The Diverging Fates of China's Provinces

As the tide goes out, not all boats are floating like before

From the biting-cold northeast bordering Siberia to the humid southwest next to Thailand, China's growth rates are diverging almost as much as its geography.

While the world's second-largest economy slowed to a 7.4 percent expansion last year -- just squeaking into the communist government's "about 7.5 percent" target range -- regional data presents a fractured landscape more akin to Europe's than the rising-tide-floats-all-boats numbers we're used to from China.

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There's still a Germany: the wealthier export-focused and high-end manufacturing coastal region spanning Jiangsu, Zhejiang and Fujian. All were within about half a percentage point of their 2014 growth goals.

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The emerging provinces of Chongqing and Guizhou -- later developers than their coastal cousins -- look OK, too. Let's mark them down as China's Poland, with lower labor and land costs attracting factories and helping exports. Both posted plus-10-percent expansions last year. 

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The population-heavy Hunan, Hubei and Henan -- with a combined 219 million people -- almost matched their growth targets, with investment sustaining these massive economies. They're way too populous to fit our European analogy, though.  

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There's even an Iceland-like outperformer: Tibet. The vast, mountainous region -- which is about 12 times the size of tiny Iceland -- was the only one of China's 31 provinces and municipalities to match its 2014 target, racing ahead at 12 percent. Government-led infrastructure investment is behind its boom.

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Then we come to the sick men. While an expansion of about 5 percent would be stellar by European standards, in China that's a slump. The coal-dependent northern province of Shanxi missed its expansion target by a full 4 percentage points last year. Three other heavy industry and commodities driven north-eastern provinces -- Heilongjiang, Jilin, Liaoning -- all lagged with expansions near 6 percent, below targets of 8 or 9 percent.

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 While policymakers in Beijing don't have to contend with Grexit-like threats, there are headaches ahead.

"Given the sluggish economic growth and fiscal pressure from dropping land sales, local governments have become much less ambitious than before,'' Deutsche Bank AG's chief China economist Zhang Zhiwei wrote in a Jan. 30 note. "The decline of fiscal revenue is the top risk in China and will lead to a sharp slowdown in GDP'' to 6.8 percent this quarter.

Like Europe, the slowdown may prompt more monetary easing after this week's reduction in banks' reserve ratio requirements. 

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