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The transformation of resource-based cities is always full of challenges, but this step must be taken sooner or later.

Written by Xiong Zhi

Economic data for the first half of 2024 have been released one after another, and Taiyuan, the capital of Shanxi Province, has become an "eye-catching" presence.

Based on the 1.0% year-on-year growth in the first quarter, the half-year data has rebounded, but the growth rate is only 1.6%, lower than the national average of 5.0%.Among the provincial capital cities that have released data, it ranks last.

Taiyuan's slowdown is not that sudden. In the past few years, Taiyuan's economic performance has been mediocre. In 2023, its GDP was 557.374 billion yuan, an increase of 3.8%, which is far lower than the national average growth rate of 5.2% and the growth rate of 5.0% in Shanxi Province.

What happened to this once important economic center in the north?

01

Shanxi is one of the birthplaces of Chinese civilization. The rise of Shanxi merchants during the Ming and Qing dynasties was a microcosm of Shanxi's economic prosperity and commerce. In this regard, scholar Yu Qiuyu wrote in his article "Shame on Shanxi":

In the last century and even for a long period of time before that, the richest province in China was not the regions we can imagine now, but Shanxi! Until the beginning of this century, Shanxi was still China's financial and trade center.

As the capital city of Shanxi, Taiyuan has a history of more than 2,500 years. It has long been at the center of the region's and even the country's politics, military, economy, and culture. The scale of urban construction during the Ming and Qing dynasties even exceeded that of Xi'an, making it a strong contender for the title of "the second city in the north."

Shanxi is a major coal-producing province. Its capital city, Taiyuan, was entrusted with important tasks after 1949 and became an important heavy industrial base due to its rich coal and other resources.Vigorously develop industries such as metallurgy, mechanical and electrical, coal, and chemicals.

During the First Five-Year Plan period, 11 of the country's 156 major industrial projects were settled in Taiyuan, which shows Taiyuan's industrial status.

With favorable location and the support of coal economy, Taiyuan has been on the fast track of growth for a long time. Until 2005, the GDP of Taiyuan was higher than that of Hefei, which has now exceeded one trillion yuan.

Picture/TuChong Creative

But the good times did not last long. After 2008, Taiyuan's growth began to slow down, and in 2009 its GDP growth rate fell sharply to only 2.9%. It gradually fell behind among the key cities, and its presence became increasingly weak. It was completely left behind by popular internet cities such as Hefei.

In 2023, Hefei's GDP reached 1,267.38 billion yuan, while Taiyuan's was only 557.374 billion yuan.In just 18 years, two cities that were once equal have developed such a huge gap in size.

In 2021, benefiting from the surge in coal prices, Taiyuan's total economic output broke through the 500 billion mark. That year, Taiyuan set an ambitious goal to break through the trillion mark in 2025, but was severely slapped in the face by reality. The high growth that year was short-lived. Taiyuan had no choice but to announce in 2023 that the time to hit the trillion mark would be postponed to 2027.

However, judging from the current growth rate, it is probably still a luxury to join the trillion-dollar GDP club in 2027.

The other side of the economic slowdown is the lack of population growth. In the 10 years between the sixth and seventh censuses, Taiyuan's population growth was only 1.1 million, far lower than that of central provincial capitals such as Wuhan (2.54 million) and Changsha (3 million). Excluding natural growth, the net inflow each year is minimal.

02

Taiyuan's economy fell into a downturn, and Shanxi's days were not easy either.

In 2024, Shanxi's GDP growth rate is only 1.9% year-on-year, ranking last in the country. Moreover, compared with the first half of 2023, Shanxi's GDP scale has decreased by 50.171 billion yuan, becoming one of the provinces with negative GDP growth in the country. In other words, Shanxi's nominal growth in the first half of the year was negative.

The reason why Taiyuan and even Shanxi "shut down" is actually very simple.They prospered because of coal and also fell because of coal.

It is not difficult to find that Taiyuan's economic growth trajectory is closely linked to the rise and fall of the coal industry, showing a high degree of synchronization.

When the commodity market was booming, especially when demand for energy and chemical products such as coal surged, Taiyuan's economy took off; the global financial crisis in 2008 and the subsequent continued strengthening of environmental protection and production restrictions dealt a heavy blow to the coal industry, and Taiyuan's era of high growth was gone forever.

Taiyuan's industry is relatively weak overall. In the first half of this year, the secondary industry accounted for only 38.7% of GDP, while traditional energy and chemical industries accounted for a considerable share of the industrial structure.Therefore, the development destiny of this city is also deeply tied to coal prices.

In recent years, Taiyuan has begun a difficult industrial transformation. Computer communications and other electronic equipment manufacturing replaced the traditional energy and chemical industry in 2020 and became the first industry in Taiyuan's total industrial output value. Among them, the representative enterprise Taiyuan Foxconn has an output value of over 100 billion yuan and contributes more than 70% of the city's export quota.

▲Taiyuan City (picture/video screenshot)

But how easy is it to get rid of the dependence on "black gold"?

The statistical bulletin shows that among the top ten industries in Taiyuan's industrial added value above designated size in 2023, there is basically no trace of modern manufacturing. Instead, traditional energy and chemical industries such as coal, steel, and coking continue to dominate the list.

The hidden dangers caused by over-reliance on resource industries are not only the high sensitivity to commodity price trends and the economic volatility. More importantly,First, this type of industry has low added value and a short industrial chain, and the value-added created during the production and processing of products is limited.

Why is Hefei developing so rapidly? Take its booming automobile industry as an example. A car often has tens of thousands of parts and the manufacturing process is complex. Through cumbersome production processes and fine parts manufacturing, a strong upstream and downstream industrial chain network can be formed to drive economic development.

Second, the traditional energy and chemical industry, as a pillar industry of the national economy, is often dominated by state-owned enterprises.State-owned enterprises account for too large a proportion of the total market share. They take advantage of their dominant position to grab a large amount of market resources, which in turn squeezes the private economy and affects economic vitality.

In the list of China's top 500 private enterprises in 2023 released by the All-China Federation of Industry and Commerce, only eight private enterprises in Shanxi were shortlisted, most of which were energy and chemical companies. In the list of the top 100 private enterprises in Shanxi Province, Taiyuan, as the provincial capital, only had 14 shortlisted, which was lower than that of sister cities such as Jinzhong, Changzhi and Luliang.

With a traditional and single industrial structure and a lack of vitality in the private economy, the downturn in Taiyuan's economy is naturally an expected result.

03

Taiyuan also realized the problem and began to reflect and catch up in all aspects.

Last year, facing Hefei, which had once kept pace with it, Taiyuan organized 55 party members and cadres to visit and study, and after the study, a special "results transformation report meeting" was held.

Faced with the booming cultural and tourism economy, this traditional "coal city" is not willing to lag behind. It has vigorously developed the concert economy and introduced a series of support measures to care for its guests and fans.

At the end of their concerts, stars such as Jay Chou, Jolin Tsai, and Deng Ziqi thanked the Taiyuan Municipal Party Committee and Government, which greatly enhanced their presence. Taiyuan also gained the title of "City of Fans", successfully breaking the traditional perception of Taiyuan as a "coal city".

▲Jay Chou's concert in Taiyuan (picture/video screenshot)

But again,The concert economy and even the cultural tourism industry, even if they can bring huge traffic and enhance the city's visibility and presence, their effect on boosting the economy is still very limited.

Taiyuan’s problem still lies in that its industrial structure is too traditional and overly dependent on traditional energy and chemical industries such as coal.

Of course, like all cities that rely on resource industries, the transformation of Taiyuan and even Shanxi is not primarily about industry, but about concepts.

Economic development has a strong inertia. Under path dependence, it is difficult for local governments to make up their minds and say goodbye to the good days of making money without doing anything.In this regard, the chief officer of Taiyuan mentioned in an interview with the media:

When coal prices are good, there is enough money to be made and people are not interested in transformation. They either have to ensure safe production or have no time to transform. When coal prices are bad, efficiency is poor, people are unable to transform and cannot afford the costs.

Therefore, the transformation of resource-based cities is always full of challenges. But this step must be taken sooner or later. Only by saying goodbye to the rigid, conservative, narrow-minded and complacent ideas can Taiyuan and Shanxi find a way out.