- Tieling city’s economy contracted 6.2 percent in 2015
- China’s regions increasingly split between winners and losers
Tea-shop manager Zhang Yue is so desperate about her home city of Tieling’s future that she’s borrowed about five times her annual income to buy a work visa to leave for Japan -- an economy that’s flat-lined for a generation.
"Two years ago, everything was fine and I bought whatever I wanted," said Zhang, 29, whose husband’s wages have since halved and her own have stalled. "Then, suddenly, the slump started. The economy went straight down. It’s in free fall."
The home to about 3 million people in the northeast rust-belt province of Liaoning is ground zero in China’s slowdown -- the worst-performing city in the worst-performing province. Ads offering work visas abroad are peppered across hoardings, and billboards offer loans for people in "urgent need." Shuttered car-parts factories flank the highway to the high-speed train station. In the center, a closed wedding-photograph studio has a notice in the window that reads: "Owner is going overseas. Shop for sale."
Tieling is among the places hardest hit by a slowdown across the nation of 1.4 billion people triggered in recent years by a commodity-price slump, housing correction and campaign to rein in wasteful investment. The city has seen a triple whammy from the three dynamics, which left the local economy contracting 6.2 percent last year -- compared with national growth of near 7 percent.
Fixed-asset investment in Tieling -- largely property and infrastructure investment -- plummeted 39 percent, steel output plunged 89 percent, industrial output dropped 18 percent and coal production was down almost 8 percent.
"These types of cities are in for a really tough stretch," said Andrew Polk, Beijing-based director of China research at Medley Global Advisors LLC, who previously worked at the U.S. Treasury. "Industrial cities that got hollowed out in the U.S. after the 1960s and ’70s are still in really bad shape, showing how difficult it is to turn the industrial corner even in an economy as well-connected and innovative as the U.S."
Tieling’s plight underscores the magnitude of the challenge facing President Xi Jinping: he needs to slash the deflation-causing excess capacity in these areas, while cushioning the blow to the millions of people on the losing end. China’s economy continued decelerating in the past three months, to a pace of 6.6 percent, according to the median estimate of economists surveyed by Bloomberg ahead of gross domestic product data due Friday.
Under the hood of China’s steady grind lower is an increasing divide between the new-economy winners and old-industrial losers.
"Question is whether the former will drag down the latter, or the second pull up the first," said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. "In reality, this process will take time, and China’s ailing rust-belt will require government support for years to come. Even then, it’s an uphill struggle."
In Tieling, there’s little evidence of the kind of innovation-led growth Premier Li Keqiang is banking on to help offset the industrial decline. At a deserted job market at the government’s flagship Northeast Logistics City, office booths caked in dust were padlocked at 10 a.m. last Tuesday. Incubator offices for e-commerce outfits and start-ups were also shuttered.
At a coal mine in Diaobingshan, about an hour’s drive from downtown Tieling, coal-truck operator of 20 years Zhang Xiuju, 49, says business has halved over the past two to three years. Some coal miners who were paid 3,500 yuan ($523) a month two years ago now receive 2,000 yuan, she said. Another sign of weakening employment: many at the mine have been offered unpaid leave packages for two years while the company pays their social security.
"It’s a terrible time for the workers," said Zhang. "After 2012, things went down and this is the worst time ever. The prospects for this city are terrible."
Compounding Tieling’s hardship is the 27 billion yuan splurged between 2006 and 2013 on the 35 million square meter Tieling New City, about six miles from the old one. That investment sapped the city’s ability to counter the slump and worsened an excess supply of housing. Public fiscal revenue plunged 46 percent last year.
The new city didn’t sell any new land to developers last year, and its infrastructure vehicle, Tieling Newcity Investment Holding Ltd., lost 179 million yuan, according to the company’s annual report.
The fallout from Tieling’s implosion began crashing down on Chen Lan in 2013. For more than a decade she owned and operated a 20-room hotel near the old city’s railway station, serving visiting migrant workers and sales people. Occupancy fell by a third in 2013 and then got worse and worse, she said. Chen sold her hotel last year for half of the 200,000 yuan she paid for it, and another five adjoining hotels closed down too, she said.
"Suddenly, there were no people coming to the city any more," said Chen, 58. "There was no construction, so there was no development."
As with the wider Chinese economy, the few bright spots tend to be in services. At the logistics center, Ren Baoku, 49, says revenue from his lunch-delivery business has increased to 1,000 yuan a day this year, from 300 yuan in 2015. Property salesman Ma Yuze at an agency called 517 in Tieling New City said last year was the best ever for sales as buyers snapped up discounted apartments.
But tea shop manager Zhang has given up on her home town. While her family’s income has been slashed, the fees for sending her four-year-old daughter to kindergarten are set to surge this year to 700 yuan a month from 400 yuan, she said. She borrowed much of the 150,000 yuan cost to secure Japan work visas from a labor agency for herself and her husband, and hopes to leave by the end of the year -- leaving her daughter with the grandparents at first.
"There’s no way my daughter can have a future here," she said. "She could spend an entire lifetime here and still have no money."
— With assistance by Xiaoqing Pi, and Kevin Hamlin