Resource-constrained economy poses tough reform challenge

Northern China's coal-rich Shanxi Province has moved to spearhead domestic industrial reform in resource-constrained regions for sustainable growth, while Vice President Li Keqiang has expressed concern regarding people's lives in the province's former industrial and mine bases.

With its transformation plan officially approved by the State Council in mid-September, Shanxi has mapped out a slew of preferential measures, including a transformation of the coal tax, the fostering of substitute industries and the initiation of environmental protection projects, according to Wang Fu, director of the provincial development and reform commission.

The measures are designed to help Shanxi transform its industry, prevent environmental damage and bring equal public services to urban and rural people, Wang said.

New and emerging industries, non-coal businesses and recycling industries will benefit most from the policies, Wang said.

The experimental reform is scheduled to be completed in 20 to 30 years.

PAST GLORY AND PAINS

Shanxi, once China's largest energy base, has produced 12 billion tonnes of coal to date, of which 75 percent was transported to other regions, resulting in an over-dependence on external demand.

"During the Asian financial crisis, Shanxi's economy faced great difficulties. In the international financial crisis in 2009, Shanxi was the slowest growing regional economy in China," said Chen Yongqi,secretary-general of the provincial government.

As coal and coke manufacturing, power generation and metallurgy account for more than 85 percent of its total economy, Shanxi has also suffered from an unsustainable industrial structure, said Chen.

The coal-reliant economy had put local people under a "resource curse," Chen said, adding that decades of exploration have dried up resources and left the province saddled with environmental degradation.

The extraction of a single tonne of coal normally requires 2.48 tonnes of water. Each year, the province's coal industry used one billion cubic meters of water and made 20,000 square km of land prone to geologic disasters. Besides environmental degradation, there are heavy casualties from coal mine accidents, according to Chen.

Shanxi is not an isolated case. China has more than 110 resource-constrained cities, two-thirds of which have witnessed waning development.

At a national symposium on sustainable development for resource-dependent cities and mining areas this week, Li said that a transformation in those areas will be of great importance in China's restructuring efforts, as improved environments will drive growth in the service industry, which will, in turn, help create jobs and boost incomes and consumption.

Decades of exploitation have dried up resources in the regions and left them to deal with environmental degradation, employment difficulties and heavy social security burdens, Li noted.

Official statistics show that the disposable income per capita in many industrial and mining regions is less than 20 percent of the national average, while a sizable portion of the 60 to 70 million residents of resource-dependent areas still live in shanty towns.

SHANXI MODEL

In the next two to three decades, Shanxi aims to advance reforms in 11 cities and 11 counties in an effort to strike a balance among the agricultural, industrial and tertiary sectors and set an example for other resource-rich provinces.

Zhang Fuming, deputy director of the Regional Economy Society, said similar predicaments have plagued other provinces, adding that the Shanxi model is expected to bring these regions onto a sustainable path.

It is still too early to know how far the Shanxi reforms will go, but the country has high hopes for them, said Wang Hongying, chief of the institute of macroeconomics under the provincial development and reform commission.

Currently, the province has made headway in the closure of substandard mines and the merging of smaller ones into competitive mining conglomerates, Wang said.

Along with its transformation, Shanxi has been replaced by the neighboring Inner Mongolia Autonomous Region as China's top coal producer. There were 1,053 coal mines managed by 130 mining enterprises in Shanxi as of the end of 2011, down from 4,278 mines before the reforms started, according to Wang.

The most pressing issues Shanxi must tackle in the future, Wang said, relate to the joint operation of coal and electricity enterprises, the taxation of natural resources and the optimization of the pricing mechanism for coal.

"German's Ruhr took 30 years to transform. We have embarked on a similar road and will forge ahead, no matter what difficulties there might be," said Zhang.