The slowdown is proving tough for factory workers. Photo / Washington Post
The slowdown is proving tough for factory workers. Photo / Washington Post
Giant skyscrapers tower unfinished and abandoned around a lake that forms the centrepiece of this new town.
Giant skyscrapers tower unfinished and abandoned around a lake that forms the centrepiece of this new town.
The wind blows through the empty hulk of what was supposed to be a multi-storey hotel and restaurant complex. A salesman insists that people have moved into one of the few housing complexes to be completed around the shore, but as dusk falls only a handful of lights blink on. He offers to throw in a free car with every apartment purchased.
This is Shenfu New Town in the northeastern province of Liaoning, built to handle the overflow from the once-booming industrial cities of Shenyang and Fushun.
"Build it and they will come," the saying goes, but here, in China's industrial heartland, people are leaving instead of coming.
For much of the past decade, this was China's fastest growing region, the home of the heavy industry that powered the nation's rise and rode on the coattails of a construction boom unparalleled in history.
Today, China's economy is undergoing a painful transition that has left heavy industry reeling and set investors' nerves jangling. The stock market is crashing, and fears of an economic slowdown are spreading. In the real economy, nowhere is the brunt of that slowdown and the pain of that transition being felt as sharply as here in the Northeast.
"Everyone knows what the problem is. It is structural," said an official dealing with economic policy in the Liaoning Government.
"Everybody knows what to do. You need to change the economic structure. But what concrete steps to take? Nobody knows. What can we do? Financial sector? You can't compete with cities like Shanghai. High-tech industries? Those won't flourish overnight."
Nicknamed the Rust Belt, the three provinces of northeastern China have survived tough times before, just as their famously tough inhabitants survive the region's brutally cold winters.
The challenges they face today reflect many of the challenges that China faces as a nation: to curtail the power of state-owned enterprises and allow market forces to play a greater role, to find new drivers of growth now that the export, infrastructure and housing-led boom is playing out, and to reform the economy without causing more pain.
But here the problems seem even more deep-rooted, and attitudes more entrenched: this is a region where factory workers still look back fondly on the good old days of the Soviet-style planned economy and the industrialisation drive that Mao Zedong undertook in the 1950s.
Liaoning's economy grew by a staggering average of 12.8 per cent a year between 2003 and 2012, even faster than the 10.7 per cent recorded by the nation as a whole. Now, official figures show the national economy growing at 7 per cent, but growth in Liaoning tumbling to just 2.6 per cent in the first half of this year, the lowest of the country's 31 provinces.
Indeed, industrial production in the province contracted more than 5 per cent in the first seven months of the year after growing more than 8 per cent the year before, says Shen Minggao, Citi's chief economist for Greater China, a deterioration he calls astonishing.
At state-owned companies, workers say fewer shifts means their monthly pay has fallen from up to 5000 yuan ($1199) two years ago to more like 2000 now.
At private factories like the Shenyang Heavy Machinery Huayang Mechanical Co, the situation is more bleak. Here, just 30 workers man old-fashioned lathes making machinery for the coal industry in a factory that once employed 400.
President Xi Jinping and Premier Li Keqiang both made "inspection tours" of the Northeast in the past four months. Both have stressed the need to foster innovation, encourage small and medium-sized businesses, reform state-owned companies and find new engines for growth.
But both have also signalled a reluctance to turn their backs on the old ways entirely. In April, Li called for the Government to launch major infrastructure projects - even though revenues are down 23 per cent in the first half of this year. Last month Xi said state-owned enterprises were the backbone of the economy and warned that the Government must avoid "the blindness of the market" even as it pursued reform.
Those mixed messages may represent an effort to manage the economic transition, but they also may reflect the haphazard nature of reforms that have taken place since Xi and Li came to power in 2013. There have been some financial reforms but a reluctance to administer the kind of harsh medicine the domestic economy needs, economists say.
Many of China's problems date back to the 2008 global financial crisis, which crushed export growth. A major government stimulus programme delayed the day of reckoning but caused a rapid rise in debt that now needs to be contained. But it is the end of the construction boom that may have hit heavy industries like steel and cement the hardest.
"It may take a 10 to 20 per cent capacity cut before these sectors become profitable again," said Citi's Shen. "If they do cut capacity, the economy will get worse, but if they don't, the problem will drag on for a few more years."
In Shenyang, the signals remain as mixed as they are nationally.
Zhou Dewen, who runs a business association in Wenzhou, near Shanghai, scouts out investment possibilities around China. He has led 20 different small business delegations to the Northeast, but he hasn't been able to work up much enthusiasm for the region.
"The Northeast still thinks of itself as the big brother, because they were the first to get rich after the new China was founded. They are sitting on their glories and not advancing with time. Their mindset is still the old planned economy stuff. They don't see that small businesses can do big things."
Nevertheless, it would be wrong to write China's economy off, or to conclude that the Northeast has no hope of recovery.
Shenyang Machine Tool Group (SYMG) company chairman Xiyou Guan talks enthusiastically about joining the next global revolution in smart machines. SYMG rose from being the 36th largest machine tool company in the world in 2002 to the largest in 2011.
Times are much tougher now - revenues have since dropped sharply and the company is projecting a net loss in the first half of this year, while it has fallen back to third place globally. Nevertheless, Guan, who is also a senior Communist Party official, remains upbeat - about his company and for the region as a whole.
"In my opinion, the fact that we are in an economic downturn is not a bad thing: when something old dies, something new will be born," he said, turning to his colleagues to cite a line from Russian writer Maxim Gorky. "'Let the tempest come strike harder!' - because this will give birth to new things much faster."
The background story
Photo / AP
China is the world's largest manufacturer, largest merchandise trader and largest holder of foreign reserves. Over 2 decades, China's economy averaged nearly 10 per cent annual growth - and it continued to surge in recent years.
On a heavy diet of oil, coal and steel, China consumed more and more of the global pie. But, of course, the Chinese economy has always been an experiment - a market that is not-quite-free and is dominated by state-owned enterprises.
Only now, there are questions about whether China's growth has been underpinned by a lot of unhealthy - and ultimately corrosive - practices. China's rise was powered by heavy construction carried out by companies that operated free of competition.
Debt in China has exploded, and it's those state-owned companies - long given easy credit - that hold the bulk of it. . Some economists say that China has used "bad debt" to create unsustainable growth. In other words, the 7.4 per cent growth of 2014 is drastically different from, say, the 10.1 per cent growth of 2004. And it's the nature of the slowdown, rather than the pure numbers, that matters. Washington Post-Bloomberg
