly, local industrial structure is in the process of drastic alterations with an intensity generally higher than that in some provinces and cities in the central and eastern regions. The rank of the co-efficient of changes in industrial structure from 1990 to 1999 (see table 1) runs as follows, 1. Guangxi; 2. Beijing; 3. Qinghai; 4. Hainan; 5. Tianjin; 6. Guangdong; 7. Shaanxi; 8. Chonqing; 9. Jilin, 10; Ningxia; 11. Sichuan; 12. Fujian; 13. Helongjiang; 14. Guizhou; 15. Shangdong; 16. Anhui; 17. Henan; 18. Jiangxi; 19. Inner Mongolia; 20. Shanghai; 21. Shanxi; 22. Hunan; 23. Hubei; 24. Yunnan; 25. Hebei; 26. Liaoning; 27. Gansu; 28. Xinjiang; 29. Zhejiang and 30. Jiangsu. Of the first 15 provinces, seven are in the western region, with the coefficient for Guangxi (the first) and Qinghai (the third) reaching as high as 41.64% and 38.03% respectively, the rest being in the eastern region. Of the other 15 provinces, only four (Inner Mongolia, Yunnan, Gansu and Xinjiang) are located in the western region with the rest in the eastern and central regions. These increasingly drastic structural changes are inevitable for the economically underdeveloped western region to accelerate industrialization, which is in conformity with the general laws of industrialization and modernization. Furthermore, shortages in commodities in China were overcome since the 1990s. Prevailing surplus of production capacity and aggravating structural contradictions are forcing all localities to intensify structural readjustments, thus stimulating transformations of industrial structure in the western region.

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