Already there ... but a long way to go

Wuxi is a high-income city according to World Bank criteria but it is not ready to relax

Fan Xiaojun, bureau chief for the nation's top economic planner in Wuxi Binhu district, could be regarded as being in a happy position.

If the Chinese government acts to set a target of reaching high-income status by 2020 in the next Five-Year Plan (2016-20), as many now expect, his district will already have achieved that goal.

By the World Bank's current definition, Wuxi Binhu became a high-income economy three years ago.

"The fact that we have already realized this goal does not mean that we don't have many weak points and challenges to contend with or that we have nothing to do now," he says.

The city in prosperous eastern China in Jiangsu province, near Shanghai, was one of the first areas of China to become a manufacturing hub after reform and opening-up in the late 1970s and is therefore at a higher level of development than most of the country.

Its per capita gross national income in 2013, the latest figure available, was $16,327 (12,320 euros), up 7.4 percent over the previous year's $15,204 and some 29.4 percent above the World Bank's $12,616 definition of high income. Wuxi as a whole had a per capita income GNI of $20,400 in 2013. The per capita GNI for China in 2012 was just $5,720.

"The pace and extent of economic growth here and all the manufacturing activity has placed great pressure on the environment, which we are now trying to deal with through a whole series of regulations," he says.

The most high profile aspect of the environmental damage manifested itself when there was a major algae bloom on Taihu lake, one of the largest freshwater lakes in the Yangtze River Delta. Some 1,300 factories around the lake were closed down and moved.

"That crisis was a major slap in the face for us. It resulted in a major concerted effort by the Wuxi city government to move many of the high-polluting companies away from the area."

Fan, the local head at the National Development and Reform Commission, was speaking in a meeting room on one of the higher floors of the Binhu district government's huge office building in Jincheng West Road.

He says Wuxi reaching high-income status in its own right was somewhat meaningless since it still had to operate within the rest of the national economy with its much lower income level.

"It is not really possible for Wuxi to realize a high-income economy without other parts of China developing. That is why the national government has put so many policies in place to develop different regions of China, such as the 'Go West' strategy," he says. The strategy is a major development push for the poorer western region of China launched at the beginning of the last decade.

"We in Wuxi and in the rest of eastern China rely on western and northern China for our resources, so their development is also key to our future development. We cannot run our economy in isolation."

He insists that the current income levels in eastern China do not mean that people had suddenly caught up with living standards in Europe or in the United States.

"I think there is still a huge gap between us and developed countries. I think this applies across many aspects from education levels and provision of healthcare to our research and development capability and innovation levels.

"I think the targets for 2020 are not just about raising income levels but tackling modernization in a more fundamental way and providing a strong foundation in all these areas."

The NDRC not only plays a key role in drawing up China's five-year plans but also in setting macro-economic policies, monitoring the economy and overseeing major construction projects.

"We here in Binhu are essentially at the bottom rung of that process. We enact the five-year plan in line with the central government and we make adjustments according to the local specific situation," he says.

Wuxi, as with the rest of eastern China, is very much at the vanguard of the national strategy to rebalance the economy away from low-cost manufacturing to one which is more service-led.

Fan says there is no alternative strategy within his district since low cost manufacturing does not make sense anymore. The local minimum wage in Wuxi is 1,480 yuan ($240, 178 euros) a month, only marginally less than the 1,820 yuan in Shanghai.

"The labor shortage we have in eastern China has been obvious for a number of years now. Many foreign companies have shifted their manufacturing to western China and some also to Southeast Asia," he says.

The district set a course to modernize its economy more than a decade ago in 2003 with the establishment of the Wuxi National Industrial Design Park, which is now home to some 3,000 companies.

This was followed by four other parks: the Shanshui City Science and Education Industrial Park, which specializes in Internet related businesses; Mashan Biomedicine R&D Service Outsourcing Zone, Wuxi (Binhu) National Sensor Information Center, which is devoted to Internet of Things technology, and the latest in 2011, the Lihu Technology Pioneer Park.

Thousands of graduates, many at PhD level, are employed in companies at these parks working in businesses in leading edge service and technology sectors.

Shanshui park is perhaps the most high profile project of all. Wuxi Studios is a 10-billion-yuan, 185,800-square-meter film complex, where post-production work has already taken place for a number of Hollywood blockbusters.

Fan says the investment that has taken place in these parks will give huge momentum toward the rebalancing of the local economy.

"These five industrial parks are raising and will continue to raise the technology and knowledge standards of local industry. Our companies need to be more capital and knowledge intensive to compete.

"We are bringing tens of thousands of young workers who are college graduates and many with master's degrees and doctorates. This is how we intend to build a modern service sector economy."

Fan, 47, who was born and brought up in Wuxi, studied education at Suzhou University, before beginning his career in the publicity department of Lihu, part of Binhu. He joined the Wuxi Binhu district in 2001 as director of Mashan town and has held his current position for the past seven years.

He says the changes that have taken place during his own career have been dramatic.

"Twenty years ago people used to earn 300 (37 euros, $48) or 400 yuan a month and really didn't dare spend any of it. Now if you go in the shopping malls such as the Wanda Plaza in Wuxi, you will see families shopping, eating out or going to see a movie.

"There has also been a mindset change among young graduates. Before they would choose to work for the government or for state-owned enterprises. Now many of them actually want to set up their own businesses and become entrepreneurs. That is very much a culture we want to promote here."

Fan realizes there is still a risk that China will fail to make the transition to a high-income economy and fall into the middle-income trap as many Latin American economies have done.

"The experience of some Latin American countries is a good lesson for us. I don't think we should be too worried about it. We have been aware of the risks for some time and I think that alone gives us a better chance of avoiding the trap.

"I think our strategic planning at both a national and local level has been set to avoid taking the same path as some other emerging economies. This is why there has been this focus on driving domestic consumption, developing a science and technology base - in our case industrial parks to develop businesses in these areas - and to modernize our economy."

Many economies that have fallen into the middle-income trap have had significant income inequality between rich and poor, which the Chinese government is also trying to address.

"I think that is the problem with our old economic model. The people who set up manufacturing businesses become rich but their workers were relatively low paid. If you build a more service-oriented economy you create a bigger middle class and income inequalities recede."

Fan says it is difficult to forecast when China will become a high-income country and that is the responsibility of policymakers in China to set the right strategy.

"It is always difficult to predict the future. Even 10 years ago in China, you couldn't have imagined how much computers and cars would change people's lives. I can remember when it was a dream to even own a bicycle and that is not so long ago."

Contact the writers through andrewmoody@chinadaily.com.cn

(China Daily Africa Weekly 08/29/2014 page8)