Chinese factories struggling too

The efforts to revive industrial heartland will sound familiar to middle America

SHENYANG, CHINA — The hulking, brown-brick industrial plants lining the roads were once the backbone of this gritty city. Today, they are outdated and unwanted, and the region is one of the Chinese economy’s most troubled.

A short drive away, however, a newly minted industrial park offers reasons for optimism. Liu Qi, chair of PQI Industrial Technology Group, opened an $18 million factory there last year, equipped with whirring robots that pound out car parts for the German automaker BMW.

The factory, and the more than 200 jobs it has created, is just one small part of a grand plan led by China’s government to rejuvenate Shenyang, a city of eight million, by replacing stumbling state industries with modern manufacturing and startup companies.

“When things hit bottom, there is an opportunity for things to go up,” Liu, 46, said.

Whether the rejuvenation happens will shape not just the future of Shenyang, but also, potentially, the entire Chinese economy. The city’s woes represent a broader problem: There are too many unproductive, debt-laden factories that are losing business as China’s growth slows.

The story of Shenyang will probably sound familiar in places like Midwestern towns in the United States that have seen important industries decline or depart. During China’s go-go years, when factories, roads and housing were constructed with wild abandon, the city’s heavy industrial companies, many of them owned by the state, boomed.

But as China’s investment binge fizzled, Shenyang and its factories sputtered. Last year, the economy of the northeastern province of Liaoning, of which Shenyang is the capital, shrank 2.5 per cent — a shocking figure in a country accustomed to seemingly endless expansion. Other major cities have sped ahead of Shenyang in the development of the high-tech and service companies expected to propel China’s future growth.

The entire northeast of the country, where much heavy industry has been concentrated, runs the risk of being left badly behind. The decay of this factory zone has left Beijing with a similar knotty problem to the one that has plagued the United States for decades: how to resurrect down-on-their-luck areas.

In the U.S., President Donald Trump plans to streamline regulation, cut corporate taxes and renegotiate trade pacts to bring factory jobs back to troubled towns.

Around the world, state intervention to attempt to stimulate a domestic economy is not unusual. But officials in China, as is often the case, have adopted a much more hands-on approach. With lavish incentives and initiatives, they are trying to attract investment to the region and to upgrade its industries.

Shenyang is a crucial test case. The city has set up a $7-million fund to support high-tech industries, promised a $30,000 bonus for some technology firms, and offered to pare the corporate tax rate for companies in favoured sectors.

Liu’s factory opened inside the ChinaGermany Equipment Manufacturing Industrial Park, introduced in late 2015 to try to attract advanced production in robotics, automotive components and other industrial sectors. The government offers a 30 per cent discount on land, streamlined regulations and other perks for companies that set up in the facility. PQI is now negotiating for rent breaks and cheap land for his current factory, as well as for future investments.

Zhang Yanzan, the park’s deputy director, says that, since its opening, more than 140 factories have been completed or are underway, hauling in a total investment of nearly $6 billion. “We hope this park can be an example for other areas,” he said.

The city authorities are also striving to persuade local college graduates to start companies in Shenyang by offering subsidies. The effort is focused on a shopping arcade of fast-food restaurants and computer outlets that had Start-Up and Innovation Street added to its name in 2015.

Shenyang’s taxpayers are contributing to the effort. Some entrepreneurs are eligible for subsidized housing, with rent costing the equivalent of $30 a month.