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December 5, 2016

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Rust belt denizens resilient amid decaying economy

WHEN I decided to have a getaway with some of my friends in northeastern China for the National Day holiday in October, colleagues frowned and asked, “Are you serious?”

They did have a point. For a hard-won, weeklong vacation, going to China’s rust belt doesn’t sound like an ideal choice.

For those of us living further afield, the northeastern provinces of Liaoning, Jilin and Heilongjiang conjure up the image of a once proud industrial heartland — the site of the early Qing Dynasty imperial court and of later wartime atrocities.

But the reality nowadays is a region that has been in decline for some time, with factories abandoned and young people moving out. The economy of Liaoning Province shrank 2.2 percent in the first nine months of the year, the largest regional contraction in China in seven years.

“It’s bad, but it’s not as simple as you may think,” said my friend Wu Weichen, who comes from in the city of Daqing in Heilongjiang. “Why not come and see it with your own eyes?”

That was the beginning of my road trip through Liaoning with three northeasterners. Weichen invited his college classmate Zhang Bing, who was born in Jinzhou, a city that is the base of PetroChina’s oil refining industry. Bing brought along his girlfriend Wang Lin, a nurse.

We drove four days from Shenyang, the Liaoning capital, down south to Anshan, a city dominated by the Ansteel Group, and then to the cities of Yingkou and Jinzhou.

Our trip revealed the demographic crisis facing this region. Most educated graduates have abandoned the rust belt and moved to cities like Shanghai. They are fleeing the domination of old, often unprofitable state-owned enterprises, which are often antiquated and don’t offer attractive career ladders.

Bing is an exception to the rule. The 28-year-old doctoral candidate in Japanese studies at Northeast Normal University said he is not really interested in becoming a college lecturer in the language. His parents hold positions in the local education system.

Why does he stay?

“Too tricky to say no to my parents,” he said, exemplifying the Manchu ethos of filial obedience. “I might be crap in Japanese studies, but it will have to make do for my life.”

Young people aren’t the only group affected by the depression of this once vibrant industrial heartland. Older people who don’t want to leave home are grappling with how to survive in a region that seems left behind in China’s push for technology, innovation and industrial modernization.

We visited a plant of the China Railway Material Group in Shenyang. The factory that once boasted it was “China’s biggest logistic center for steel materials” has been turned into a Volkswagen warehouse.

A site that should be piled with steel pipes and tubes now stores more than 500 new models of the German carmakers’ four-seat sedan.

We talked with a guard there, who told us that it’s been like this for some years.

“You have to feed the staff for the factory by rental fees or whatever fees you can generate from somewhere,” the guard explained, somewhat unconcerned about the situation.

In a normal boom-and-bust cycle, failing companies would face restructuring or bankruptcy, and more profitable businesses would rise from the ashes. But the Northeast seems gripped in a bottomless pit of woe, its vigor ever more sapped.

Liaoning issued 177.5 billion yuan (US$25.7 billion) of bonds, mostly province-backed, this year to raise economic development funds, a sixfold increase from 2014, according to Bloomberg data. But the money thus far has produced no tangible results.

“It’s become a wrestling match involving the central government, the local government and companies whose operational troubles seem endless,” said Nicholas Zhu, a senior analyst who monitors Chinese state enterprises for ratings agency Moody’s.

“This power struggle and special interest disputes are even more complicated in the northeastern region,” he said. “You can see that in the recent case of Dongbei Special Steel Group.”

Dongbei Special Steel, owned by the Liaoning provincial government, reflects the crisis in China’s debt markets. Since last March, it has defaulted on nine separate bonds as the central government was vowing to crack down on “zombie” firms with perennial losses.

Broken promises

The company had several high-profile battles with creditors over how to restructure its debt, and then it reneged on pledges several times. That triggered public outrage over the ineffective process of debt restructuring at Chinese state-owned firms.

“In a way, changing business at companies like China Railway Material is wise and more acceptable,” Bing said of the VW warehouse. “At least they have revenue on the balance sheet to calm people’s nerves.”

The false promises of Dongbei Special Steel reminded me of something that a friend in personnel at a pharmaceutical company once told me about northeastern China.

“Every applicant said the same thing: ‘Pharma is my life’s work. I was born to do this. Just give me the chance!’” my friend said, mimicking a northeastern accent. “God knows how sincere that was.”

She may have been exaggerating a bit, but I did see similar traits in Bing and Weichen.

“Do you know what’s my life plan for 2016?” Bing asked me on the road to Yingkou.

“No,” I politely replied,

“Having a big house, buying a bigger car, shopping, traveling, fishing on Diaoyu Island and having savings of more than a million yuan,” he replied. “And I have achieved it all.”

I found myself thinking that there was a lot of bluff and bravado in his words. He must have sensed my disbelief.

“But I did fail in one last goal: kicking the bad habit of talking big,” he said, with a laugh.

In any case, I was the outsider in a local culture that was unfamiliar to me. I know that old saying “when in Rome, do as the Romans,” but I couldn’t help thinking that all boastful joking around me probably wouldn’t survive in a pragmatic city like Shanghai.

In Anshan and Jinzhou, we talked out way into a steel factory and an oil refining plant.

The air in both smelled of rust and gasoline. Neither factory was in full operation. I felt a bit dizzy and nauseated. Weichen and Bing laughed at my discomfort.

Amid a consolidation in the ailing, overcapacity-crippled steel industry, Ansteel is supposed to be merging with a peer in Benxi, which is also in Liaoning Province.

Their stocks were suspended from trading on the mainland market, pending the merger announcement. Bing reckoned the industrial marriage would be difficult because the leadership and culture of both companies are so different.

Through Bing’s old school connections, we met Cheng Zhe, who works as a manager in Jinzhou’s refining plant. He said his salary has been cut since the slump in world oil prices, but the reduced earnings didn’t seem to unduly concern him.

“Don’t pity us,” he said. “We earn 6,000 yuan a month for now, but remember, that’s what we were earning 10 years ago and we survived.”

At a farewell barbecue dinner our touring group had in Jinzhou, I tried hard to adapt to local habits, liking tossing bones and other uneaten material on the floor and avoiding any subject that smacked of feminism.

But it struck me how odd it all was, sitting in a region of such economic desolation while everyone around the table was making jokes and seemed unconcerned about their plight.


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