"New York Times" and "zombie factory" drag on the Chinese economy

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Miao Leijie (transliteration) per ton of cement produced at factories in China are losing money. But he can't choose to shut down their factory.

2011 he founded lucheng excellent plant for the North China city of Changzhi's real estate and infrastructure supply building materials. At that time, the start-up capital is basically the Bank loans. Now, the seedlings as the company's Chairman, had to work hard to maintain production, so just in order to loan interest.

Lucheng excellent cement co is very difficult to climb out of the quagmire, and fewer customers and investors, companies can only continue to make loans.

"If we shut down, there will be substantial losses," in his simple Office, Miao boss keep on smoking, said, "we are working for the Bank. "In Changzhi city and its surrounding area littered with dead plant and some have closed, in stunned silence. As one of China's economic woes of the horrendous background image.

And many other industrial cities in China, long-term investment boom in the rapid expansion of Changzhi in the past, too many factories, and lack of demand. Many economists say China to go back to the track of healthy development, have to cut excess capacity.

However, lucheng excellence Changzhi and other companies in similar situations are not close, but like a "zombie", the limp continued to move forward.

In order to save jobs and factories, the Government and State-owned banks, sometimes through provision of rolling loans, debt restructuring, or provide new lines of credit and other forms of financial support, to maintain their loss-making companies continue to live. This may seem like a strange business strategy, in fact, doing so is one of the main objectives of maintaining social stability. Provincial and municipal government departments to support the struggling factories is another reason, is because the Government believes that their importance to the local economy.

Similar strategies have been previously attempted to, but with little success. In Japan, such companies are known as "zombies", they are considered to be Japan appeared in 20 one of the causes of economic stagnation.

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As China allowed "zombie" companies dragged down its economy, China's Economic Outlook became more uncertain, economic growth is difficult to predict. If leadership fails to address these potential problems, China's economy could be weak for a long time.

Markets are increasingly worried about China's economic growth continued to slow, and difficulties are more serious. This concern has recently sparked sharp falls in global stock markets. Shares on the Shanghai Stock Exchange has fallen by more than 30% since its peak in June.

"Investors around the world have recognized that China's crisis began to have an impact on everybody," HSBC (HSBC) Neumann, co-head of Asian Economics Research (Frederic Neuman) said.

Changzhi, only 3 million people, geographically distant from financial centres like Shanghai or Shenzhen export areas, most people live in low-rise apartment buildings, work in the whole integrated industrial zone. The local economy is mainly dependent on heavy industry such as steel manufacturing, the industry sustained high growth in China over the past decades. Along with the growth of the real estate market and government investment in infrastructure, such as road traffic, a large number of cement factories springing up appears on the outskirts of Changzhi, use of local rich resources to create hundreds or thousands of well-paid jobs. In recent years, busy shops and fast-food restaurants continue the narrow city centre opened, brought a new prosperity to Changzhi.

But as China's economy slows, such a day would make it difficult. China's second quarter GDP growth 7%. Although the rate of increase for most of the country was excellent, but as far as China is concerned, is its slowest pace in 25 years.

Some industry is falling, more rampant in those towns that lack of economic diversification. In boom times, today a large number of vacant apartment buildings down the real estate industry. Changzhi businessmen also complain that the local Government will support the project was scaled back.

Therefore, the excess pressure on cement plant of Changzhi. Shanxi province, according to the building materials industry association said cement companies in the province can now be produced three times times the amount of cement needed by 2014. Two-thirds of the company is losing money.

This situation has put the once-promising enterprises into "zombies". Changzhi huatai company's huge plant for cement clinker truck parked outside, but the amount is far less than a few years ago, nor in the loaded tonnage. The money-losing company is only producing 200,000 tons of cement this year, although its capacity to 1 million tons.

Thailand as a State-owned enterprise in support of special policies worked.

Huatai coal supply can charge and get preferential loans from the parent company held by the provincial government. Huatai's management to ensure the wages of its 300 workers, and this is a priority for the company.

"Our people need to eat, they need to live," said a manager who declined to give his name.

These may contribute to the maintenance of employment, but also slow the industry much-needed reforms. In July, the International Monetary Fund released a report on the labor market in China pointed out that State-owned enterprises often prefer to retain the enterprise does not need workers. From an economic point of view, they should lay off staff or close to release some of those trained employees, so that they enter the company or industry has a strong future. So that resources can be shifted from the economically efficient enough area to help economic growth back on track.

Without this change, economies will be damaged in the future. Deputy Representative of Beijing Representative Office of the International Monetary Fund-Kei (Raphael Lam) said that China's policy makers should be more effectively promote reform, allowing state-owned enterprises restructure. If not, he said, "in the long run, (economic growth) is likely to slow sharply increasing. "

For employees working for those unlucky not to keep the situation more complex. Although the nation's unemployment rate has remained at a low level, but workers often complain of the Changzhi, good jobs are hard to come by now.

Cement Group in Changzhi, only dogs can hear sounds. 43-year old former electrician Zhao Liwei (transliteration) sitting in a shabby room watching TV. Two years ago, the State-owned factories, her pay would cease. Most of the employees had to fend for.

Zhao Liwei said, because the factory was never officially closed, they have not received severance pay or other compensation. Although the dozen factory workers this month was a private company to produce cement, but it is just a temporary job.

Zhao has not been working. She said that only work in this area is to sweep the floor and restaurant waiters, 500 yuan per month (the equivalent of us $ 78). When working in a factory, she can earn twice the salary. "New York Times" and "zombie factory" drag on the Chinese economy

She said, "promise to our iron rice bowls", but now "seems to give us a long-term unpaid leave. "

Some idled workers are facing serious hardships. 45, Du Jianping (transliteration) sitting in front of a run-down apartment building near said she could only rely on parental support to feed her 12 year old daughter. Changzhi cement group she and her husband did not work, only outside the station stall selling women's clothing and children's toys to earn a small income.

She felt an awkward, worried that they can't find better work elsewhere.

"We're too old, unable to find a job in the city," she said, "I hope that the Government can help the cement industry, enabling it to better. "

Due to fears of unemployment leads to social instability, the Government will maintain employment as the primary objective of economic policy. Prime Minister Li keqiang told a news conference last year, the Chinese Government can accept the minimum growth rate "considering also guaranteed employment, improve people's livelihood, and increase the income of urban and rural residents."

This helps to explain why Beijing would take stronger action to support the economy. On August 25, China's Central Bank has cut benchmark interest rates for the fifth time since last November, nearly two weeks ago, the Central Bank has suddenly devaluation. Some analysts believe that this intention makes Chinese goods cheaper in the international market, China to boost sluggish exports.

Government also plans to let the State-owned bank carried out a new round of infrastructure investment to help troubled industries, such as cement. Changzhi managers believes that authorities should do more, such as the lowest cement prices or support local construction projects.

However, such measures can only make "zombie companies" temporary breathing space, but will have an adverse effect on the overall economy. To extend new credit, use other means to stimulate economic growth, the Government can temporarily resurrected parts factory, but exacerbate over-capacity and economic problems like high debt.

Consultancy IHS (IHS Global Insight) is expected in 2015, than debt to economic output will reach 254%, is nearly twice times the 2008 level. This debt can pose a real risk, if the borrower becomes unable to pay debts, defaults will occur.

"Only a cumulative increase of debt," the international rating agency Fitch Senior Director, Grace Wu pointed out that in Hong Kong, "it doesn't help economic substance. It does not create jobs. "

In the long run, China's policymakers are trying to reduce over-reliance on investment for economic growth, so household consumption can play a big role. This means that many heavy industries, such as cement, may never again full throttle.

40 year old businessman Wang Xiaohu (said) did not completely give up hope. In recent years, he has invested 20 million Yuan to build, Changzhi city Ruili building material co., Ltd. The company produces 300,000 tons of cement per year in the past, and now, the factory not appropriate old age security only one uniform stood alone watching the gate. About 18 months ago, Wang was forced to fire nearly 100 employees, factory shutdowns.

But the King refused to let the plant wound up instead, he retains the machine, wait for the economic recovery, to continue production of cement. But he acknowledged that this might be the day never comes.

"Many small and medium sized cement plants is this situation," said Wang Xiaohu, "reopened the chance is very slim. "

(Translation: Yu Fuli)

Source: New York Times

Original title: ZOMBIE FACTORIES STALK THE SPUTTERING CHINESE ECONOMY

Last updated: 09/05 17:04