Commentary on Political Economy

Saturday 27 April 2019


    As a young woman in one of China’s most economically stagnant cities, Ma Yingge has adopted what she calls a “Buddhist” attitude. The word she uses, foxi, literally means Buddhist, but has recently been embraced by young people to express a “generalised attitude of apathy toward career, society and even themselves”, according to China’s (disapproving) state media. Ma explains that the expression means “not forcing anything”. “My character is like that,” she says. “I don’t set my goals too high. That would be tiring.”The attitude is a helpful one in China’s north-east, also known as Manchuria, a region of 100 million people that is squeezed between North Korea, Inner Mongolia, Russia and Japan. While China enjoys a reputation for world-beating economic growth, Ma’s home city, Qiqihar, and dozens of others like it in the north-east have seen growth slow to a trickle and in a few cases experienced outright recession.
    The downturn is more painful as the north-east was the country’s wealthiest area from the 1950s to the 1970s. China’s then-leader Mao Zedong channelled resources into a programme of rapid industrialisation that built on a legacy of factories left behind by the Japanese empire, which had annexed the region in the 1930s. From the early 2000s, nationwide infrastructure and property investment allowed heavy industry to expand and produced strong growth, a process intensified by a massive government stimulus following the global financial crisis in 2008.But by 2015 even official statistics — widely thought to exaggerate the country’s performance — showed growth below 5 per cent in the north-east. One of the region’s three provinces experienced a 1 per cent contraction, virtually unheard of in contemporary China. The problems afflicting the region — unproductive companies, weakening consumer demand and overinvestment in heavy industry — reflect challenges China will face more broadly as it attempts to make the transition from middle-income to developed-country status. Corruption is another issue. The ties between officials and state-run companies which emerged in the planned-economy era mean the north-east enjoys an almost unparalleled reputation for graft, deterring private investment.Qiqihar in turn is a microcosm of the region’s shifting fortunes. It was given its melodious name by one of the nomadic groups that accounted for most of the north-east’s sparse population until the 19th century, when tens of millions migrated from poverty-stricken areas elsewhere in China, attracted by fertile soil and burgeoning industries. Now, though, the direction of travel has reversed. The city was hit hard in the regional downturn, its economic growth rate falling to 2 per cent a year from 2013 to 2017, barely above inflation (and compared to a national average of 7 per cent). That has prompted an exodus of young people. Like many north-easterners, they are now found across China working in service jobs such as food delivery. Since 2014, Qiqihar’s population has dropped from 5.5 million to 5.3 million.
    “Most of my classmates have left to look for higher incomes. Many won’t return,” says Ma, who works as a nurse. We are sitting in a Qiqihar restaurant, chatting over a plate of juicy grilled pork — typical warming fare in a place where winter temperatures are often around -20C.Despite the received wisdom about China’s inexorable urbanisation, the country now has more than 900 cities that are shrinking like Qiqihar, most of them in the north-east. The demographic consequences, in the form of an increasingly elderly population, offer another preview of tomorrow’s China. As the birth rate continues to fall — in spite of the abandonment of the “one-child” policy — Beijing predicts that the country’s population will peak by 2030, pushing the proportion of young people into rapid decline.Such demographic shifts are making themselves felt in the property market, another area where the north-east may hold out a warning for the rest of China.
    In Qiqihar, investment in property — a pillar of economic activity — began to fall in 2015 as the population diminished and a surplus of houses became apparent. Nationwide, property sales are believed to have reached a historic peak last year. Since investment chases those sales, economists believe housing will dwindle as a source of growth for upstream industries from steel to cement. If a team of economists were tasked with finding an example of the problems afflicting China’s economy, they could not do much better than Qiqihar’s Fularji district. Home to about 300,000 people, in recent decades it has had a near-total dependence on four state-owned companies.Chief among them was China First Heavy, a steelmaker and machinery manufacturer founded in 1954 as part of China’s first “five year plan”. A 10m-tall stainless-steel statue of Mao Zedong — the largest statue of him anywhere in China, weighing more than 33 tons — still stands at the entrance to its vast factory. In the early 2000s, the company’s ambitious chairman encouraged a massive debt-funded expansion of production. As demand for its products surged, wages soared, tripling to Rmb6,000 (£688) a month — above the national average — in the decade to 2012, say staff. The district’s other large enterprises — a steel plant, a chemical factory and a coal-fired power station — also flourished. Car ownership, once a rarity, became commonplace. Kentucky Fried Chicken opened an outlet in 2008. Then in 2014, the recession arrived. A nationwide glut of steel production, which had more than trebled in a decade, and a cyclical downturn in the property market tipped steel prices so low that some varieties became as cheap as cabbage. China First Heavy’s chairman, Wu Fusheng, was forced to cut wages and began the difficult task of laying off management.
    According to Stefan Schwaab, a German who Wu hired to be the company’s first foreign board member, the company cut wages for nearly all staff by 30 to 40 per cent from 2014 levels. “They started with top management. Later on they expanded it to the workers,” he says. “Many had no choice than finding another job to survive.” Soon after, two of the other four pillars of industry in Qiqihar collapsed. Beiman, the steel plant, defaulted on a series of bonds and was declared bankrupt by a local court, with Rmb7.3bn in liabilities. The chemical plant also went under — the site is now overgrown with weeds — while the electricity plant laid off hundreds of staff.Those years saw unrest throughout the north-east. In the city of Shuangyashan, almost entirely dependent on a single coal mine, thousands of locals filled the streets for days in 2016, demanding unpaid wages. The previous year in Qiqihar, according to several of the participants, workers gathered outside the gates of China First Heavy to demand assurances that they would receive their pensions. As officials sought to allay their fears, police detained dozens of workers before the protests ended, say locals. Later that year Wu took his own life. More than three years on, Fularji’s streets are filled with empty shops and offices. Apartment blocks are mainly old and visibly crumbling. The only businesses displaying recruitment signs are those that cater to the elderly, selling wheelchairs and hearing aids.

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