Introduction

One of the key difficulties that has emerged in the People's Republic of China (hence forth PRC) in recent years has been regional disparities in economic performance. Regional policy has followed different stages from the early Reform and Opening Up policy that focussed on the coastal provinces and Beijing, to the Develop the West policy that addressed the problems of the poorer western provinces. More recently in 2002 the government announced the Revitalise the North East policy that focuses on the three provinces of North East China, Heilongjiang, Jilin and Liaoning, also known collectively as Inner Manchuria or Dongbei.

Historically the region has not been poor by national standards. In terms of GDP per capita by provincial rankings Heilongjiang and Liaoning were fourth and fifth, respectively, in 1978. This position has been eroded over time with the fast growth in the coastal provinces, but in 2004 GDP per capita was about a third above the national average and twice the figure in the poorer Western provinces. The 'One China: Four World's' classification' groups the country into four distinct income categories.¹ These are first, the cities of Beijing, Shanghai and Shenzen with little more than 2% of the population but an income per capita of a middle-income country; second, a group of large and middle sized cities and higher income coastal areas that cover a little over 20% of the country's population; third, a group of lower-middle income provinces with over a quarter of the population; and fourth, the poor provinces of west and central PRC that take up around half the total population. The disparity within the north-east can be seen from the fact that the province of Liaoning is in the second of these groups, with a per capita income more than one-third above Jilin and Heilonjiang, which are in the third group.

Current problems facing the north-east are well known. They include an infrastructure, especially the transport infrastructure that is focussed on the colonial past; a legacy of a large network of state owned enterprises that are widely recognized as needing major restructuring, particularly in the light of the impact of WTO accession; a culture of corruption fostered by a long period of close collaboration between industry and the state; problems of depletion and pollution due to long periods of exploitation of minerals and other natural resources; and land borders with Russia and the DPRK that are not fully open. However the region also has a number of potential advantages that can be built on, most particularly a relatively well educated and technically skilled labour force with average wages that are below the national average.

The remainder of this paper is organized as follows; the next section surveys the academic literature on regional development in PRC to establish any general lessons. A third section then considers enterprise level data to establish how far enterprises in the north-east are lagging behind other regions. This latter analysis is based on a unique database for large enterprises and offers one of the first in-depth analyses of enterprise level performance across regions in PRC. It aims to establish how far performance in the north-east can be explained by commonly cited factors such industrial structure, ownership and the social obligations of enterprises and how far it is due to location specific factors relating to the general 'investment climate' in the region. A final section links our results with those of other recent studies that do not have access to enterprise-level data.

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