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A worker operates machinery at a steel refinery in Liaoning province, once the country's fastest-growing region but now an economic laggard. Photo: Xinhua

China's once-booming rust belt now stuck in reverse amid economic slowdown

Nation's economic slowdown has left the northeast's industries reeling

The mainland's hard-hit rust belt reflects the country's economic woes. Skyscrapers tower unfinished and abandoned around a lake that forms the centrepiece of a new town, and the wind blows through the empty hulk of what was supposed to be a multistorey complex.

This is Shenfu New Town in northeastern Liaoning province, built to handle the overflow from the once-booming industrial cities of Shenyang and Fushun .

For much of the past decade, this was the country'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, the mainland economy is undergoing a painful transition that has left the heavy industry reeling and set investors' nerves jangling. The stock market is crashing, and fears of an economic slowdown are spreading. And 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," a Liaoning official dealing with economic policy said. "You need to change the economic structure. But what concrete steps to take? Nobody knows."

Nicknamed the rust belt, the three northeastern provinces have survived tough times before. The challenges they face today reflect many of the challenges 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, and to reform the economy without causing more pain and upheaval.

But here, the problems seem more deep-rooted, and attitudes more entrenched: factory workers still look back fondly on the good old days of the Soviet-style planned economy and the industrialisation drive that late leader Mao Zedong undertook in the 1950s. This is a region, as the government official admits, without a culture of entrepreneurship.

Liaoning's economy grew by a staggering average of 12.8 per cent a year between 2003 and 2012, faster than the nation's overall 10.7 per cent. Now, the national economy is growing at 7 per cent, but growth in Liaoning has tumbled just 2.6 per cent in the first half of the year, the lowest of the country's 31 provinces.

At state-owned firms, workers say fewer shifts means their monthly pay has fallen from up to 5,000 yuan (HK$6,000) two years ago to 2,000 yuan. At private factories like the Shenyang Heavy Machinery Huayang Mechanical, the situation is bleaker. Here, just 30 workers man old-fashioned lathes making machinery for the coal industry in a factory that once employed 400.

"You consider yourself lucky just to be working at all," said Yao Guanghe, 22.

Reflecting their concern, President Xi Jinping and Premier Li Keqiang have made "inspection tours" of the northeast over the past four months. Both have stressed the need to foster innovation, encourage small businesses, reform state-owned firms 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 launch of major infrastructure projects - even though revenues were down 23 per cent in the first half of the year. In July, Xi said state-owned enterprises were still the backbone of the economy and warned that the government must avoid "the blindness of the market" even as it pursued reform, state media reported.

These mixed messages reflect the haphazard nature of the nation's reforms. There have been some financial reforms - but a reluctance to administer the kind of harsh medicine the domestic economy needs, economists say.

"There isn't a top-down vision - or if there is, there is no plan about how to actually execute it," said Gavekal Dragonomics research director Andrew Batson.

Andrew Polk, senior economist at The Conference Board China Centre for Economics and Business, said the problems were mounting as the economy slowed - reforms to curb state-owned enterprises could result in still slower growth, for example.

Nevertheless, it would be wrong to write off the economy, or to conclude the northeast has no hope of recovery.

At the gleaming new factory complex run by the Shenyang Machine Tool Group, fully automated lathes work with a precision and speed previously unimaginable, and company chairman Guan Xiyou speaks enthusiastically about joining the next global revolution in smart machines.

Guan, who is also a senior Communist Party official, remains upbeat about his company and the region as a whole.

"The fact that we are in a downturn is not a bad thing: When something old dies, something new will be born," he said.

 

This article appeared in the South China Morning Post print edition as: Once-booming rust belt now stuck in reverse
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