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Global slowdown may hit China's hinterland hard

By Si Tingting (China Daily)
Updated: 2008-11-27 13:38

China's less-developed central and western parts are likely to suffer more than coastal regions in the unfolding global economic slowdown in the long term, warned a senior official from the National Development and Reform Commission (NDRC).

Fledging industrial structures, sharply declining resource prices and a weaker capability to handle risk and social conflict make the western and middle regions more vulnerable to global financial woes, said NDRC's vice-minister Du Ying.

This is the government's first public regional risk assessment since the outbreak of the financial crisis. Du made the remarks at a recent national meeting. They were posted on the NDRC's website yesterday.

Du eschews conventional thinking that the global financial storm will hit coastal regions in East China hardest, even though it has already forced some export-oriented manufacturers there to close.

An NDRC official present at Du's speech, told China Daily on condition of anonymity that Du gave three reasons to backup his judgment:

First, economies in central and western China are largely small-scale and resource-intensive and will be slow to adapt to the changes brought by the crisis.

Second, many businesses in these regions are based on raw material export and will be badly hurt if the price of raw materials keeps dropping in international markets.

Finally, Du believes the weaker economy in China's hinterland won't provide enough job opportunities for migrant workers returning from bankrupt factories in East China, potentially giving rise to social conflicts. The central and the western regions are China's major labor exporters.

Others agree; Zhang Yongjun, senior researcher with the State Information Center, said he believes the economic woes suffered by the lower-stream economy (manufacturers) will be passed on to the upper-stream economy (raw material suppliers).

"So far, the eastern part of China is more hurt by the financial crisis than the central and western regions, because its economy depends on export and manufacturing. But the impacts will soon pass on to the upper-stream economy, which is located mostly in central and western China," said Zhang.

In addition price fluctuations of raw materials are usually more violent than those of lower-stream products, he said.

However, local entrepreneurs in central and western China have not yet felt the growing pains of the financial crisis.

"I think manufacturers in East China will get hit more than us," said Yang Xinmin, head of the planning department of Shaanxi Coal and Chemical Industry Group based in Northwestern China's Shaanxi Province. "Their economy depends largely on export, but here only a few industries could feel the pinch. Coal and crude oil producers are not affected by the price fluctuations in the global market since we have a government-controlled pricing system," he said.

"The central and western regions should shake up their economy with an industry transfer from East China, making them less vulnerable to the global financial turmoil" said the unnamed NDRC official. "In addition, I think the central and western regions should get a bigger share in the government's 4-trillion-yuan stimulus plan."