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China's shaky economy disrupts lives

dpa logodpa 1/06/2017 Simina Mistreanu

A new plan to save the corruption-plagued "rust belt" Liaoning province in China's northeast is regarded by residents with a mixture of hope and scepticism.

Xinghai Square in the north-eastern Chinese city of Dalian used to be one of the city's great attractions.

Overlooking the sea and the striking Xinghai Bay Bridge, it was lined with seafood restaurants. A 20-metre-high column in the middle was designed to look as if it were piercing a cloud.

But the column, commissioned by one of Dalian's most beloved politicians, Bo Xilai, was taken down by the government last summer after Bo was convicted of graft.

As more official heads rolled in a sweeping anti-corruption campaign led by Beijing, Xinghai Square restaurants - which often hosted lavish banquets - started to empty, giving the area a ghostly feel.

Last year, Liaoning, to which Dalian belongs, was the only Chinese province to slump into recession, while the country's overall GDP grew by 6.7 per cent.

Liaoning is one of three provinces forming China's so-called "north-eastern traditional industrial base" - now the country's "rust belt."

Corruption and the high concentration of obsolete state-owned enterprises have hit the province hard.

In an attempt to address the problem, the government last month established a free-trade zone in Dalian - one of 11 such economic zones across the country meant to encourage reform and attract investment.

The zones are part of Beijing's plan to build a trade and infrastructure network across Eurasia and help prop up the whole north-east China region.

Dalian residents regard the project with hope and scepticism. As the government touts the free trade zone's potential, people have seen their jobs become unstable and their incomes slashed.

Michael Tong, 29, an engineer who designs subway cars for a state-owned company in Dalian, told dpa his income has been halved in the past year to about 300 US dollars per month.

His employer has seen contracts dry up as Chinese cities slow their subway networks' expansion, and as competition with private firms increases, he says.

"The market is developing fast, and that exposed the problems that the system has, the malfunctions of state-owned companies," says Tong, who asked that his real name not be revealed.

Though the subway-car maker receives fewer contracts, bribes are prepared for every step of the bidding process, Tong says. And as profits dwindle, the company can't afford to invest in the research and development necessary to improve its products - a vicious circle.

"Liaoning has been a hotbed of corruption for the past 20 years. Actually this can be said for the whole north-east," says Willy Lam, a professor at the Chinese University of Hong Kong.

Lam estimates that in the past few years, many state-owned enterprises in Liaoning, Jilin and Heilongjiang provinces have been operating at below 50 per cent capacity. Beijing refuses to close them to avoid massive unemployment and social unrest, he says.

China last year announced plans to reduce excess capacity at state-owned enterprises by 10 per cent over two years and shutter 345 "zombie firms" in three years. It also put aside 100 billion yuan ($US14.5 billion) to relocate workers who would lose their jobs.

But some factories have reportedly reopened after the country last year saw an uptick in demand for construction materials.

"The government has been announcing reforms for years, but they have been thwarted by interested parties and the traditional mindset," says Hu Xingdou, an economics professor at Beijing Institute of Technology.

"Leaders believe if state-owned enterprises go unprotected, the foundation of socialism will be destroyed."

Unlike southern China, which has more private companies, north-east China was the cradle of the country's planned economy - bordered by Russia and Mongolia, which had similar economic models.

When China adopted its "reform and opening up" policy in the late 1970s, the system's problems - including complicated property rights and diffused obligations and responsibilities - started surfacing, Hu says.

"It's not against state-owned enterprises' nature that they are underperforming," he says.

The Dalian free-trade zone is tasked with exploring "institutional innovation" and "revitalising the development of the north-east China traditional industrial base," says Cai Qun, the zone's deputy director.

The methods include tax incentives and helping state-owned enterprises sell their products online.

In its first month, the free-trade zone attracted 1,900 businesses worth more than 5 billion yuan from fields such as finance, trade, logistics, leasing and IT, says Wang Huijun, deputy director of Dalian Jinpu New Area, where the free-trade zone is located.

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