Slowing, Graying and in Debt, Can China’s Industrial Heartland Be Revived?

Hundreds of workers at a factory in Shenyang in northeastern China weld automated machines, 95 yards long, that are used to bore subway tunnels. At another factory there, employees assemble robots that China’s solar panel makers will use to streamline their production.

Shenyang is the capital of Liaoning Province, one of three large provinces in the northeast that constitute the cradle of China’s heavy industry. Now the central government, confronting a national economy that has slowed because of a real estate crisis that defies easy fixes, is turning to cities like Shenyang. It hopes to squeeze more productivity and efficiency out of the region’s factories.

But those factories tell only part of the story of the economy of northeastern China, underlining the challenges facing Beijing policymakers, who are turning to what many economists believe is a tired playbook focused on industrial investments instead of more social benefits for consumers.

The region’s birthrate is plummeting: A quarter of the population is 65 or older, and that share is growing about two percentage points a year, while the share of working-age adults is declining by about the same amount. Fewer people are buying new homes, apartment prices are falling and construction cranes are less active.

Northeastern China is like the Michigan and Ohio of Chinese manufacturing, but with a population considerably grayer than Florida’s. In many ways, the region is a composite of the most deeply embedded problems facing the country’s economy.

The area is heavily in debt. Public revenues are slumping because of the real estate bust. Pensions are the responsibility of the region’s three provincial governments — Liaoning, Jilin and Heilongjiang — and their cost is soaring.

On a recent evening, Zhang Shaocheng, 70, a retiree from a state-owned paint factory, waited with other seniors for a free outdoor movie at a shuttered Shenyang machinery factory. He appreciates that today’s factories emit less pollution than the ones from his working years, but he and other seniors are counting on the government to take care of them.

“The air is good now, and I have a pension,” Mr. Zhang said.

China’s top leader, Xi Jinping, center, visiting Harbin Engineering University in northeastern China’s Heilongjiang Province this month.Credit…Xie Huanchi/Xinhua, via Getty Images

As the Chinese economy has slowed this year, the northeast is perilously close to tipping into a recession. Making sure that the economy of China’s industrial heartland can keep growing and support a rising pension burden, as well as produce more exports, has become a top priority in Beijing.

In early September, when heads of state gathered for the Group of 20 summit in New Delhi, China’s top leader, Xi Jinping, stayed home and traveled to northeastern China.

The region holds strategic importance. It encompasses sensitive regions abutting North Korea and Russia. It is home to much of China’s armaments industry, first built with Soviet advisers in the 1950s. It is China’s main producer of grain and crude oil. And it has been a bastion of China’s Communist Party since the 1940s and a hub of often strident nationalism.

Mr. Xi called for quick action. What has emerged after the trip, and from media briefings in Liaoning arranged by the national government, is a plan largely focused on more public investment, a longtime theme of Beijing’s policies. A notable aspect of the program involves digital technology, steps like upgrading car factories with robots.

What’s missing from it are measures that could boost consumer confidence, such as expanded unemployment benefits and pensions, or direct payments to households to stimulate spending. Such steps have been absent from measures undertaken so far to try to help the national economy.

Mr. Xi delivering a speech in Harbin. Credit…Amadeja Plankl, via Imago/Alamy Stock Photo

The biggest step taken so far to increase demand for goods from the northeast is also the measure most likely to upset the West: selling more to Russia. Chinese automakers have captured half the car market there, for example, after Western rivals pulled out last year following Russia’s invasion of Ukraine.

“The northeast is an important gateway for our country to open to the north,” Mr. Xi declared during his visit to Harbin, the capital of Heilongjiang.

In many ways, China’s northeast is a natural target for economic stimulus based on public investment. In other parts of the country, many young job seekers shun factory jobs, seeking office work for even half the pay. But the northeast still has many multigenerational families of technicians.

“In the northeast, the manufacturing culture is strong,” said Li Kai, an economist at Northeastern University in Shenyang.

The region’s iron ore mines, steel mills and machinery factories are little affected by trade issues like the United States’ restrictions on superfast semiconductors. A factory in Shenyang that makes car seats for Germany’s BMW, for example, imports a less advanced semiconductor from Italy to manage the seat’s complex movements.

“It is not a high-end chip, so there is no impact,” said Kou Chuang, the business manager at the factory, which is owned by two Chinese auto parts manufacturers, Jinbei and Yanfeng.

U.S. restrictions on semiconductor exports have had no impact on a factory that makes seats for BMW in Shenyang, the plant’s business manager said.Credit…Li You/The New York Times

Shenyang has also joined a recent national move by Chinese cities to ease mortgage rules. Home buyers now can qualify for the same discounted interest rate given to first-time buyers, even if they previously owned a home and already paid off its mortgage.

The northeast is home to many state-owned enterprises, some of which have sought greater efficiency by gradually shifting to partial private ownership.

Northern Heavy Industries in Shenyang, which has expanded rapidly since the 1950s, underwent a corporate overhaul in 2013. Today, Fangda Group, a privately held Liaoning conglomerate, holds a majority stake. Bingshan Group, a refrigeration equipment giant in Liaoning, is one-third owned by the municipal government of Dalian, where it has its headquarters, but has sold a small stake to Panasonic of Japan.

To stabilize consumer spending in the region, the government is investing in building culture-themed shopping plazas and museums that might prompt residents and tourists to spend money.

Officials in Liaoning have stepped up spending on cultural institutions like the Liaoning Ballet Troupe, which had 30 performances in 2022 and already more than 40 this year.

The company recently performed an original composition, “Iron Man,” about industrial workers in the 1950s, hoping to attract the province’s many seniors while trying to draw a younger audience as well.

“We want the young people to know what their fathers have done,” said Qu Zijiao, the ballet’s director.

Summer tourism has picked up after the lifting of Covid controls in December. Cool weather made the northeast a popular destination as other parts of China baked in scorching temperatures.

A Liaoning Ballet Troupe rehearsal in Shenyang. Provincial funding of cultural institutions has increased in an effort to encourage spending.Credit…Li You/The New York Times

Sue Sui, 50, an accountant from Beijing, sat on the beach in Dalian on a mid-September afternoon. She said she had not been able to visit in midsummer because every affordable hotel had been fully booked.

“There is revenge tourism spending,” she said.

Yet weaknesses in consumer spending persist. Retail sales per person in Liaoning Province are just a third of the level in Beijing or Shanghai and half what they are in vibrant provinces in southeastern China.

There was almost nowhere to spend money at the well-preserved brick factory buildings where Mr. Zhang, the retiree, and others attended the outdoor movie. A small coffee shop was hidden behind a windowless door in a distant, unlit corner with no signage.

It was almost empty on the night of the movie.

Li You contributed research.

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