Economic wisdom from the margins

Close attention to speeches will show the most innovative ideas come from regional delegates

This year's two sessions - the annual meetings of the National People's Congress and the Chinese People's Political Consultative Conference's National Committee - will provide investors with a rare window through which to watch the parade of the nation's local officials. This year's two sessions are particularly important because they are happening in the middle of a transition from the old economic growth model to the new one.

So this is a year of change. But changes do not usually come about in a planned way. More often than not, the most innovative ones will come as something of a surprise, as a phenomenon arising from the periphery rather than from the center, as used to be the case.

In the history of Chinese economic reform, the first victory - namely the unprecedented increase in agricultural output on private farms in the late 1970s - came about thanks largely to local leaders' courageous dismantling of collective farms in Sichuan and Anhui provinces.

The legalization of private grocery vendors was pioneered in Guangdong province in the early 1980s, despite a temporary rise in prices for basic daily supplies and misgivings from many people about the return of the capitalist monster of inflation.

Private enterprises began to flourish in Wenzhou, Zhejiang province, before the city was linked with the outside by either air or rail services. The limited road connection was so poor that no traffic was possible on rainy or snowy days.

Shenzhen, the shining example of China's special economic zones in the 1990s, was just a fishing village 10 years earlier. Pudong, the new part of Shanghai that now hosts clusters of large financial services and high-tech companies, was seen by the residents of old Shanghai as a boring area of vegetable farms.

There were also cities and provinces where brand names died out, trailblazing experiments went ignored, and industrial ventures were suppressed. And inevitably those places missed some key opportunities.

Cities and provinces are still to be closely watched because at the regional level the most powerful changes will still be pioneered, and supported, by the more innovative local leaders.

Places where rapid changes occur are easy to spot. T hey often demonstrate the following features:

First, local leaders are strong. Not only do they have good credentials in education, but they have also been toughened by previous reform tasks. They are well informed about the global market, the financial system and the latest developments in science and technology.

Most importantly, they are more creative in formulating development plans. They are experts in using national policies to serve local goals.

Second, local economies are more open to investors from home and abroad. There are more businesses run by people from outside the region, including quality manufacturers from overseas, and more services to cater to the needs of newcomers. The most valuable aspect of a local economy is the specialty, or the niche product, with which it differentiates itself from the rest of the country.

A local economy needs a continuous influx of young professional workers. They will be attracted by the new opportunities and relatively low living costs. The local labor structure will be more balanced, supported by many vocational schools and mid-skill workers.

Third, the local government has to ensure that real estate development is not allowed to become the dominant business, and that it must not rely entirely on the selling of land rights for fiscal revenue.

In China, too much real estate money will crowd out, more than anything else, the entrepreneurial pursuits in other industries and services. Shanghai, which has the highest housing prices in China and whose largest private companies are concentrated in the real estate industry, is unlikely to serve as a base for many pioneering endeavors.

Fourth, there will be a high level of connectivity, not only with the global market but also with industries, large and small, in the region nearby.

Good conditions for progress include direct flights to major international destinations, high-speed trains to Beijing and Shanghai, business events to attract businesspeople from around the world, and the capacity to handle large volumes of cargo daily.

How many local leaders are experts in promoting the changes mentioned above? We still don't know. But by hearing and comparing the speeches and plans to be made by all officials at the two sessions, people will probably learn a great deal.

The author is editor-at-large of China Daily. Contact the writer at edzhang@chinadaily.com.cn

(China Daily Africa Weekly 03/07/2014 page15)