MANUFACTURING SLUMP CREATING GHOST TOWNS
Friday, October 23, 2015
NANTONG, China -- Beijing says China's economic slowdown is a necessary phase in the country's transition to sustainable growth, but that is little consolation to the scores of manufacturers fighting for survival amid tanking demand. Job cuts are rippling through the shipbuilding and other industries by the thousands, and local businesses and communities are struggling to cope as their livelihoods disappear.
China's growth slowed to below 7% for the first time in six and a half years in the July-September quarter. The government has implemented one stimulus measure after another, but the manufacturing industry, which many say holds the key to a recovery, remains mired in a slump.
The shipbuilding industry is a prime example of how bad things have gotten. China is the world's No. 1 shipbuilder, controlling about 40% of the global market. But the sector is reeling, with orders for the January-September period plunging 70% on the year.
Because it has become a poster child for industries saddled with excessive production capacity, banks are hesitant to extend credit to shipbuilders, forcing the more desperate players to turn to high-interest lenders. Bankruptcies have been filed one after another this year.
Deserted
One of those failed shipbuilders is Nantong Mingde Heavy Industry, and its collapse has hit its local community hard.
The city of Nantong, Jiangsu Province, where the private shipbuilder was based, is located across the Yangtze River from Shanghai. Nantong's riverside areas are now mostly deserted, with many restaurants and shops there shuttered due to a lack of customers.
Nantong Mingde was a major source of jobs in the area, employing about 8,000 people. All of those workers, many hailing from other parts of the country, were gone by the end of August due to the company's bankrupcty. Now, the area resembles a ghost town.
Not far from the deserted dockyard, a similarly depressing scene can be observed. The production facilities of China Huarong Energy, China's largest private shipbuilder, are still operating, but business is not so good.
The company changed its name this spring and has been stepping up efforts to move away from shipbuilding. But because change has not gone much deeper than that, business continues to suffer. A high-end hotel just outside the main gate of the factory is open, but its dimly lit lobby is empty.
"We have no guests here," a hotel employee said.
For years, the coastal province of Jiangsu has served as one of China's growth engines. In addition to its role as a shipbuilding center, Jiangsu has been a textile industry hub.
Nantong is home to a wholesale bedding market that is said to be the biggest in China. But a visit to the massive site reveals not a great hive of commerce but bored shop owners killing time playing cards.
Some shops also handle exports to the peppier markets of Malaysia and other Southeast Asian countries, but even that side of business has come to a grinding halt.
"We have not shipped a single container overseas so far this year," one shop owner said.
Tougher reality
Chinese Premier Li Keqiang said in a recent speech that the nation's current economic rough patch is an unavoidable part of the country's transition to a new growth model. He said the government's aim is to help manufacturers shift to greater production of high-value-added products.
Beijing appears to have accepted the necessity of painful structural reform in moving toward sustainable longer-term growth. Aiming to improve the quality of its economy, rather than blindly chasing high growth, is a sound choice.
But for the manufacturing industry, the process of consolidation and reorganization -- a necessary step for shedding excessive production capacity -- has only just begun. Switching to other businesses or transitioning to more advanced manufacturing will involve much more than simply heeding catchy government slogans.
Based on what is happening on the ground level, China's slow growth is likely to linger a lot longer than its political leaders care to admit.
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