Economic improvement in China’s northeast rust belt is just skin deep as state firms continue to bleed

When China’s central government chose Shenyang Machine Tool, a state-owned manufacturing behemoth in the northeastern province of Liaoning, to undergo a programme of reform two years ago, it probably imagined it would provide a yardstick for the broader regeneration of the region as a whole.

It could not have been more wrong. While the provincial authorities reported growth of 6.1 per cent in the first quarter, which was on a par with the national figure, little of that upturn came courtesy of Shenyang Machine Tool.

In fact, the company’s decline, coupled with years of losses due to mismanagement and political meddling, has been exacerbated in recent years by its investment in an automation system known as i5.

Sources said the situation was now so dire that the company was struggling to pay even half of its workers.

“The company has received orders [for i5 automated system tools], but it does not have the funds to buy the raw materials to make them,” one of the sources said.

Last year, the company chalked up losses of more than 2 billion yuan (US$290 million), according to earlier state media reports.

Shenyang Machine Tool’s plight exemplifies the dilemma faced by most state-owned enterprises (SOEs) in China’s northeast, whose futures often depend on their ability to innovate successfully.

And that in turn is key to the success of Beijing’s drive to revitalise the so-called rust belt, which also comprises the provinces of Jilin and Heilongjiang.