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

    Double Wave of Suicide Bombings Puts Lebanon, Refugees on Edge

    Following suicide bombings in Christian town of Al-Qaa, on Lebanon's northeast border with Syria, fears of further bombings have risen

    China Seeks On-Off Switch for Internet

    Public asks whose security is cybersecurity law aiming to protect

    UN Human Rights Chief: Burundi May Explode Into Ethnic Violence

    Burundian government accuses the UN of a campaign of distortion

    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.
    Baghdad Bikers Defy War with a Roari
    X
    June 28, 2016 10:33 AM
    Baghdad is a city of contradictions. War is a constant. Explosions and kidnappings are part of daily life. But the Iraqi capital remains a thriving city, even if a little beat up. VOA's Sharon Behn reports on how some in Baghdad are defying the stereotype of a nation at war by pursuing a lifestyle known for its iconic symbols of rebellion: motorbikes, leather jackets and roaring engines.
    Video

    Video Baghdad Bikers Defy War with a Roar

    Baghdad is a city of contradictions. War is a constant. Explosions and kidnappings are part of daily life. But the Iraqi capital remains a thriving city, even if a little beat up. VOA's Sharon Behn reports on how some in Baghdad are defying the stereotype of a nation at war by pursuing a lifestyle known for its iconic symbols of rebellion: motorbikes, leather jackets and roaring engines.
    Video

    Video Melting Pot of Immigrants Working to Restore US Capitol Dome

    The American Iron Works company is one of the firms working to renovate the iconic U.S. Capitol Dome. The company employs immigrants of many different cultural and national backgrounds. VOA’s Arman Tarjimanyan has more.
    Video

    Video Testing Bamboo as Building Material

    For thousands of years various species of bamboo - one of the world's most versatile plants - have been used for diverse purposes ranging from food and medicine to textiles and construction. But its use on a large scale is hampered because it's not manufactured to specific standards but grown in the ground. A University of Pittsburgh professor is on track to changing that. VOA’s George Putic reports.
    Video

    Video Orphanage in Iraqi City Houses Kids Who Lost their Parents to Attacks by IS

    An orphanage in Iraqi Kurdistan has become home to scores of Yazidi children who lost their parents after Islamic State militants took over Sinjar in Iraq’s Nineveh Province in 2014. Iraqi Kurdish forces backed by the U.S. airstrikes have since recaptured Sinjar but the need for the care provided by the orphanage continues. VOA’s Kawa Omar filed this report narrated by Rob Raffaele.
    Video

    Video Re-Opening Old Wounds in a Bullet-Riddled Cultural Landmark

    A cultural landmark before Lebanon’s civil war transformed it into a nest of snipers, Beirut’s ‘Yellow House’ is once again set to play a crucial role in the city.  Built in a neo-Ottoman style in the 1920s, in September it is set to be re-opened as a ‘memory museum’ - its bullet-riddled walls and bunkered positions overlooking the city’s notorious ‘Green Line’ maintained for posterity. John Owens reports from Beirut.
    Video

    Video Brexit Resounds in US Presidential Contest

    Britain’s decision to leave the European Union is resounding in America’s presidential race. As VOA’s Michael Bowman reports, Republican presumptive nominee Donald Trump sees Britain’s move as an affirmation of his campaign’s core messages, while Democrat Hillary Clinton sees the episode as further evidence that Trump is unfit to be president.
    Video

    Video New York Pride March A Celebration of Life, Mourning of Loss

    At this year’s march in New York marking the end of pride week, a record-breaking crowd of LGBT activists and allies marched down Manhattan's Fifth Avenue, in what will be long remembered as a powerful display of solidarity and remembrance for the 49 victims killed two weeks ago in an Orlando gay nightclub.
    Video

    Video NASA Juno Spacecraft, Nearing Jupiter, to Shed Light on Gas Giant

    After a five-year journey, the spacecraft Juno is nearing its destination, the giant planet Jupiter, where it will enter orbit and start sending data back July 4th. As Mike O'Sullivan reports from Pasadena, California, the craft will pierce the veil of Jupiter's dense cloud cover to reveal its mysteries.
    Video

    Video Orlando Shooting Changes Debate on Gun Control

    It’s been nearly two weeks since the largest mass shooting ever in the United States. Despite public calls for tighter gun control laws, Congress is at an impasse. Democratic lawmakers resorted to a 1960s civil rights tactic to portray their frustration. VOA’s Carolyn Presutti explains how the Orlando, Florida shooting is changing the debate.
    Video

    Video Tunisian Fishing Town Searches for Jobs, Local Development Solutions

    As the European Union tries to come to grips with its migrant crisis, some newcomers are leaving voluntarily. But those returning to their home countries face an uncertain future.  Five years after Tunisia's revolution, the tiny North African country is struggling with unrest, soaring unemployment and plummeting growth. From the southern Tunisian fishing town of Zarzis, Lisa Bryant takes a look for VOA at a search for local solutions.
    Video

    Video 'American Troops' in Russia Despite Tensions

    Historic battle re-enactment is a niche hobby with a fair number of adherents in Russia where past military victories are played-up by the Kremlin as a show of national strength. But, one group of World War II re-enactors in Moscow has the rare distinction of choosing to play western ally troops. VOA's Daniel Schearf explains.
    Video

    Video Muslim American Mayor Calls for Tolerance

    Syrian-born Mohamed Khairullah describes himself as "an American mayor who happens to be Muslim." As the three-term mayor of Prospect Park, New Jersey, he believes his town of 6,000 is an example of how ethnicity and religious beliefs should not determine a community's leadership. Ramon Taylor has this report from Prospect Park.

    Special Report

    Adrift The Invisible African Diaspora

    World Currencies

    EUR
    USD
    0.9030
    JPY
    USD
    102.41
    GBP
    USD
    0.7470
    CAD
    USD
    1.3038
    INR
    USD
    67.919

    Rates may not be current.