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China slowdown deepens provincial economic divide

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Note: Lastmonthmorethan30provincialtaxidriversdrankpoisonandcollapsedtogetheronthebusiestshoppingstreetinBeijinginadramaticpro
Last month more than 30 provincial taxi drivers drank poison and collapsed together on the busiest shopping street in Beijing in a dramatic protest against economic and working conditions in their home town

The drivers, who the police say all survived, were from Suifenhe, a city on the Russian border in the northeastern province of Heilongjiang.

Such lurid acts of protest are an ancient tradition in China but the extremity of their action highlights one of the biggest problems facing Beijing as it tries to manage the worst economic slowdown in nearly three decades: a deepening provincial economic divide.

An examination of regional growth rates across the country shows the slowdown has affected some areas far worse than others. Perhaps predictably, the worst-hit places are those that can least afford it.

Heilongjiang is among the poorest performers. While national nominal growth slipped to 5.8 per cent in the first quarter compared with a year earlier — its lowest level since the global financial crisis — the province’s nominal GDP actually contracted, by 3.2 per cent.

In the provincial capital of Harbin, signs of economic malaise are everywhere.

A large upscale mall in the centre of town with half a dozen boarded-up shopfronts is abandoned inside apart from a luxury home furnishing shop and a Bentley dealership with three salespeople asleep on couches in the corner.

A short drive from the city centre and the primary reason for the region’s economic woes becomes clear.

As far as the eye can see there are empty or half-built residential tower communities boasting names such as “Jade Lake World”, “River Chateau”, “Polyup Town” and Intime City”.

Each tower holds roughly 400 units and each community has between 20 and 50 towers. In the new Qunli district alone there are more than 30 completed or half-built communities.

Without much industry, Harbin’s economy has traditionally relied on agriculture, tourism and trade with Russia but in the past five years it has been boosted by the enormous residential property construction binge seen all over China.

“In the past few years a decent-sized cement company could sell 1m cubic metres of cement annually but now they are lucky to sell 100 cu m a day and they are all losing money,” says Chen Liyong, a 31-year-old taxi driver who lost his job at a cement company late last year.

“Our economy here has relied almost entirely on building housing but everyone who can afford an apartment already has one and we don’t have anyone moving here from other places.”

Some developers appear to be getting desperate and have begun to slash prices and put new projects on hold.

The Intime City development, next to a newly built but apparently abandoned concert hall, recently lowered the price of a new apartment by almost a quarter, from Rmb790,000 ($130,000) to Rmb600,000.

The average monthly salary in the city is only about Rmb4,500.

“One reason apartment sales are bad is because the main people who could afford to buy before were corrupt officials but now they don’t dare to buy because of the anti-corruption campaign [launched by President Xi Jinping in late 2012],” said one person involved in the property sector who asked not to be named for fear of retribution..

The problems facing Harbin are replicated across the country but are most extreme in the provinces and regions that have relied most heavily in recent years on debt-fuelled infrastructure and property investment.

“The rich provinces and regions — with higher household consumption — are proving more resilient,” says Rodney Jones, founder of Wigram Capital and former head of Asian research for Soros Fund Management. “The downturn is being felt hardest in the poorer provinces — which have the biggest deficits and have relied the most on investment for growth.

He estimates that the economies of 11 of China’s 31 province-level regions contracted in real terms in the first quarter of this year from the previous quarter, even as wealthy regions such as Shanghai and Beijing continued to perform quite well.

In Harbin, news of the poison protest in the capital last month has spread throughout the city’s fleet of disgruntled taxi drivers, many of whom hope the incident would draw Beijing’s attention to the economic plight of the provinces.

“We are not allowed to own our own cabs and in the last year the amount we have to pay to the taxi company has doubled or tripled,” said one, who asked to remain anonymous. “When you’re driving all day for nothing and struggling to feed your family, what real choices do you have?”

 
 
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