China's regions show big economic divergence as rustbelt suffers, cities prosper

China's regional economies showed a marked divergence in performance in the first half of 2016, with provinces reliant on steel making and mining reporting weak or no growth but some larger cities thriving. The recently released provincial growth figures highlight growing imbalances in China as the government tries to restructure the economy from a dependence on heavy industry and exports to one that is powered more by domestic consumption.
The north-eastern steel-making province of Liaoning reported its economy shrank by 1 percent in the first half of 2016 from the same period the previous year, the only province in China to report a contraction. That was in sharp contrast to nation-wide growth of 6.7 percent. Liaoning is one of the last of the country's 31 provinces to announce gross domestic product (GDP) data, which typically are published weeks after the national readings. Figures have yet to be released by highly industrialised Heilongjiang.
Weighed down by the bloated steel industry, Liaoning province saw first-half fixed asset investment and real estate development investment shrink 58.1 percent and 31.5 percent, respectively, from a year earlier, an official from the province's bureau of statistics told Reuters.
Provincial revenues slumped 18.6 percent. Industrial powerhouse Shanxi fared only slightly better, posting the lowest growth rate in the country. Its economy grew 3.4 percent in the first half, well below the province's annual target of 6 percent. The Shanxi bureau of statistics said that the coal-intensive province's efforts to reduce overcapacity have had "initial effects", saying first-half coal output dropped 14.4 percent.
And conditions could get worse before they get better, with officials vowing to step up efforts to cut capacity in the second half of the year. "As overcapacity reductions will intensify in the second half of the year, we still see significant downside risk in the traditional manufacturing sector," economists at ANZ said in a research note this week.
"While overall (economic) growth is projected to slow in the second half, we expect further divergence between the old and new economy," they added, noting the government may ramp up spending and tax and structural reforms in provinces which are most reliant on traditional heavy industries.
Growth in more diversified urban areas generally was far stronger. The south-western metropolis of Chongqing reported growth of 10.6 percent, the best in the country apart from the western region of Tibet. Chongqing posted double-digit growth in fixed asset investment and retail sales at 12.5 and 12.9 percent, respectively. Private investment grew 9.5 percent, making up more than half of total investment and diverging with national trends which have shown private investment growth shrinking to record lows.
With a population of more than 30 million people, the municipality is one of central China's key transport hubs and has booming electronics, automobile and manufacturing sectors. Beijing and Shanghai grew 6.7 percent in the first half. China's economy grew by a slightly more-than-expected 6.7 percent in the April-June quarter, aided by infrastructure spending, a housing boom and record bank lending, but cooling private investment is clouding the outlook and leaving growth more reliant on government spending and ever-rising debt.