Chinese Leader Cites Need for 'Industrial Restructuring'

By JONATHAN CHENG
GUANGZHOU, China -- The global financial crisis has been a wake-up call for southern China, adding urgency to official efforts to move beyond the region's traditional reliance on low-end manufacturing, a top Chinese leader said in a rare meeting with members of the foreign media.
Wang Yang, Communist Party secretary of southern China's Guangdong province and a member of the party's Politburo, said Thursday that the financial crisis exposed the fragility and volatility of basing the Chinese economy on what he called "the lowest level on the value chain."
"We need to start from a new beginning," said Mr. Wang, who ranks as Guangdong's most powerful official. "Since last year, we've been calling on people to free their minds of the old growth patterns, but there was still strong demand for our products and it was very hard for people to realize the pressing need for change."
That sentiment has changed when southern China bore the brunt of the global slowdown. Demand for Chinese exports fell steeply, hitting industrial output and forcing waves of factory closures in Guangdong boomtowns such as Dongguan and Shenzhen.
In response, Mr. Wang said, China needed to push "industrial restructuring" and encourage innovation and green business models -- as a response to economic realities as well as to growing environmental concerns.
"It's fair to say we have very severe environmental problems in Guangdong province," he said, citing high levels of acid rain as one example. "The best answer is to continue our industrial restructuring. We have to make up our minds and either relocate or close those highly polluting and high-consumption industries."
Mr. Wang said the government was serious about cleaning up the environment, pointing to a recent decision to relocate a controversial oil refinery at a sensitive site in Nansha, on the outskirts of the provincial capital, Guangzhou. The move, which he characterized as a response to environmental concerns and complaints from residents, was "very difficult," he said. Mr. Wang declined to say to where the refinery project would be relocated.
Officials have been attempting to wean Chinese industry off low-cost labor, imposing new regulations, such as worker protections, that make this time-worn business model less attractive. They face challenges, especially labor unrest, as job creation in favored industries struggles to keep up with the pace of factory closures.
Mr. Wang acknowledged Thursday that the shift would likely exacerbate social tensions in the process, particularly as many of the migrant workers at Guangdong factories in recent years grapple with unemployment.
"As ethnic relations develop in China, we need to make adjustments," Mr. Wang said. "If they aren't made promptly, there will surely be problems." He nodded to recent unrest in the western Chinese region of Xinjiang, which was sparked by a dispute between members of China's Han majority and Uighur minorities in a Guangdong factory.
On the Uighur unrest, Mr. Wang said 25 people had been arrested in relation to the factory dispute, and that 15 of them were still being detained.
Commenting separately on a recent spate of high-level corruption cases in Guangdong province, Mr. Wang said he had no reason to think the cases were connected to each other, adding that he hoped for "severe" punishments and, in the longer run, "a more comprehensive legal system" to institutionalize anticorruption measures.
Mr. Wang also pointed to the recent arrest of several mayors in New Jersey to argue that "even mature economies like the U.S. are not immune from corruption."
Write to Jonathan Cheng at jonathan.cheng@wsj.com