China Focus: Rusty industrial base struggles to regain its luster

LiTe,ownerofanironoreworksinBenxiCity,LiaoningProvince,feelsitwasawrongdecisiontoinvestinthesteelsectorafewyearsago,asexcessproductioncapacityhasbeenaproblemnationwideforyears.

Hisfactorystoppedproductionhalfayearago."Wecannotgetpaidforourgoodsand,inanycase,saleswerebad,"saidLi."Weareonlyjustsurvivingwiththeburdenofloaninterests."ManycompaniesinnortheastChina,anoldindustrialbelt,facesimilardifficulties.

InLiaoning,16.5percentofenterprisesaboveadesignatedsizesufferedlossesinthefirsthalfoftheyear.Inthefirstthreequarters,Liaoningreportedthelowesteconomicgrowthof2.7percentyear-on-yearamong31provinces,municipalitiesandregions.

Thegrowthforthefirstthreequarterswas6.3percentand5.5percentforJilinandHeilongjiangprovinces,alsointhenortheast,andbothlowerthanthecountry's6.9percentinthesameperiod.

Duetothegrimprospects,morethan10percentofenterprisesinHeilongjianghaltedproductioninthefirsthalfoftheyear.ShaoZongju'smachineryfactoryisone.ThemanageroftheplantinQiqihar,anindustrialtownofHeilongjiang,isnowtheonlyguardatthequietpremises.

IntheFulaerjidistrictofQiqihar,nearlyhalfoftheenterprisesstoppedorcutproductioninthefirsthalfoftheyear."Wheneconomygrowsrapidly,evensomelesscompetitivecompaniescanstillperformswell,butwhenitslowsdown,weseeabigreshuffle,"saidLiuShijin,formerdeputydirectoroftheStateCouncilDevelopmentResearchCenter.

Theslowdowninheavyindustry,chemicalsandtherealestatesectorhasbeenpartlyblamedforsituationfacingregionslikenortheastChina.From2003to2012averageannualgrowthinnortheastChinawascloseto13percent.

State-ownedenterprises(SOEs)andenergyindustriesplayanessentialroleintheregion'seconomy.Growthslowedsharplyin2013.Industrialrestructuringandmarket-orientedreformsoverthepastdecadesawmuchlessprogressthanexpected,withpoorinvestmentinnewproductsorideas.

InAugust2014,thecentralgovernmentannouncedanewplantoboostthenortheastwithalistofmeasurestofreeupprivatebusinessesandreformtheSOEs."TheprivatesectorinnortheastChinaseemstobegrowingrapidly,butitisdependentonthestate-ownedsector,"saidJiangMinghui,aresearcherwithHarbinInstituteofTechnology(HIT).

Hecomparessmallandmedium-sizedprivatefirmsintheregiontovinesattachedtotrees(largeSOEs).HedoesnotexpectmuchwithoutseriousSOEreforms.ChiFulin,directoroftheChina(Hainan)InstituteforReformandDevelopment,wantsafreetradezoneinthenortheasttohelpequipmentexports.

Investmentandattentionisshiftingtoinnovationandtalentinthesearchforefficientgrowth.InDec.2014,HITRobotGroupwasfoundedinHarbin,capitalofHeilongjiang,tosupportthehigh-techindustry.

Fifty-onebusinesseshavesigneddealstosetupplantsattheBeihuScienceParkinChangchun,capitalofJilin,wheretheFAWGroup,amajorcarmaker,isbased.TheNorthernHeavyIndustriesGroupbasedinShenyang,capitalofLiaoning,helditsfirstmeetingofoverseasagentsinlateSeptembertopromoteitsproductsininternationalmarket.

OverseasacquisitionisashortcuttoupgradingequipmentmanufacturingindustriesinnortheastChina,saidLiHuaidong,anofficialwiththeLiaoningProvincialCommissionofEconomyandInformationTechnology.

LiaoninggovernmentannouncedFridayitwillsetupa10billionyuanfund(1.57billionU.S.dollars)toencourageinnovationandstart-ups.HeilongjiangandJilinplansimilarfunds.Thethreeprovinceshavealsounveiledpoliciestoattracttalent.

Theregionsawanetoutflowof1.8millionpeoplebetween2000and2010,accordingtoofficialstatistics."Withanewroundofrejuvenation,thenortheasternregionshouldembedinnovationintoitseconomicandsocialwork,"saidSunZhiming,aresearcherwiththeJilinProvincialAcademyofSocialSciences."Theseedsofinnovationaresproutingandwillshowtheirstrengthinthefuture."