News / Economy

Troubled Chinese Steelmakers Lose Lifeline of Cheap Credit

A man walks inside the Xinming Steel Pipe Plant in Tangshan, Hebei province, China, July 11, 2014.
A man walks inside the Xinming Steel Pipe Plant in Tangshan, Hebei province, China, July 11, 2014.
Reuters

In Tangshan, a polluted industrial Chinese city that produces more steel a year than the entire United States, the Xinming Steel Pipe Plant shut earlier this month leaving more than 400 workers and a host of creditors unpaid.

The turmoil at the firm shows how huge overcapacity is pushing scores of similar steel enterprises to the brink of bankruptcy. Unlike in the past, however, provincial governments are now unwilling or unable to bail them out.

In a bid to rebalance the world's second-biggest economy, Beijing is dismantling a local government support structure that has given steel firms a lifeline of cheap credit, lucrative construction contracts and preferential tax rates.

This support has saddled the steel industry with huge debts and at least 200 million tons of excess production capacity -- far more than either U.S. output of 87 million tons or the European Union's 166 million tons.

China is estimated to have a steel production capacity of more than 1 billion tons.

Low-end steel

Tangshan, just east of Beijing in Hebei province, produces 100 million tons of mostly low-end steel used in construction every year and has been at the center of a campaign aimed at closing obsolete and polluting steel works.

After a devastating 1976 earthquake killed at least 250,000 people and leveled much of the city, Tangshan was given free rein to use steel to rebuild its shattered economy.

But it is now feeling the heat from Beijing's efforts to control this type of chaotic credit-fuelled growth in the world's second-biggest economy.

China has also launched a “war on pollution” to impose tough standards and targets on the steel sector and promised that the market will play a decisive role in tackling the glut.

With cash-strapped regional authorities now less able to offer support, hit by credit restrictions and falling government revenue from bloated sectors such as steel, they have been stepping in only to ease some of the strife brought about by unpaid wages and mass layoffs.

At the Xinming Steel Pipe plant, a bulldozer was parked at the entrance to prevent anyone driving in and stealing what remained of stock and equipment. The plant appeared deserted during a recent visit by Reuters apart from two security guards standing in the distance.

The firm owes around 10 million yuan ($1.61 million) in wages to more than 400 staff, as well as debts to various suppliers and creditors, according to documents seen by Reuters.

“The boss kept delaying our wages, saying next month will be fine, and then next month, and then he disappeared,” said a worker waiting outside the plant, who only gave his surname as Zhang. He was among a small group of workers outside the plant also who said they were trying to get their wages.

Calls made to phone numbers listed for the firm's chairman, Fu Baozhong, and other officials were not answered.

Bankruptcy likely

A manager at one of Xinming's creditors said that while the government was holding discussions with creditors to see whether the firm's debts could be rescheduled there was a prospect of bankruptcy proceedings being launched if there was no agreement

“This is just one example of many -- most firms have been trying to cling on until rivals disappeared and the market improved, but they can't all do so,” said the manager, who said his firm was owed “tens of millions of yuan”.

The manager, who did not want to be named due to the sensitivity of the situation, said if the administrative staff could not be reached it would make retrieving money harder.

The local governments of Tangshan, the steel district of Fengrun where Xinming is located and the provincial government all declined to comment.

With the banking sector under pressure from Beijing to rein in cheap credit, the sector is getting less money.

The All-China Chamber of Commerce for Small Metallurgical Enterprises estimates that credit given to the steel sector has fallen by around 140 billion yuan this year, about 10 percent of the total.

Unable to obtain bank loans, some firms have been forced to borrow from other steel companies at higher rates of interest. This puts them under even more pressure when other struggling mills call in their loans, risking a chain reaction.

16 mills closed

In Hebei, at least 16 mills have shut because they are unable to pay their bills, its governor Zhang Qingwei said in March, and the problems have spread to other areas of China.

Earlier in July, the semi-official China Business News reported that Xilin Iron and Steel Group in Heilongjiang province, was struggling with heavy debt and had not paid its workers for five months. Calls made to Xilin were unanswered.

Elsewhere, Highsee Steel in Shanxi province has also been shut for three months, with official media reporting that a rescue package was unlikely.

“It's not that local governments don't support us - they just can't. They have no money and are under big pressure,” said a private mill official in Tangshan.

You May Like

Missouri Town Braces for Possible Racial Unrest

Situation in Ferguson hinges on whether white police officer will be indicted for August shooting death of unarmed black teen; decision could come Monday More

Video Ukraine Marks Anniversary of 1930s Deadly Famine

President Poroshenko compares Soviet-era ‘genocide’ to current tactics of pro-Russia rebels in Ukraine's east More

S. Philippines Convictions Elusive 5 Years After Election-related Killings

Officials vowed to deliver justice as the nation marked the anniversary of the country's worst political massacre that left 58 dead, more than half media More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
New Skateboard Defies Gravityi
X
November 21, 2014 5:07 AM
A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video New Skateboard Defies Gravity

A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video Falling Gas Prices Impact US Oil Extraction

With the price of oil now less than $80 a barrel, motorists throughout the United States are benefiting from gas prices below $3 a gallon. But as VOA’s Kane Farabaugh reports, the decreasing price of petroleum has a downside for the hydraulic fracturing industry in the United States.
Video

Video Tensions Build on Korean Peninsula Amid Military Drills

It has been another tense week on the Korean peninsula as Pyongyang threatened to again test nuclear weapons while the U.S. and South Korean forces held joint military exercises in a show of force. VOA’s Brian Padden reports from the Kunsan Air Base in South Korea.
Video

Video Mama Sarah Obama Honored at UN Women’s Entrepreneurship Day

President Barack Obama's step-grandmother is in the United States to raise money to build a $12 million school and hospital center in Kogelo, Kenya, the birthplace of the president's father, Barack Obama, Sr. She was honored for her decades of work to aid poor Kenyans at a Women's Entrepreneurship Day at the United Nations.
Video

Video Gay Evangelicals Argue That Bible Does Not Condemn Homosexuality

More than 30 U.S. states now recognize same-sex marriages, and an increasing number of mainline American churches are blessing them. But evangelical church members- which account for around 30 percent of the U.S. adult population - believe the Bible unequivocally condemns homosexuality. VOA's Jerome Socolovsky reports that gay, lesbian, bisexual and transgender evangelicals are coming out. Backed by a prominent evangelical scholar, they argue that the traditional reading of the bible is wrong.
Video

Video Ebola Economic Toll Stirs W. Africa Food Security Concerns

The World Bank said Wednesday that it expects the economic impact of the Ebola outbreak on the sub-Saharan economy to cost somewhere betweenf $3 billion to $4 billion - well below a previously-outlined worst-case scenario of $32 billion. Some economists, however, paint a gloomier picture - warning that the disruption to regional markets and trading is considerable. Henry Ridgwell reports from London.
Video

Video Mexico Protests Escalate Over Disappearances

Protests in Mexico over 43 students missing since September continue to escalate, reflecting growing anger among Mexicans about a political system they view as corrupt, and increasingly tainted by the drug trade. Mounting outrage over the disappearances is now focused on the government of President Enrique Pena Nieto, accused of not doing enough to end insecurity in the country. More from VOA's Victoria Macchi.
Video

Video US Senate Votes Down Controversial Oil Pipeline - For Now

The U.S. Senate has rejected construction of a controversial pipeline to transport Canadian oil to American refineries. The $5 billion project still could be approved next year, but it faces a possible veto by President Barack Obama. As VOA’s Michael Bowman reports, the pipeline has exposed deep divisions in Congress about America’s energy future.
Video

Video Can Minsk Cease-fire Agreement Hold?

Growing tensions between government troops and separatists in eastern Ukraine further threaten a cease-fire agreement reached two months ago in the Belarusian capital of Minsk. Critics of U.S. policy in Ukraine say it is time the Obama administration gives up on that much-violated cease-fire and moves toward a new deal with Russia. VOA's Scott Stearns has more.
Video

Video Chaos, Abuse Defy Solution in Libya

The political and security crisis in Libya is deepening, with competing governments and, according to Amnesty International, widespread human rights violations committed with impunity. VOA’s Al Pessin reports from London.
Video

Video US Hosts Record 866,000 Foreign Students

Close to 900,000 international students are studying at American universities and colleges, more than ever before. About half of them come from Asia, mostly China. The United States hosts more foreign students than any other country in the world, and its foreign student population is steadily growing. Zlatica Hoke reports.
Video

Video Ferguson Church Grapples with Race Relations

Many white residents of Ferguson, Missouri, say they chose to live there because of the American Midwest community's diversity. So, they were shocked when a white police officer killed an unarmed black teenager in August – and shaken by the resulting protests and violence. Some local churches are leading conversations on how to go forward. VOA’s Ayesha Tanzeem reports.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8050
JPY
USD
117.90
GBP
USD
0.6376
CAD
USD
1.1259
INR
USD
61.655

Rates may not be current.