Ice city

Little Paris of the East. Russian playground. The city that investment forgot. That cold place with the ice lantern festival. Such are some of the popular characterizations of Harbin, capital of Heilongjiang province in China's cold and remote northeast.

As with most generalizations, these perceptions do have some foundation in reality: Harbin does have some cobblestone streets which evoke a sense of Paris, there is a sprinkling of dangerous-looking Russians, and winter temperatures do fall to minus 40 Celsius. But large areas of the city are also in the early stages of an urban renewal, and paralleling that is the rise, or revival, of Harbin's middle class.

A troubled past
Today's positive momentum is a ray of hope for Harbin, aka Bingcheng or "Ice City," which has a troubled past. The nadir of the city's recent history was occupation by Japan in the first half of the 20th century and the atrocities committed by its top secret germ warfare Unit 731.

Not all of Harbin's traumas came from abroad. The city suffered greatly during the Great Leap Forward and the Cultural Revolution.

Early on under Communist rule, Harbin profited from the industrialization of China's northeast – and the giant state-owned enterprises (SOEs) formed in the 1960s and 1970s. After the opening up of China in 1979, this city in China's "rust belt" began to lag behind the eastern provinces south of the Yellow River – creating a gap that is still quite evident today.

Black market bonanza
With the end of the Cold War, Soviet border concerns eliminated and Russia's messy transition from a centrally planned economy to whatever it is now, Harbin was perfectly placed to benefit.

A retired trader residing in Harbin agrees. "1992 was the turning point," she said. "The Chinese government opened the border with Russia and until about 1995 there was a lot of money to be made."

Harbin-based traders made frequent trips to the southern cities of Guangzhou, Wenzhou and Shanghai to buy luxury goods out of the back door of factories. They then took the goods back up to Heilongjiang to trade for steel, copper, furs and even Russian dogs – which were a status symbol for a few years.

"Buying dogs was great" recalled another former cross-border trader. "We used to buy pedigree Russian dogs for RMB 500 across the border and then sell them for between RMB 3,000 and 10,000 in China. The trick was to give the dogs some alcohol before you crossed the border to knock them out."

Middle class dreams
On the street today you won't find too many Russians but for a city with an annual per capita income of RMB 7,892 (US$953) you will find surprisingly smartly dressed locals.

"Harbin people will starve themselves for a week to have imported brand-name clothing," explained one young shop assistant. "People here like to show their wealth with expensive brands, watches and nights of KTV. It's not like the south [of China], people here like to show 'face' on the street." And in Harbin nothing gives more face than an ankle-length fur coat. Retailing for up to RMB 60,000 in 1999, prices are now down to around RMB 10,000. But fur is still de rigeur as it is "both showy and warm" according to the shop assistant.

Fur coats aside, Harbin still has numerous problems, most notably bankrupt SOEs. With most of its local firms still in the early stages of trimming the fat, Harbin will have a hard time turning things around – a local official estimated that around 60% of Harbin's SOEs are facing the bleak choices of either merging, changing industry or closing. This translates into rising unemployment and poverty.

A former commercial bureau official estimates that around 80% of Harbin's population fall into the category of 'non-consumers' – somewhere between the RMB 300 per month vegetable salesman and the RMB 600 per month factory worker – with enough money for rent and food but none to educate their children or join the consumer culture. "They will never buy clothing from a department store or even eat a burger at McDonald's," he said.

There is a sizeable and growing chunk of middle class in Harbin. Broadly defined as someone who earns over RMB 2,000 per month (as opposed to Shanghai or Beijing where you have to take home over RMB 5,000), Harbin's middle class differ from their metropolitan cousins in that they are mostly government and SOE-linked rather than entrepreneurs or workers at joint ventures. "The super rich are still the traders," said the official. "They use their guanxi relationship with high-ranking officials to bring in goods from Shenzhen to sell and trade."

There are big opportunities to entertain the middle – and guanxi-ed classes. Outside Harbin there are ski slopes with coaches running from the center to take locals for a day's skiing at RMB 150 per day. Unfortunately, the facilities are lacking. This is mainly because the local government sets out who will run the hotels, restaurant and ski hire centers. With a closed economy the facility providers have no incentive to provide adequate service.

Harbin's social imbalance is best summed up by the recent case of Su Xiuwen. Su, the wife of a wealthy businessman, killed poor street vendor Liu Zhongxia by running her over in her BMW. Su was given a light sentence, but local outrage manifested itself in Internet chat rooms – which claimed Su's slap on the wrist was due to her being related to a local official.

Eager to mollify the masses, officials launched a 'reinvestigation' in the case. Harbin's future shows some promise, but how officials deal with the poor and unemployed is crucial. Hopefully, officials will move from a damage control mentality to a more proactive approach to the wealth gap.