“Rust Belt” on the Border with Russia in the Public Eye

On March 3-15, 2016 Beijing hosted the annual sessions of the Chinese parliament NPC and the chief political advisory body CPPCC. This year, apart from adopting a new five-year plan, observers’ attention was drawn to the northeastern provinces of China that border Russia. Against the backdrop of an economic slowdown, these regions, often combined in the so-called “Chinese Rust Belt,” appear to be most vulnerable to social tension, and therefore, it is exactly there that the methods “of economic recovery, while maintaining social stability,” so widely spoken about at the “Two Sessions,” are likely to be tested.

The “Two Sessions” in China

On March 3-15, 2016 Beijing hosted the annual sessions of the Chinese parliament NPC and the chief political advisory body CPPCC [1]. These “Two Sessions,” as their combined meetings are known in China, are indicative of political developments, and their assessment allows for understanding the agenda and predicting the policies of the Chinese authorities.

This year, apart from adopting a new five-year plan, observers’ attention was drawn to the northeastern provinces of China that border Russia. Against the backdrop of an economic slowdown, these regions, often combined in the so-called “Chinese Rust Belt,” appear to be most vulnerable to social tension, and therefore, it is exactly there that the methods “of economic recovery, while maintaining social stability,” so widely spoken about at the “Two Sessions,” [2] are likely to be tested.

Given the dependence of Russian-Chinese regional cooperation on the situation in the North-East of China and the proximity of the region to Russia, it seems appropriate to take a detailed look at what was discussed at the “Two Sessions”, and what it means for our country.

Governor’s mistake

The so-called “group deliberations of deputies” are one of the main forms of work at NPC and CPPCC sessions. Provincial representatives get together in the presence of the top leaders of the country to hear a “general year-to-date statement” and discuss plans for the coming year.

On March 7, 2016 President Xi Jinping joined a group deliberation of deputies from Heilongjiang Province to the annual session of the NPC. It is Xi’s established practice to attend such meetings (every year he joins group deliberations of deputies from four different provinces), and Heilongjiang Province became the focus of attention of the authorities and the media, because this time he chose to take part in that particular meeting.

At the end of 2015, with growth of only 5.7 percent [3], Heilongjiang ranked third from last in terms of economic growth among all regions of China. The province is known for its large number of “coal” one-company towns that are facing a profound economic crisis due to the fall in raw material prices. Its Governor is 48-year-old Lu Hao, the youngest among the heads of the regions, who is considered a rising star in Chinese politics and Xi Jinping’s protégé. His appointment to a distant province was seen as a chance to prove himself “down on the ground” and to gain a seat in the Politburo at the future Congress of the Communist Party.

Reuters
Lu Hao, the governor of Heilongjiang, gestures
as he speaks at a Heilongjiang delegation group
discussion at the National People's Congress
(NPC) in Beijing, China, March 6, 2016

However, a group deliberation of deputies from Heilongjiang Province in the presence of President Xi became a prologue to rather dramatic developments that have put the bright future of Lu Hao into question. During the meeting, the Governor reported [5] that the problem of social welfare of the depressed coal industry workers was under complete control by the authorities. In particular, he mentioned that the miners had not missed one month of salary or taken a single paycut.

In reality, the picture was not that rosy. On March 11, miners took to the streets of the city of Shuangyashan, which is 117 kilometers away from the border with Russia, accusing the governor of lying, and demanding to be paid the wages that had been owed to them for months. The employer of the miners is the largest state-owned company in the region, the Longmay [6] Mining Group, which in the past few years has worked at a loss, but provided jobs for 250 thousand miners (this is more than in all the EU countries combined) [7].

The demonstrators staged protests holding banners saying “We Want to Live, We Want to Eat,” “Lu Hao Tells Lies with His Eyes Wide Open,” and even “Communist Party Give Us Back Our Money!” The protests, which lasted two days, gathered several thousand people, dropped a bombshell in the English-language media [8], and for a certain time overshadowed even the reports on the NPC and CPPCC sessions.

Oddly enough, the Chinese authorities did not fault the “fifth column” or external enemies for the incident, and embarked on organizational decision making. Lu Hao hurried to admit that he had been “misinformed.” [9] Miners were immediately paid their wages for two months, which reduced the intensity of emotions, but created a dangerous precedent.

On March 14, steel workers also demonstrated over unpaid wages in the city of Tonghua in neighboring Jilin Province [10], as well as, according to some reports, miners in Shaanxi Province [11]. However, the fact of the protests should not be overestimated. Demonstrations on the verge of riots are commonplace in China. According to Hong Kong China’s Labor Bulletin, there were 2,700 strikes in 2015, twice the number in 2014, and 14 times more than in 2011. In the first two months of 2016, there were over 1,000 strikes, 90 percent of them related to the non-payment of wages [12].

What to do

Vladimir Petrovsky:
Development of Russian–Chinese Trade,
Economic, Financial and Cross-Border
Relations

It is not surprising that a significant part of the protests is taking place in the “Rust Belt” provinces, which produce coal and steel that are lower in price. Apart from being inefficient, state-owned companies, which control the lion’s share of coal enterprises, are forced to sell their products to other state-owned enterprises at low prices and to maintain staff overage that they cannot fire for social stability considerations.

It has been announced at the “Two Sessions” that for the sake of enhancing efficiency, a reduction of employment in depressed sectors of the economy is inevitable. Local authorities will no longer be assessed by an annual GDP growth rate. Instead, the goal is to achieve a somewhat vague “average rate of GDP growth up to 2020 at not less than 6.5 percent per year.” This is aimed at discouraging local authorities from the race towards statistical indicators “here and now,” and allowing them to engage in the necessary, though painful restructuring of the economy.

The Chinese leadership has announced that by the end of the year, 1.3 million miners and 500 thousand workers of loss-making steel enterprises should be dismissed. In the coming years, the number of those laid-off could reach 6 million [13]. The fact is that people in China remember well enough what it was like in the 1990s: during the loss-making public sector reform, some 28 million people lost their jobs [14]. It was possible to overcome these negative effects due to sky-rocketing economic growth. Given the decline of GDP growth, it is hard to predict what will happen now.

The authorities are confident in their ability to keep unemployment at 4.5 percent and expect to create about 10 million new jobs, mostly in the cities [15]. So, they want to promote urbanization and introduce urban standards of consumption, which the Chinese economy desperately needs to get rid of its export dependence. Obviously, yesterday’s miners and steelmakers are unlikely to find themselves in high-tech industries. Most probably, they will find employment in the service industry or construction.

Although the housing and transport infrastructures in China are developed enough as it is, the government continues to place the stake on the “big construction site,” as it sees no other options to support the economy. It was decided at the “Two Sessions” to put into operation more than 30 thousand kilometers of high-speed railways and to build 50-70 civilian airports in the new five-year period [16]. Most likely, these facilities will prove to be unnecessary and unprofitable, but the work on their construction is expected to fill production capacities and create jobs.

The regional authorities in the depressed regions (primarily in the North-East of China) are expected to carry out actively various infrastructure projects. However, preserving social stability appears to be an even more important criterion to assess their efficiency. On March 23 the Office of the CPC Central Committee and that of the State Council issued a regulation on the personal responsibility of officials for protests in their territories [17] that allows for firing them if they allow unrest.

The rising star of the Heilongjiang governor is still there, but a dark cloud has amassed above. Now it is important not only to put forward the right slogans and monitor economic performance, but to prevent civil commotion too. And concealing mass protests in the Internet age is far more difficult than falsifying statistics.

The situation that Lu Hao has happened to face makes other executives assigned to remote regions ponder the issues of getting over the “exile” with minimal consequences and without taking responsibility for anything.

Helpful neighborhood

International conference “Russia and China:
Taking on New Quality of Bilateral Relations”

Russian-Chinese regional cooperation projects leave the door wide open for it. The rhetoric on this subject continues to stand high with Beijing. Moreover, the central government is willing to subsidize such projects, particularly, if they fit under the priority government initiative “One Belt One Road.” [18] Besides, Russian-Chinese projects have another advantage: the responsibility for their failure can always be shifted onto the Russian partners.

Many declarations of deputies from the North-East of China should be viewed from this particular perspective.

As such, Jin (Kim) Shozhen from the Yanbian Korean Autonomous Prefecture advanced two proposals for the construction of a high-speed railway from Hunchun to Vladivostok. The first one provides for building a 300 km long branch line that will cost 33 billion yuan; the second, the construction of a shorter branch line (140 km), including a 15 km long bridge over the Amur Bay, will cost 40 billion yuan [19]. The Chinese media does not report what the Russian side thinks about it, and whether it has been contacted on this issue at all [20].

The deputies from Heilongjiang Province decided to keep up with the Joneses. Representatives of the city of Heihe reported that they had signed a “Framework Agreement on Strategic Cooperation in the Field of Tourism” with the authorities of the Amur region. The Agreement, supposedly, established a visa-free regime for Russian and Chinese tourists traveling between Heihe and Blagoveshchensk [21]. It sounded like quite a settled thing except for the fact that it is not known what Russia’s Federal Migration Service and Border Service thinks about it.

The Mudanjiang authorities declared that in 2016 they “will be spare no effort to initiate such breakthrough measures, as Sino-Russian cross-border visa-free tourism, car travel permit and free circulation of rubles and yuan in the border areas between the two countries.” [22] Harbin deputies assured that they “will seek approval of the project of Sino-Russian experimental zone of e-commerce cooperation,” [23] although an agreement establishing such a zone was signed in June 2014 [24].

Secretary of the Party Committee of the city of Mudanjiang Zhang Yuypu came up big with a statement that “acting within the framework of One Belt One Road initiative, Russia has already started to establish in the Primorski Krai priority development territories, Primorye-1 international transport corridor and free port of Vladivostok.” [25] This, apparently, should give credit where credit is due: the Mudanjiang Communists.

The deputies’ statements were quite assertive, but developments in Shuangyashan four days later rained on parade.

In the coming years, China will go through hard times due to the restructuring of the economy and painful disposal of outdated and unprofitable state-owned enterprises. The northeastern provinces of China – the so-called “Rust Belt” – are likely to be at the center of this difficult process. They will be in the focus of the authorities’ and observers’ attention. On the one hand, for Russia this means that China’s border areas are unlikely to become a catalyst for economic growth in the Far East. On the other hand, the regional authorities will try to counter the challenges they face in the socio-economic sphere by intensifying international activity. And although many of Chinese projects are inherently pointless, there are those that can be carried out in practice and promote the economic development of Russia’s eastern regions.

However, the latter is possible if and only the investment climate becomes better, control functions are liberalized and the quality of sinological assessment is enhanced.

1. The NPC – the National People’s Congress; the CPPCC – the Chinese People's Political Consultative Conference (also known as the People's PCC).

2. For example, see the Report of Premier of the State Council Li Keqiang http://online.wsj.com/public/resources/documents/NPC2016_WorkReport_English.pdf

3. 2015年全国各省市GDP最新排名. URL: http://www.phbang.cn/general/152368.html

4. On Lu Hao’s career see. Gabuev A. Generation for Growth. URL: http://www.kommersant.ru/doc/2064368, Zuenko I. How Chinese Regions Solve Problems through the Neighborhood with Russia. URL: http://carnegie.ru/publications/?fa=62026 [in Russian]

5.两会复盘：是谁让黑龙江省省长陆昊说错了话. URL: http://www.takefoto.cn/viewnews-713246.html

6. The name is an abbreviation of Heilongjiang Coal.

7.黑龙江煤矿工人讨薪 省长陆昊出面“灭火”. URL: http://www.bbc.com/zhongwen/simp/china/2016/03/160313_china_miner_protest

8. See, for example http://uk.reuters.com/article/china-coal-protests-idUKL3N16N4DE, http://www.economist.com/news/china/21695091-large-protests-miners-augur-ill-governments-reform-plans-deep-pit, http://www.timescolonist.com/anger-in-china-s-coal-country-as-miners-feel-left-behind-1.2200945

9. Teo Cheng Wee. China's mine woes point to scale of reform challenge. URL: http://www.straitstimes.com/opinion/chinas-mine-woes-point-to-scale-of-reform-challenge

10. Ibid.

11. Li Zhen. Massive Protests Emerge as China’s Economy Slows. URL: http://www.theepochtimes.com/n3/2004355-massive-protests-emerge-as-chinas-economy-slows/

12. Deep in a pit. URL: http://www.economist.com/news/china/21695091-large-protests-miners-augur-ill-governments-reform-plans-deep-pit

13. Hornby L. China comes full circle with talk of mass lay-offs. URL: http://www.ft.com/intl/cms/s/0/a9796c68-e108-11e5-9217-6ae3733a2cd1.html#axzz44IQzvW3D

14. Teo Cheng Wee. Op cit.

15. Shao Xiaoyi, Spring J. China aims to maintain growth pace, fend off unemployment in five-year plan. URL: http://www.reuters.com/article/us-china-parliament-economy-targets-idUSKCN0W700O

16.十三五"新蓝图URL: http://news.bandao.cn/news_html/201603/20160306/news_20160306_2613179.shtml

17.中共中央办公厅 国务院办公厅印发«健全落实社会治安综合治理领导责任制规定». URL: http://www.gov.cn/xinwen/2016-03/23/content_5056967.htm

18. See Zuenko I. As Chinese Regions Solve Problems through Their Neighborhood with Russia. URL: http://carnegie.ru/publications/?fa=62026 [in Russian]

19.吉林团代表：推进中国珲春至俄海参崴高铁项目. URL: http://news.sohu.com/20160309/n439838129.shtml

20. See Zuenko I, It’s a Long, Long Way. URL: https://lenta.ru/articles/2016/03/02/railways/ [in Russian]

21. Deputies from Northeast Provinces of China: Cooperation with Russia as an Incentive to “Discover Provinces in the North.” URL: http://russian.china.org.cn/exclusive/txt/2016-03/13/content_38013260.htm [in Russian]

22. Ibid.

23. Ibid.

24.哈尔滨对俄电商物流量居全国第一. URL: http://m.ebrun.com/123703.html

25. Ibid.