Ground zero of China’s slowdown leaves locals looking for exit signs

TIELING (CHINA) — Tea-shop manager Zhang Yue is so desperate about her home city of Tieling’s future that she has borrowed about five times her annual income to buy a work visa to leave for Japan — an economy that has flat-lined for a generation.

“Two years ago, everything was fine and I bought whatever I wanted,” said Ms 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 north-east 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 centre, 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 per cent last year — compared with national growth of near 7 per cent.

Fixed-asset investment in Tieling — largely property and infrastructure investment — plummeted 39 per cent, steel output plunged 89 per cent, industrial output dropped 18 per cent and coal production was down almost 8 per cent.

“These types of cities are in for a really tough stretch,” said Mr Andrew Polk, Beijing-based director of China research at Medley Global Advisors.

“Industrial cities that got hollowed out in the United States after the 1960s and 1970s 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 US.”

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 at the losing end. China’s economy continued decelerating in the past three months, to a pace of 6.6 per cent, according to the median estimate of economists surveyed by Bloomberg ahead of gross domestic product data due on 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 Mr Frederic Neumann, co-head of Asian economic research at HSBC Holdings 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 is 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 10am 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 (S$705) 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 Mr 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 sqm Tieling New City, about 10km 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 per cent last year.

The new city did not sell any new land to developers last year, and its infrastructure vehicle, Tieling Newcity Investment Holding, lost 179 million yuan, according to the company’s annual report.

As with the wider Chinese economy, the few bright spots tend to be in services. At the logistics centre, Mr Ren Baoku, 49, says revenue from his lunch-delivery business has increased to 1,000 yuan a day this year, from 300 yuan last year.

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 Ms Zhang has given up on her hometown. 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 labour 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.” BLOOMBERG