[Asia Economy Reporter Byunghee Park] Nomura Holdings, a Japanese securities firm, warned that the economic gap between southern and northern China is widening, which could lead to social instability and financial crises.
According to Bloomberg on the 27th (local time), Nomura estimated that the northern region's share of the Chinese economy decreased from 42.7% in 2012 to 35.2% last year. Nomura expects the economic imbalance between northern and southern China to worsen further.
The resource-rich north has traditionally relied heavily on investment. However, China's fixed asset investment continues to decline. The north has a high proportion of industries that impact environmental pollution, and the Chinese government has recently been focusing heavily on reducing greenhouse gas emissions.
On the other hand, the south, which depends heavily on exports, has shown relatively rapid growth due to the internet boom.
Population changes are also a factor in the widening economic gap between north and south. Nomura estimated that the northern region's average annual population growth rate was only 0.3% from 2017 to 2019, while the south recorded more than double that at 0.8%. Moreover, as the northern population moves to the south, the actual population in the north is decreasing.
As the north's growth rate lags, debt problems mainly arise in the north. More than 60% of defaulted bonds last year were from the northern region. In this situation, the central Chinese government is making local governments take more fiscal responsibility, which places a greater burden on the northern regional economy.
Last year, the ratio of fiscal revenue to fiscal expenditure in the northern region was 42.7%, while in the southern region it was 51%. This means the central government needs to provide more fiscal support to northern local governments.
COVID-19 is also analyzed to have further deepened the north-south imbalance. Private export companies in the southern coastal areas led growth during the economic recovery phase.
Nomura pointed out that the economic imbalance between northern and southern China has been worsening over the past decade and will continue to worsen. Furthermore, it warned that this imbalance could cause systemic financial crises and social instability in China in the future.
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