Nomura estimates that northern China’s share of the national economy fell to 35.2% last year, from 42.9% in 2012.
The economic divide between prosperous southern China’s regions and backward northern regions will continue to widen in the years to come, with huge implications for growth, debt and policymaking, according to Nomura Holdings Inc.
The gap between north and south has widened over the past decade, with southern provinces benefiting from export dependence and the Internet boom, while resource-rich northern regions have been dragged down by the slowdown in fixed investment, falling commodity prices and population migration. Nomura estimates that northern China’s share of the national economy fell to 35.2% last year, from 42.9% in 2012.
[Bloomberg]
The pandemic has widened the divide, and the latest gross domestic product data also shows regional disparity in the recovery. Coastal regions where exports and private businesses play a larger role in the economy have seen a stronger rebound than landlocked provinces, according to the latest provincial GDP figures.
Lower growth in the north has led to increased fiscal and debt pressures. More than 60% of bond defaults in the country originated in northern China in 2020, with the level rising significantly from 2019, Nomura economists led by Lu Ting wrote in a report on Tuesday. The ratio of local government tax revenues to tax expenditures in the north was 42.7% in 2020, compared to 51% in the south, suggesting a greater reliance in the north on transfer payments from the central government, they declared.
Low birth rates and net population outflows from the north also suggest that the divide may persist for years to come. Nomura estimates that the average annual population growth for the north was only 0.3% from 2017 to 2019, well below the 0.8% growth in the south.
Systemic risks
Nomura divides northern and southern China by the Qin Mountains and the Huai River line, with 15 provinces and cities to the north, such as Beijing and Hebei, and 16 to the south, including Shanghai and Jiangsu.
The regional divide is expected to widen as China seeks to reduce its carbon emissions, reduce its economic dependence on the real estate sector and impose financial discipline on local governments, Nomura said, increasing the risks of systemic financial crises and social instability. The economy of the north is historically more investment-oriented and relies more on highly polluting industries than in the south.
“Beijing may have to walk a tightrope, balancing long-term goals with short-term stability,” Nomura said. The government could relax some of its anti-pollution measures, especially for basic material producers in the north, and step up tax transfers to cities that are financially constrained by the tightening of real estate measures, he said. .
Regional GDP data released this month shows the tropical island province of Hainan benefited from its duty-free policies in the first quarter, posting the fastest growing of Chinese provinces except Hubei, the epicenter. from last year’s coronavirus outbreak.
On a two-year average basis, growth in the first quarter was still below the levels seen at the start of 2019, indicating that the economy has not fully rebounded from the pandemic. For those who reported average data, the rust belt of northeast Tianjin, Henan and Inner Mongolia was among the worst performing.
