Once a graveyard for state-run industry, Liaoning is struggling back to prosperity

PUBLISHED : Thursday, 17 July, 2008, 12:00am
UPDATED : Thursday, 17 July, 2008, 12:00am

Nowhere has the death of the mainland's Stalinist industrial economy been more evident or the victims more numerous than in Liaoning .

Ten years ago, the northeastern province was ground zero in the biggest and most painful economic bloodletting to take place on the mainland since it began modernising its economy in 1978.

Then premier Zhu Rongji's decision to reform state-owned enterprises fell like a bomb on Liaoning. Loss-making, bankrupt and commercially hopeless state-owned enterprises (SOEs) were eradicated on a grand scale. As they disappeared, they took with them the cradle-to-grave social support that a generation of workers had been raised to depend on for everything from housing to health care.

Three out of every four state industrial firms folded in the decade from 1996, leaving just 1,254 in business out of 5,379 by 2006.

The province's gross industrial output collapsed by half in 1998; industry in Liaoning would not recover 1997 levels until 2004.

Between 1997 and 1999, Liaoning's workforce slumped 13 per cent as 2.66 million jobs disappeared.

'In a way, we gave more to the development of the country than any other region,' said one official in the steel town of Anshan . 'There never would have been a boom in the coastal cities if not for the bust in the northeast.'

While they still trail the boom centres along the coast, many of the old industrial bases of the northeast are getting back on their feet. Aided by a massive injection of state investment that began in 2003, cities from Shenyang to Anshan have bulldozed old factories and replaced them with residential towers and shopping malls.

The SOEs that survived have nearly all been transformed into shareholding firms and, for the most part, rely on their own commercial ability for survival. In addition, a growing number of private firms are taking off, expanding their reach into new or foreign markets and creating employment.

The recovery is such that provincial leaders now make the bold claim to have resolved Liaoning's once-dire unemployment situation.

'Not only have we solved the problem for the people of Liaoning, but we have also attracted about 1.3 million migrant workers from other parts of the country,' governor Chen Zhenggao said in March on the sidelines of the National People's Congress conclave in Beijing.

Still, observers say difficulties continue for a generation of SOE workers who have little or no place in the new Liaoning. 'When government officials say that the problem of laid off workers is basically solved, they tend to ignore the fact that there are many long-running disputes which started during the laying-off process and are still going on,' said Geoffrey Crothall, an editor at the Hong Kong-based workers' rights group China Labour Bulletin.

'These workers were essentially unemployable. Despite all kinds of local government incentive programmes, the economic conditions in the northeast just weren't conducive to re-employment.

'So if these laid-off workers could get re-employed, it was usually in low paid, temporary jobs and they usually ended up very quickly back on the unemployment scrap heap.'

Local governments across the mainland's northeastern rust belt have been at pains to find new drivers for economic growth and new employment, and in recent years have achieved success in varying degrees.

In Liaoning's capital, Shenyang , where a statue of Mao Zedong still dominates a central boulevard, the contrast is striking. The city's Tiexi district - built up under Mao's first five-year plan - was once the epitome of planned industry, with factory chimneys lined up as far as the eye could see.

But in the past 10 years almost all the old factories have either closed down or relocated. One of the last survivors is Northern Heavy Industries (NHI), which employs 4,600 in Tiexi producing giant machinery like land excavators and subway tunnel boring units, as well as missile launchers for the navy.

NHI is changing with the times. Last year it paid 200 million yuan (HK$228 million) for a 70 per cent stake in France's NFM technologies. The deal gives NHI access to new technologies and expertise, and helps give the company an edge over competitors in the mainland market, according to NHI spokesman Liu Yi.

But Tiexi's transformation is ongoing and NHI's days in its present space are numbered. The company has already relocated one-third of its operations to make way for a housing complex, and next year plans to move the remaining Tiexi operations to eastern Liaoning to make way for more real estate development. Down the street another former factory site is making way for an Ikea outlet.

'We've seen huge changes in Tiexi in the past six years,' says Wang Yibing , a member of the district party committee, who says a five-star hotel will open there soon.

Shenyang's boom is in sharp contrast to the situation in Benxi , a mountainous mining and steel town about 80km away.

For years the city's main employers have been the Benxi Steel Group and the Nanfen mine, which locals tout as Asia's largest open-pit ore mine. Ten years ago, the local steel industry employed 200,000 people; the number is now around 130,000.

At the height of the SOE collapse, Benxi had 11,105 households where every working-age member of the family had been laid off, said labour bureau director Yu Zhaoxu .

The government launched an intensive employment drive in the past few years as part of a regional campaign that had 'basically solved this problem', Mr Yu said, with the labour bureau working to place workers in new jobs as city street cleaners or export them to booming centres such as Beijing or Shanghai.

Many others have moved on of their own accord to take construction jobs in Dalian or find work in other hub cities of the northeast. Another 4,200 Benxi residents were overseas, mostly in construction jobs in Japan and South Korea, according to Mr Yu.

He estimated that 90 per cent of laid off workers had found new work.

'There are still issues,' he said. 'A lot of people have work but are paid a low salary, others have a decent salary but the work is unsteady.'

At the same time, more than 5,000 students finish high school each year in Benxi. Those who don't qualify for university positions will be out looking for jobs, making life even harder for the former SOE workers.

'Even if they don't get into university, they are generally more qualified than the laid-off workforce,' Mr Yu said.