China's state-run zombies alive, not well, in the northeast - Nikk... about:reader?url=https://asia.nikkei.com/Economy/China-s-state...

asia.nikkei.com

China's state-run zombies alive, not

well, in the northeast - Nikkei Asian
Review
SHIN WATANABE, Nikkei staff writer
3-4 minutes

DALIAN, China -- Reforms to state-owned companies in

northeastern China have stalled, along with the region's
economic growth.

Compared with other regions in China, the government's

"mixed-ownership reforms," which seek to bring private
shareholders into state-owned companies, have been slow to
take root, causing the region to underperform compared with
other parts of the country.

State-owned companies' share of corporate earnings in the

northeast are twice the national average. A provincial official
blames the slow progress on a lack of urgency on the part of
managers who are "content with the status quo."

In early August, a Shanghai court ordered a subsidiary of

Shenyang Machine Tools to pay about 200 million yuan ($28.3
million) in arrears to its creditors.

1 of 3 8/27/19, 12:49 PM
China's state-run zombies alive, not well, in the northeast - Nikk... about:reader?url=https://asia.nikkei.com/Economy/China-s-state...

Shares in the company known as SMTCL are largely held by

the Shenyang municipal government. The company suffered a
net loss of about 800 million yuan in 2018, and it forecasts
another loss in the six months ended June. With its business
slumping, SMTCL has been unable to service its debts. It is
seen as an uncompetitive zombie that is kept in business with
government support.

According to a local news report, SMTCL was established in

1935. After computer-controlled machine tools from overseas
began arriving in China the 1960s, the company's manually
operated products became obsolete.

Government subsidies kept SMTCL out of financial trouble for

three years, starting in 2012, but it posted losses in 2015 and
2016. It returned to profit the following year, after selling four
group companies for just 1 yuan, but its products remained
uncompetitive. It again fell into the red in 2018.

In 2017, state-owned enterprises accounted for about 46% of

the combined revenue of all large companies in China's three
northeastern provinces, compared with the national average of
23%. Data for 2018 has not been published, but a senior
provincial official in Liaoning told Nikkei in April that the delay
in introducing mixed ownership was a big challenge.

President Xi Jinping last September visited the northeast to

push for more economic openness, but there appears to be
local resistance.

An employee at a private company in Liaoning complains that

2 of 3 8/27/19, 12:49 PM
China's state-run zombies alive, not well, in the northeast - Nikk... about:reader?url=https://asia.nikkei.com/Economy/China-s-state...

state-owned companies receive unfair advantages that let

them underbid for contracts. Even high-level officials have
trouble pushing for change at state-owned companies, said
one such official in a northeastern province. Many
stakeholders, including officials from economic departments of
the central government, are making reforms even harder.

In 2017, a unit of steelmaker Jiangsu Shagang took a 43%

stake in Liaoning-based Dongbei Special Steel Group, a state-
owned company that went under the previous year. The
investment helped Dongbei Special Steel strengthen its
product development and lifted it back into the black. But such
cases are rare.

Last year, economic growth in China's three northeastern

provinces came in below the national average of 6.6%.
Liaoning's gross domestic product rose 5.7% on the year,
while Jilin logged 4.5% growth and Heilongjiang saw a 4.7%
expansion.

The fate of reforms at state-owned companies in the region

remains murky.

3 of 3 8/27/19, 12:49 PM