Global Courant
Hundreds of workers at a factory in Shenyang, northeastern China, weld 90-meter-long automated machines used for boring subway tunnels. At another factory there, workers are assembling robots that Chinese solar panel manufacturers will use to streamline their production.
Shenyang is the capital of Liaoning Province, one of three major provinces in the northeast that are the cradle of Chinese heavy industry. Now the central government is turning to cities like Shenyang, faced with a national economy that has slowed due to a real estate crisis that offers no easy solutions. It hopes to wring more productivity and efficiency from the region’s factories.
But these factories tell only part of the story of Northeast China’s economy and underscore the challenges facing policymakers in Beijing. They are turning to what many economists say is a tired playbook that focuses on industrial investment rather than more social benefits for consumers.
The region’s birth rate is falling: a quarter of the population is 65 or older, and that share is growing by about two percentage points per year, while the share of working-age adults is declining by about the same amount. Fewer people are buying new homes, apartment prices are falling and construction cranes are less active.
Northeast China resembles the Michigan and Ohio of Chinese industry, but with a population considerably grayer than Florida’s. In many ways, the region is a composite of the most deeply entrenched problems facing the country’s economy.
The area is struggling with heavy debts. Government revenues are declining as a result of the real estate crisis. Pensions are the responsibility of the region’s three provincial governments – Liaoning, Jilin and Heilongjiang – and their costs are skyrocketing.
On a recent evening, Zhang Shaocheng, 70, a retiree from a state paint factory, waited with other seniors for a free outdoor movie at a shuttered machinery factory in Shenyang. He appreciates that today’s factories emit less pollution than those from his working years, but he and other seniors are counting on the government to take care of them.
“The air is good now and I have a pension,” Mr. Zhang said.
With China’s economy slowing this year, the Northeast is dangerously close to a recession. Ensuring that the economy of China’s industrial heartland can continue to grow, support a rising pension burden and produce more exports has become a top priority in Beijing.
In early September, when heads of state met for the Group of Twenty summit in New Delhi, China’s top leader, Xi Jinping, stayed home and traveled to northeastern China.
The region is of strategic importance. It includes sensitive regions bordering North Korea and Russia. It is home to much of China’s arms industry, which was first built with Soviet advisers in the 1950s. It is China’s leading producer of grain and crude oil. And it has been a bastion of the Chinese Communist Party and a center of often fierce nationalism since the 1940s.
Mr Xi called for swift action. What has emerged from the trip and from media briefings organized by the national government in Liaoning is a plan largely focused on increased public investment, a long-standing theme of Beijing’s policies. A notable aspect of the program involves digital technology, steps such as upgrading car factories with robots.
What is missing are measures that can increase consumer confidence, such as extended unemployment benefits and pensions, or direct payments to households to stimulate spending. Such steps are absent from the measures taken so far to help the national economy.
The biggest step yet to increase demand for goods from the Northeast is also the one likely to upset the West: selling more to Russia. Chinese carmakers, for example, have captured half of the car market there after Western rivals withdrew following Russia’s invasion of Ukraine last year.
“The Northeast is an important gateway for our country to open up to the North,” Mr Xi said during his visit to Harbin, the capital of Heilongjiang.
In many ways, northeastern China is a natural target for economic stimulus based on public investment. In other parts of the country, many young job seekers are avoiding factory jobs and seeking office work for even half the pay. But the Northeast still has many multigenerational families of technicians.
“In the Northeast, the manufacturing culture is strong,” said Li Kai, an economist at Northeastern University in Shenyang.
The region’s iron ore mines, steel mills and machinery factories are little affected by trade issues such as U.S. restrictions on high-speed semiconductors. For example, a Shenyang factory that makes car seats for Germany’s BMW imports a less advanced semiconductor from Italy to manage the seat’s complex movements.
“It is not a high-end chip, so there is no impact,” said Kou Chuang, the business manager of the factory, which is owned by two Chinese auto parts makers, Jinbei and Yanfeng.
Shenyang has also joined a recent national push by Chinese cities to relax mortgage rules. Homebuyers can now qualify for the same interest rate discount that first-time buyers get, even if they previously owned a home and had already paid off the mortgage.
The Northeast is home to many state-owned enterprises, some of which have sought greater efficiency by gradually transitioning to partial private ownership.
Northern Heavy Industries in Shenyang, which has grown rapidly since the 1950s, underwent a corporate overhaul in 2013. Today, Fangda Group, a private Liaoning conglomerate, has a majority stake. Bingshan Group, a Liaoning refrigeration equipment giant, is one-third owned by the municipal government of Dalian, where its headquarters are located, but has sold a small stake to Japan’s Panasonic.
To stabilize consumer spending in the region, the government is investing in building cultural-themed shopping plazas and museums, which can entice residents and tourists to spend money.
Officials in Liaoning have increased spending on cultural institutions such as the Liaoning Ballet Troupe, which had 30 performances in 2022 and already more than 40 this year.
The company recently performed an original composition, “Iron Man,” about industrial workers in the 1950s, hoping to appeal to the county’s many seniors while also attracting a younger audience.
“We want the young people to know what their fathers did,” said Qu Zijiao, director of the ballet.
Summer tourism has recovered after the lifting of Covid controls in December. The cool weather made the Northeast a popular destination, while other parts of China baked in scorching temperatures.
Sue Sui, 50, an accountant from Beijing, was sitting on the beach in Dalian in mid-September. She said she couldn’t go there in the middle of summer because every affordable hotel was fully booked.
“There is expenditure on revenge tourism,” she said.
Yet weaknesses in consumer spending remain. Retail sales per person in Liaoning province are only a third of what they are in Beijing or Shanghai and half of what they are in China’s vibrant southeastern provinces.
There was almost nowhere to spend money in the well-preserved brick factory buildings where Mr. Zhang, the retiree and others attended the outdoor movie. A small coffee shop was hidden behind a windowless door in a remote, unlit corner with no signage.
It was almost empty the night of the movie.
Li You contributed research.
