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Tang Min: Targeted Poverty Alleviation through Industrial Relocation

Source: Xinhua.net Date: 2016-10-19
Poverty eradication in poor areas in West China is the key to achieving the goal of building a moderately prosperous society by 2020. In my recent field trips to poor areas in Xinjiang, Guangxi and Yunnan, I found that if there are more effective policy incentives, labor-intensive companies that are looking to move abroad may well be relocated to poverty-stricken areas in West China. This will not only reduce the risks of companies, but also help speed up poverty alleviation efforts in West China.

Poor Areas in West China Have an Enormous Demand for Industrial Relocation.

As labor and operational costs in coastal areas of East China are rising, labor-intensive industries in China are under great pressure. Attracted by favorable policies introduced in neighboring countries, a large number of labor-intensive companies are moving overseas at a faster pace, alongside some foreign companies operating in China.

As comparative advantages are diminishing, it is necessary for some companies to be relocated overseas. However, there is still enormous space for labor-intensive companies to move to West China, particularly poor areas in that part of the country. These areas are in fact superior to foreign destinations in terms of raw materials, availability of components, transport links, language, culture, law and policy.

The Chinese government has been keen on domestic relocation of industries. Since 2010, the government has introduced the Guideline on Transferring Industries to Central and West China and the Guiding Catalogue of Industrial Transfer. Such transfer is an important way to ensure equitable and coordinated economic and social development. Industries, however, have preferred to relocate to places with comparatively good business environment or central cities in West China. Yet, poverty-stricken areas haven’t benefited much.

Therefore, to alleviate poverty in a more targeted manner, the focus should be on poor areas in West China.

Great potential needs to tapped for industrial transfer to West China.

Internationally, there is a window period of 5-10 years for industrial transfer. Government authorities and decision makers should seize the opportunity. If they can adopt truly attractive policies, more businesses are willing to relocate their factories to poor areas in West China.

For instance, during our visit to Hotan, Xinjiang, we found many opportunities for industrial transfer. We visited a socks factory that have moved here from Zhuji, Zhejiang. The factory was completed and started operating within half a year. Though logistics cost rose, it is still profitable because wage there is much lower. After learning about local investment environment and policies, a dozen of businessmen who were with us on the visit were very interested in making investment in that place. During the four-day tour, several of them decided to build a garment factory, two wig factories and a rattan factory.

Hotan, a place with a relatively poor investment environment, holds such a great appeal to businesses in East and Central China. If the policies could be more effective, more companies will be attracted to the poor areas in West China. During my visits to Guangxi, Guizhou and Yunnan, I also saw companies from East China that are running well there. Those pioneers are now enjoying the dividends of abundant labor, favorable policies and good business environment.

Encouraging more industries to move to poor areas in West China

First, policies need to be adopted to ensure labor-intensive companies that have moved to poor areas in West China have no less profit margin than in other countries. In light of the changes at home and abroad, new favorable polices need to formulated to encourage industries to move to poor regions in West China. Incentives in operation, transportation, training, VAT, income tax and export tax rebate as well as labor and social security should be given to companies that have moved to West China. The land left behind by businesses in the East should be allowed to be used for commerce, tourism, old age care, education and other purposes.

Second, businessmen should be invited to West China before they look abroad so that they could make informed decisions based on comparisons. Infrastructure should be improved to prepare for the industries to be relocated. Multi-modality transportation should be developed to integrate logistics resources for more efficient use and reduce the cost. Governments and industrial associations on both the receiving and transferring ends should play their part too.

Third, financial support should be stepped up for industrial transfer to poor areas. For instance, China Development Bank and China Exim Bank may establish funds to support industrial transfer to poor areas in West China and invest in infrastructure. Capital markets and commercial banks should be encouraged to finance industrial transfer. Central and local government may offer subsidies on that.

Lastly, pilot programs can be carried out. Pilot zones many be established in poor Western regions for industrial transfer and poverty alleviation. Industrial parks may also be established in partnership with Eastern coastal regions through entrusted management and investment cooperation. This will help create industrial clusters. The central government may make a certain amount of investment in such pilot zones, where government spending and poverty alleviation resources are put together for better use. Assistance funds from East and Central China can also be spent on the pilot zones so as to develop useful and replicable experiences.
(The author is a counselor of the State Council. )