Zhejiang's Economic Restructuring

Zhejiang Province is considered not only a cradle of the market economy in China, but also a major flagship for the country’s economic restructuring.
by Cai Rupeng
August 28, 2016: A bird’s-eye view of Lusan and Tantou wetland parks by the Wuyi River in Zhejiang Province. by Zhang Jiancheng/IC

Zhejiang Province is considered not only a cradle of the market economy in China, but also a major flagship for the country’s economic restructuring.

One of China’s traditional manufacturing powerhouses, Zhejiang’s products are sold across the world due to their affordability. After the 2008 worldwide financial crisis, however, the export-oriented local economy faced unprecedented pressure. In the first quarter of 2009, Zhejiang’s GDP grew by only 3.4 percent, ending the province’s 19-year streak of double-digit growth.

In 2015, its GDP growth rebounded to 8 percent, ranking among the top tier of China’s provinces, municipalities and autonomous regions.

According to Zhu Weijiang, vice director of the Policy Research Office of the Provincial CPC Committee of Zhejiang, the key reason the province managed to reverse the downward trend of GDP growth within a few years is that Zhejiang took the lead in economic restructuring and formulated a series of combined policies to enable the local economy to grow at a rational speed.

February 24, 2016: A bird’s-eye view of Dream Town, a startup incubator converted from 12 barns in Hangzhou. by Huang Zongzhi/Xinhua

Return of Zhejiang Businessmen

Foreign demands dropped sharply while domestic consumptions slowed down after the 2008 financial crisis. In this context, as an export-centered local economy, Zhejiang began to rethink investment’s role in driving economic growth.

Foreign investors, state-owned enterprises (SOEs) and private businesses are widely considered the three main sources of investments. However, Zhejiang didn’t perform well in terms of introducing investments from foreign investors and centrally administrated SOEs. So, it started looking towards the millions of Zhejiang businessmen scattered across the planet.

More than six millions of investors with origins in Zhejiang operate businesses outside of the province, including two million abroad. Preliminary statistics show that those businessmen invested a total of 4.5 trillion yuan, creating economic output of 6 trillion yuan combined.

In early 2012, Zhejiang promulgated Opinions on Supporting Entrepreneurship and Innovation of Zhejiang Businessmen to Accelerate Zhejiang’s Development, according to which governments at various levels in the province are required to introduce investments totaling 1 trillion yuan through the “Return of Zhejiang Businessmen” program within five years.

To accomplish the goal, the provincial government of Zhejiang formed a lead group to oversee the efforts of 11 cities, 20 relevant provincial departments and 29 chambers of commerce in implementing the program. The group will be tasked with rewarding or punishing leaders of those departments and institutions based on performance.

By 2015, the program had enabled Zhejiang to attract inbound funds of 835.2 billion yuan, injecting major momentum into the province’s economic restructuring.

October 14, 2016: A motorcycle for the national honor motorcade on display in Hangzhou, Zhejiang Province. CFP

Tapping Potential

Employees of Zhejiang CFMOTO Power Co., Ltd. were excited to see an honor motorcade comprised of 45 motorcycles they produced speed past Tian’anmen Square in Beijing during the V-Day military parade on September 3, 2015.

Only four months after the company accepted the assignment, they delivered the first prototype. Behind such high efficiency is the company’s transformation from “traditional” to “intelligent” manufacturing. By adopting intelligent manufacturing technology, the company’s per capita productivity increased by 30 percent, and its inventory turnover grew by 50 percent.

The success of CFMOTO can be largely attributed to a program carried out by Zhejiang since 2013, aiming to modernize outdated industries, replace human labor with machines, promote land usage efficiency and e-commerce development, and cultivate famous enterprises, products and experts.

According to Xu Jianfeng, director of the Institute for Regional Economy under Zhejiang Academy of Social Sciences, the province’s rapid economic development after the implementation of the reform and opening-up policy in the late 1970s mainly relied on traditional industries, low-cost labor, and consumption of environmental resources. The local economy has entered a period of advanced industrialization since 2008. Because of surging prices of land and labor coupled with growing pressure on environment, the previous extensive development mode was already unworkable. Zhejiang’s 2013 program is intended to boost the steady, sound development of the local economy through enhancing resource usage efficiency, without increasing investment in resources.

Thanks to the program, Zhejiang’s economic structure has been further optimized over the past three years. In the first half of 2015, the ratio of the province’s service incremental value in its GDP surpassed 50 percent for the first time. Meanwhile, its industrial upgrade merged into the fast lane, with profit growth rates of industrial enterprises above designated size (namely, those with annual revenue from primary businesses over 20 million yuan each) and growth rates of overall labor productivity both exceeding that of local GDP. A group of large enterprises played the lead role in local economic development, and the profits of 38 provincial level pilot enterprises increased by 25.2 percent.

August 8, 2016: A bird’s-eye view of the newly-completed No. 2 Sewage Treatment Plant in Wuyi County, Zhejiang Province. CFP

Water Management

Pujiang County in Zhejiang Province has been hailed as the capital of crystal glass of China,” but the industry has also caused severe water pollution. In 2013, the county became determined to improve the situation by reducing the number of crystal manufacturers from 22,000 to 1,200. The move substantially upgraded the water quality of the Puyang River, making it meet requirements for water function zones. Moreover, the county’s crystal glass industry saw an increase in output through tailored incentive measures despite the decrease in quantity of manufacturers.

Pujiang is one example of Zhejiang’s efforts to promote industrial upgrade via water pollution control.

In early 2014, the province launched a campaign known as “Five Water Management Actions” (sewage treatment, flood control, urban drainage, guarantee of water supply, and promotion of water conservation). Thanks to the campaign, not only has its industrial structure improved, but water utilization has been enhanced and industrial pollution of water resources has been reduced remarkably. In the past two years, the province’s total volume of industrial wastewater discharge dropped by 14.8 percent.

February 24, 2016: Startup founders communicate with each other at a seminar in Dream Town, Hangzhou City, Zhejiang Province. by Huang Zongzhi/Xinhua

Specialized Small Towns

The “Specialized Small Towns” program is another important measure that Zhejiang took to accelerate its economic restructuring and upgrade in the past couple of years. The province plans to construct some 100 Specialized Small Towns. Unlike any administrative towns or industrial and scenic zones, Specialized Small Towns are independent urban platforms that combine unique industrial orientation, cultural connotation, tourism resources, and community functions, each covering about three square kilometers— equal to half the area of West Lake in Hangzhou, capital of Zhejiang Province.

By 2015, the first group of 37 Specialized Small Towns had completed fixed-asset investments totaling 48 billion yuan, attracting more than 3,300 enterprises and 13,000 professionals, as well as many high-value-added investments, projects, and taxes.

Those Specialized Small Towns involve not only the seven key industries that support Zhejiang’s future development including information economy, environmental protection, health, tourism, fashion, finance, and high-end equipment, but also traditional industries such as tea, silk, rice wine, herbal medicine, celadon porcelain, wood carving, root carving, stone carving, and classical stationery.