Opinion | How resource-based industrial cities in China achieve industrial transformation: A case study of Pingdingshan

By Lee Chun Ting

Currently, China's economic operation is facing new difficulties and challenges. The traditional methods of exchanging resources for capital and market for technology are no longer suitable for development needs. Additionally, some traditional old industrial cities are experiencing increasingly severe economic problems. In light of these circumstances, expediting the upgrade of the industrial structure has become crucial for sustainable economic development.

To gain insights into this matter, the author accompanied the Practice Team of Yuguwen from the Department of Precision Instrument and Machinery of Tsinghua University on an investigation in Pingdingshan City, Henan Province. During the visit, they had the opportunity to meet with relevant departments such as the China Pingmei Shenma Group and the Pingdingshan Nylon New Material Development Zone. It was discovered that Pingdingshan City, as an old industrial base, has successfully leveraged its original coal resource advantages to establish an advanced manufacturing system. This article is about to share this experience with readers for their reference.

A City Built on Coal

Pingdingshan was the first City in New China to be designed and developed independently as a large-scale coal base. In 1957, with the approval of the State Council, Pingdingshan City was established by the Henan Province for the purpose of centralized coal production. The city is abundant in mineral resources, with 57 types of deposits discovered so far. Among them, the coal field covers an area of 1,044 square kilometers, with a total reserve of 103 billion tons of raw coal, accounting for 51% of the total reserves in the province. To date, the city has produced a cumulative total of 15.7 billion tons of raw coal and transported 6.6 billion tons. As the coal industry grew, Pingdingshan City began to attract investments from other industrial sectors, such as steel and chemical industries, resulting in the formation of an industrial system dominated by heavy industry.

Transition from a Coal-Dominated Industry to a Diversified Economy

Over time, the economic growth model heavily reliant on coal resources has gradually led to issues such as overcapacity and environmental damage. However, recognizing the potential of coal as a chemical raw material, that the coal can be processed to produce a variety of extracts, for example, the process of coke-making, the city has strategically shifted its focus towards the nylon industry, spearheading its economic transformation and providing a clear direction for China Pingmei Shenma, the city's largest state-owned super-large group, to establish a three-pronged core industrial system centered around coal, including coal coking, nylon chemical industry, and new energy and materials.

Through technological innovation, the group has independently developed over 300 new products in the nylon industry, breaking international technological barriers. In addition, Collaborating with the Pingdingshan City government, they have actively promoted the construction and upgrading of China's Nylon City, a key strategic project at the provincial level. By 2025, the group aims to achieve an overall business revenue target of 300 billion yuan, positioning itself as a world-leading nylon industrial cluster.

Prioritizing the new energy and materials industry as a core driver of transformative development, the Group have established an efficient energy materials industrial chain, from coal raw materials preparation to downstream new energy applications, Their subsidiary, Henan Zhongyi Chuangxin Development Co., Ltd, has successfully developed and produced third-generation semiconductor silicon carbide powder, filling a gap in Henan's silicon carbide industry with a production capacity of 500 tons.

In the early stages of the Reform and Opening Up, coal accounted for over 90% of the gross regional product in the Pingdingshan area. However, in the third quarter of 2023, strategic emerging industries contributed 69.3% to the growth of large-scale industries in the city. Currently, Pingdingshan maintains a stable market share as the world's leading producer of nylon 66 industrial yarn, with the production capacity of nylon 66 salt and 66 chips ranking first in Asia, and the adipic acid capacity ranking second in Asia.

The Transformation of Pingdingshan City: A Lesson in Progress

Since the Reform and Opening Up, Pingdingshan City has undergone a gradual transition and upgrade in its industrial structure, shifting towards a new energy and new materials-based industrial system. Through observations and interviews, we have identified two key factors that have contributed to the success of this transformation:

1. Forward-looking Strategic Planning: Starting from 2012, the coal industry experienced a turning point in the supply and demand relationship, leading to a decline in market prosperity. Many coal enterprises faced profit declines and operational challenges. However, the Shenma Group, which had experienced rapid development in the coal industry from 2002 to 2012, made the bold decision to invest significant resources in extending the coal industry chain. Throughout this process, the group not only actively anticipated national development trends but also collaborated with higher education institutions and research organizations, experimenting with production, adjusted technology, continuously increasing the value of their products, and fearlessly expanding into downstream industries.

2. Strong Government Support: The 12 policies released by the State Council's State-owned Assets Supervision and Administration Commission provided more autonomy and development opportunities for the reform of state-owned enterprises. Additionally, the Pingdingshan City government implemented a series of preferential policies, including electricity price discounts and land policy support. These policies significantly reduced the cost of trial and error for enterprises, enabling them to confidently navigate the market competition.

These two key factors have played a crucial role in facilitating the smooth transformation of Pingdingshan City from a traditional industrial structure to a modern industrial system centered around new energy and new materials, meanwhile, showcasing the adaptability of an old industrial city in the new era of development. This also provides Hong Kong investors with a new perspective. Hong Kong's economy is transitioning from being finance-led to a focus on advanced manufacturing and technological innovation. Cities with a solid industrial foundation and unique resource advantages possess significant potential for transformation and development, making them worthy of attention as investment targets.

Lee Chun Ting, born and raised in Hong Kong, is currently a PhD candidate at the School of Marxism of Tsinghua University and Vice-President of Hong Kong Commerce & Industry Association of Youth Entrepreneurs Federation Limited. His main research interests are Marxist theory, Chinese Communist Party and Guangdong-Hong Kong-Macao Greater Bay Area.

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