Northeast China will benefit from greater reliance on private investment, less government intervention in local economy, and continued government aid for infrastructure investments, education, and social protection and services, according to two World Bank study reports.

 

Revitalizing the Northeast: Towards a Development Strategy, one of the studies by the bank, urges shifting attitudes away from the Northeast's role as a historical supply base in favor of focusing on its ability to respond to future market demands.

 

The three Northeast provinces are also in need to work together an economic bloc to support and pitch in the rapid and sustained growth of China as a whole, said the report.

 

Facilitating Investment and Innovation: A Market-Oriented Approach to Northeast Revitalization, the other report released Tuesday ascribes lags in Northeast growth, foreign investment, and productivity to lack of a vibrant private sector and continued state dominance of the region's industry.

 

The report calls for improved key investment climate to spur foreign and domestic private investment would include simpler procedures to start a new business; greater transparency in land use, taxes, and administrative fees; fewer restrictions or regulations on foreign investment into specific industries and into transport and logistics service; improved access to finance for small and medium-size enterprises (SMEs); and continued effort to modernize urban infrastructure and improve urban quality of life.

 

One concern is that continued SOE dominance of the Northeast's economy could "squeeze out" more dynamic private businesses.

 

SOE transformation should follow commercial best practices, which would involve, among others, the effective corporate governance and greater ownership diversification for large SOEs, according to the reports.

 

The World Bank study sees a need for additional reforms to increase the sustainability and efficiency of major programs, including the jobless insurance, minimum subsistence payment in urban areas, and pensions.

 

Investments in urban infrastructure and quality of life, SOE reform, and social protection will require the pooling of substantial financial resources, the bank acknowledged.

 

The bank studies suggest, however, that the Northeast could arouse significant financial resources on its own, for instance by ending subsidies to loss-making locally-administered SOEs and ensuing commercial best-practices for the sale or management of SOE shares and assets.

 

Citing problems with central-local government transfers, the report on Northeast development strategy also recommends a comprehensive review and additional rationalization of the inter-governmental fiscal system.

 

A more balanced approach toward expenditure assignments and transfers, greater opportunities for tax revenue mobilization by local governments, and more authority to borrow (with appropriate controls) at the local levels would make it easier for the Northeast to finance a variety of public programs, according to the report.

 

The bank noted that the central and local governments continue to have a vital role in Northeast development, but direct interventions, such as the designation of "pillar" industrial sectors and government-financed investments, are increasingly inappropriate.

 

"As China moves increasingly toward an innovation-driven economy, the government's role should shift toward facilitating private investment and innovation and providing broad support for education and urban quality of life," the bank said.

 

(Xinhua News Agency March 9, 2006)