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

UN Fears Rights Violations in China-backed Projects

UNHCHR investigates link between financing development and ignoring safeguards for human rights More

Boko Haram Violence Tests Nigerians’ Faith in Buhari

New president has promised to stem insurgency; he’s scheduled to meet with President Obama at White House July 20 More

Social Media Network Wants Privacy in User’s Hands

Encryption's popularity in messaging is exploding; now it's the foundation of a new social network 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.
Making Music, Fleeing Bombs: New Film on Sudan’s Internal Refugeesi
X
Carolyn Weaver
July 06, 2015 6:47 PM
In 2012, Sudanese filmmaker Hajooj Kuka went to make a documentary among civil war refugees in Sudan’s Blue Nile and Nuba Mountains region. What he found surprised him: music was helping to save people from bombing raids by their own government. VOA’s Carolyn Weaver has more.
Video

Video Making Music, Fleeing Bombs: New Film on Sudan’s Internal Refugees

In 2012, Sudanese filmmaker Hajooj Kuka went to make a documentary among civil war refugees in Sudan’s Blue Nile and Nuba Mountains region. What he found surprised him: music was helping to save people from bombing raids by their own government. VOA’s Carolyn Weaver has more.
Video

Video Rice Farmers Frustrated As Drought Grips Thailand

A severe drought in Thailand is limiting the growing season of the country’s important rice crop. Farmers are blaming the government for not doing more to protect a key export. Steve Sandford reports from Chiang Mai, Thailand.
Video

Video 'From This Day Forward' Reveals Difficult Journey of Transgender Parent

In her documentary, "From This Day Forward", filmmaker Sharon Shattuck reveals the personal journey of her transgender father, as he told his family that he always felt he was a woman inside and decided to live as one. VOA’s Penelope Poulou has more.
Video

Video Floodwaters Threaten Iconic American Home

The Farnsworth House in the Midwest State of Illinois is one of the most iconic homes in America. Thousands of tourists visit the site every year. Its location near a river inspired the design of the house, but, as VOA’s Kane Farabaugh reports, that very location is now threatening the existence of this National Historic Landmark.
Video

Video Olympics Construction Scars Sacred Korean Mountain

Environmentalists in South Korea are protesting a Winter Olympics construction project to build a ski slope through a 500-year-old protected forest. Brian Padden reports that although there is strong national support for hosting the 2018 Pyeongchang Winter Olympics, there are growing public concerns over the costs and possible ecological damage at the revered mountain.
Video

Video Xenophobia Victims in South Africa Flee Violence, Then Return

Many Malawians fled South Africa early this year after xenophobic attacks on African immigrants. But many quickly found life was no better at home and have returned to South Africa – often illegally and without jobs, and facing the tough task of having to start over. Lameck Masina and Anita Powell file from Johannesburg.
Video

Video Family of American Marine Calls for Release From Iranian Prison

As the crowd of journalists covering the Iran talks swells, so too do the opportunities for media coverage.  Hoping to catch the attention of high-level diplomats, the family of American-Iranian marine Amir Hekmati is in Vienna, pleading for his release from an Iranian prison after nearly 4 years.  VOA’s Heather Murdock reports from Vienna.
Video

Video UK Holds Terror Drill as MPs Mull Tunisia Response

After pledging a tough response to last Friday’s terror attack in Tunisia, which came just days before the 10th anniversary of the bomb attacks on London’s transport network, British security services are shifting their focus to overseas counter-terror operations. VOA's Henry Ridgwell has more.
Video

Video Obama on Cuba: This is What Change Looks Like

President Barack Obama says the United States will soon reopen its embassy in Cuba for the first time since 1961, ending a half-century of isolation. VOA White House correspondent Luis Ramirez reports.
Video

Video Hate Groups Spread Influence Via Internet

Hate groups of various kinds are using the Internet for propaganda and recruitment, and a Jewish human rights organization that monitors these groups, the Simon Wiesenthal Center, says their influence is growing. The messages are different, but the calls to hatred or violence are similar. VOA's Mike O’Sullivan reports.
Video

Video Blind Somali Journalist Defies Odds in Mogadishu

Despite improving security in the last few years, Somalia remains one of the most dangerous countries to be a journalist – even more so for someone who cannot see. Abdulaziz Billow has the story of journalist Abdifatah Hassan Kalgacal, who has been reporting from the Somali capital for the last decade despite being blind.
Video

Video Rabbi Hits Road to Heal Jewish-Muslim Relations in France

France is on high alert after last week's terrorist attack near the city Lyon, just six months after deadly Paris shootings. The attack have added new tensions to relations between French Jews and Muslims. France’s Jewish and Muslim communities also share a common heritage, though, and as far as one French rabbi is concerned, they are destined to be friends. From the Paris suburb of La Courneuve, Lisa Bryant reports about Rabbi Michel Serfaty and his friendship bus.

VOA Blogs

World Currencies

EUR
USD
0.9084
JPY
USD
122.73
GBP
USD
0.6431
CAD
USD
1.2639
INR
USD
63.444

Rates may not be current.