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China's Shift Away From Industry Drains Life From a Steel Town

Post Date: 08 Sep 2015    Viewed: 553

For as long as Deng Wanyin could remember, the sprawling steel mill in the outskirts of this city has been a part of his life. The 42-year-old forged steel pipes here, as his father had before him. He met his wife in the apartments the state-owned mill provided to house its workers. Their daughter was raised in the mill’s schools.

One day in late March, notice came that the mill was shutting down.

“When I heard the news, all I felt was an expanse of emptiness,” Mr. Deng said. “I never imagined that this would happen.”

The closing of the Pangang Chengdu Steel & Vanadium Co. is leaving Mr. Deng on the sharp edge of China’s juddering economic slowdown that is unsettling global markets. About 16,000 workers have been given buyouts, upending long-entrenched livelihoods centered on the mill, known locally as Panchenggang, after 57 years in operation.

With the mill silent, the sound that dominates the area of faded shophouses and hulking apartment complexes these days is the din of crickets, rising and falling against Sichuan province’s lush greenery. The smog that used to blanket the area has thinned out, and the sharp odor of ammonia from nearby chemical factories, also closed, is gone.

The uprooting of company towns is part of a painful transition as the heavy industries that for decades powered China’s rise fade amid falling demand and overinvestment. The government is trying to shift the giant economy to a new track built on consumer spending, services and technology-driven manufacturing.

Fears that the shift is proving trickier than Beijing can handle undermined the confidence of investors world-wide that China would soon re-emerge as a source of global growth.

Growth in industrial production continued to sputter in July, falling to 6%, compared with more than 23% in the heyday of growth a decade ago, and the target of 7% GDP growth this year would be China’s slowest in about a quarter century.

Contract work

Mr. Deng, after receiving a buyout equivalent to about six years of pay—150,000 yuan, or $24,000—for his 26 years of service at Panchenggang, fretted about finding a job and paying for his daughter’s college education. He got hired back by the company, working at a smaller, specialty pipe-making unit that isn’t being closed, for a similar wage but without benefits. Contract workers like him are the first to be fired, he said, and none of the 14 colleagues who worked alongside him making pipes for oil and gas were rehired.

“A lot of people in the mill used to say they would work here until they retired, but nobody believes in the company anymore,” said Mr. Deng, whose crew cut is receding, and whose face, once chubby in wedding photos, is now lined.

Cities and towns across China are losing some of their biggest employers in a process reminiscent of the factory shutdowns that decades ago hit Rust Belt America, from Detroit to Baltimore.

Paper mills are being forced out of the southern city of Dongguan as it tries to prod manufacturers to move up the value chain. In the northern county of Luquan, made wealthy by cement, scores of polluting producers have shut down as the local government tries to retool the area for tourism; a full-scale replica of the Great Sphinx of Giza—made of cement—stands on the city’s edge.

As communities begin to hollow out, it is straining a social compact that has been a feature of the Communist Party’s rule: that state-owned companies would take care of the industrial workforce, even in difficult times. It is a bargain meant to keep workers from going on strike, or worse, becoming a source of antigovernment unrest, like the dockyard workers who helped bring down Poland’s communist government.

In Qingbaijiang, the industrial district where Panchenggang sits north of Chengdu, thousands of residents have gone elsewhere in search of employment. “For Rent” signs line the streets of once-bustling neighborhoods. Petty crime is edging up.

“I can’t even afford to pay the rent. Why work here anymore?” said 49-year-old Lu Yufang, who operates a convenience store underneath an apartment complex Panchenggang built for its workers. Her rental costs 700 yuan a month. In Panchenggang’s heyday 10 or 15 years ago, she could make 3,000 yuan a month easily and closed each night at 2 a.m. because the throng of unmarried workers socializing in the shop kept the till humming.

Now she shuts at 9 p.m., well after the trickle of elderly patrons has petered out.

“Who would have thought that a central state company would shut?” she said. “I never thought it was possible.”

Panchenggang is the single largest state-owned steel mill in China to be shut down in six decades. Most of its two-million-metric-ton annual capacity will be mothballed, city officials say.

Such large-scale retrenchment is rare for an industry that is politically influential and emblematic to economic planners of industrial might. After Beijing began dismantling small and medium-size state companies in the 1990s, Big Steel only got bigger, eventually employing four million workers. It was part of a government plan to preserve control of key sectors like metals, energy, water and transport. China’s annual steel production is currently at about 800 million tons.

The industry marched on despite massive overcapacity that has swamped global markets and, ultimately, profitability. Chinese steel prices have fallen 60% from January 2012, pummeled by a weakening construction sector. Even so, as the downturn began to bite last year, some steel mills and the local governments that rely on them to create jobs and revenues resisted closure. 

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