BEIJING — Dalian, the city in northeastern China's Liaoning province that I visited late last month for a senior officials' meeting of the Asia-Pacific Economic Cooperation forum, felt oddly frozen in time. Compared with other cities of similar size I have visited, it was tranquil at best and short on energy at worst. Empty storefronts were easy to spot around Zhongshan Square, the city's main commercial district. A large exhibition hall set up in the middle of the conference venue was filled with achievements in shipbuilding and heavy industry alone. That was a striking contrast with the rest of China, where officials everywhere are eager to promote artificial intelligence and robotics. Perhaps for those reasons, the buildings around Zhongshan Square left an impression of having faded.
How did Dalian, once called the "Hong Kong of the North," come to this? In the 1990s and 2000s, the city attracted large numbers of Japanese and South Korean foreign-invested companies and was held up as a showcase of China's reform and opening. It thrived on manufacturing, led by petrochemicals, shipbuilding and electronic machinery. At its peak in 2012, gross domestic product topped 700 billion yuan, putting it on par with Hangzhou (780 billion yuan) and Nanjing (720 billion yuan), the provincial capitals of the wealthy Zhejiang and Jiangsu provinces.
But as the economy developed, labor and land costs rose sharply and the city gradually lost its appeal as a production base. Factories began to leave one by one. Toshiba, long a symbol of Japanese business in Dalian, closed a local production base it had run for nearly 30 years, with 2021 as its final year. While Dalian even posted negative growth in the mid-2010s and did not pass 800 billion yuan in GDP until 2022, Hangzhou and Nanjing had already crossed the 1 trillion yuan mark in 2015 and 2016.
Experts point to the city's failure to move quickly into advanced industries as its critical misstep. From the mid-2010s, the center of gravity in Chinese industry shifted rapidly toward advanced manufacturing under Beijing's "Made in China 2025" policy. One city that succeeded in remaking itself around new industries during that period is Hefei, capital of Anhui province and home to ChangXin Memory Technologies, the DRAM maker now closing in on Samsung Electronics and SK hynix at an alarming pace. Barely a dozen years ago, Hefei was called the least noticeable provincial capital in China; its 2012 GDP barely exceeded 400 billion yuan, about half of Dalian's. Last year it topped 1.4 trillion yuan, leaving Dalian (1 trillion yuan) far behind.
The dramatic development story of Ningde, another coastal city in Fujian province that I visited just before the Dalian trip, likewise shows how an industrial shift can transform a region's future. Until the early 2010s, Ningde was a perennial last-place finisher in GDP within Fujian, weighed down by mountainous terrain and poor transport links. That changed completely after it succeeded in landing CATL, the world's largest lithium battery maker. With CATL at the center, the city rapidly drew in related companies spanning materials, parts and equipment as well as electric vehicle assemblers, building a complete industrial ecosystem. Ningde, which had little to show for itself beyond its specialty large yellow croaker, now ranks in the upper-middle tier of Fujian's economy. Its average annual GDP growth during the 14th Five-Year Plan period (2021-2025) exceeded 8%, by far the highest in the province.
The diverging fates of Dalian and Ningde carry lessons for South Korea, where traditional smokestack cities face the threat of decline. The government recently designated Pohang, hit by a downturn in the steel industry, and Ulsan's Nam district, mired in a petrochemical slump, as regions requiring preemptive response to industrial crisis. Both have been accelerating an industrial shift for several years around secondary batteries, hydrogen and advanced materials, but have not grown the new industries enough to offset the decline of their existing mainstays. That is why they need a "compressed transition" that builds new growth pillars quickly, as Ningde did in concentrating a supply chain around CATL in a short span.
The same applies to the Honam semiconductor initiative, which has been gaining momentum recently. Only when factories are joined by materials, parts and equipment firms, research and development functions, universities and talent-training systems will it be possible to build a true "semiconductor city" and, beyond that, achieve balanced regional development.
