Can revived Northeast be new growth engine?

Hoping to revitalize Northeast China and turn it into another growth engine, Beijing launched the “Revitalize the Northeast Campaign” at the end of 2003. Consisting of three provinces (Liaoning in the south, Kirin in the middle and Heilongjiang in the north), the region also known as Manchuria used to be the focus of the country’s heavy industry. But as China embraces a market economy, many of the state-run enterprises have faced economic difficulties due to their age and technological inefficiency. The central government decided to address the problem. International conferences have been held to lure foreign investment, such as the one held in September 2005 in Changchun, capital of Jilin province, in which more than 50 multinational companies participated. One might expect South Korean companies to jump at the opportunity to establish another foothold in northeast China, but so far, their interest in the region has been lower than that in other regions. Han Jong-hoon, an official with the Federation of Korean Industries, said that less than 150 South Korean companies have established themselves in those three provinces. They are mostly small companies, except for a few, such as LG Electronics, which has built a factory in Shenyang, Liaoning province. Mr. Han, who recently traveled to the region, said a couple of obstacles have made South Korean companies hesitate to go there. For one, old equipment has made it hard for newcomers to use existing facilities, forcing heavy initial investment. In addition, a drastic restructuring of state enterprises has resulted in the layoff of millions, but many are still officially employed with their work units even if they are not working. Mr. Han explained that any South Korean company trying to open a factory would have to hire those “laid off” workers. Lee Mun-hyung, a researcher for the Korea Institute for Industrial Economics and Trade, points out that Beijing’s policy of luring foreign investment is now more focused and selective than in the past, when all such investment was welcomed. Still, the researcher said that Beijing was viewing South Korea and Japan as its main sources of foreign investment, in particular to develop the country in a more balanced way. “One thing that South Korean companies need to keep in mind is that the days of using China as a mere production point are over. China wants the technology transferred and companies planning to go there should keep that in mind,” said Mr. Lee. Nevertheless, the area is home to many ethnic Koreans and has plenty of potential. Oh Gab-riel, Consul General of Korea in Shenyang, told reporters in March that within a couple of years, basic infrastructure such as railroads and highways would be rebuilt and improved in the region, which would lower logistical costs substantially. by Brian Lee