China’s ‘Illusion Of Prosperity’ Exposed: Forget Ghost Cities, Meet Ghost Factories

A damaged house is pictured inside an abandoned steel mill of Qingquan Steel Group in Qianying township, Hebei province February 18, 2014. Picture taken

China’s “Illusion Of Prosperity” Exposed: Forget Ghost Cities, Meet Ghost Factories (ZeroHedge, Jan 2, 2015):

Having exposed the 20+1 charts of China’s demise previously, we move to Exhibit (a) in the “illusion of prosperity” that keeps the dream (looking) alive to the outside (mostly Western get-rich-quick fast-money) world – China’s Zombie Factories…

“There are large numbers of companies across China that should go bankrupt but haven’t done so,” says Han Chuanhua, a bankruptcy lawyer at Zhongzi Law Office, a Beijing legal practice.

“The government doesn’t want to see bankruptcy because as soon as companies go bust, unemployment spikes and tax revenues disappear. By stopping companies from going bankrupt, officials are able to maintain the illusion of local prosperity, economic growth and stable taxes.”

Here’s Reuters from earlier last year…

This ‘pretense’ is occurring everywhere across the vast expanse of China, as The FT reports,similar experiences are playing out, with thousands of companies in heavy industrial sectors plagued by chronic overcapacity that should be going bust instead being propped up by local governments.

In the shadow of a group of enormous smokestacks and abandoned foundries, a peeling sign welcomes visitors to the Wenxi Steel Industrial Park.

But in the nearby village, the working-age men and many of the women have gone, leaving only the elderly and the very young.

“If you cut down the big tree, all the small trees around it will die,” says 69-year-old Wang Peiqing, referring to the collapse of Highsee Iron and Steel Group, which operated the foundries before its recent closure devastated the economy of a once-prosperous corner of Shanxi province in central China. “The entire region relied on the steel mill; now the young people have to go and look for work across China.”

Highsee stopped paying its 10,000 employees six months ago. Local officials estimate the plant supported indirectly the livelihood of about a quarter of Wenxi county’s population of 400,000. Highsee was the biggest privately owned steel mill in Shanxi, accounting for 60 per cent of Wenxi’s tax revenues. For those reasons, the local government was reluctant to allow the company to go out of business, even though it had been in serious financial difficulties for several years.

“By 2011 Highsee was already like a dead centipede that hadn’t yet frozen stiff with rigor mortis,” says one official who asks not to be named because he was not authorised to speak to foreign reporters.

“More than half the plant shut down, but it was still producing steel even though its suppliers wouldn’t deliver anything without cash up front and it was drowning in debt.”

It was only last month, four years after Highsee began to flounder, that the company was finally allowed by the government to initiate bankruptcy-­proceedings.

“The government’s plan is to sell off the plant quickly and restart production just like before, even though the steel market is in such bad shape,” says an official who asks not to be named.

“The problem is that it owes at least Rmb10bn [$1.6bn] and probably much more than that. We don’t know where we’ll find someone who can pay all that off.”

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Some of the zombie factories… (Source: Reuters)

A man attempts to catch fish at a partially frozen fish farm near an abandoned steel mill of Qingquan Steel Group in Qianying township, Hebei province

A partially frozen pond is pictured near an abandoned steel mill (back) of Qingquan Steel Group in Qianying township, Hebei province

A damaged house is pictured inside an abandoned steel mill of Qingquan Steel Group in Qianying township, Hebei province February 18, 2014. Picture taken

A man attempts to catch fish at a partially frozen fish farm near an abandoned steel mill of Qingquan Steel Group in Qianying township, Hebei province

A man attempts to catch fish at a partially frozen fish farm near an abandoned steel mill of Qingquan Steel Group in Qianying township, Hebei province

Smoke rises from a chimney among houses as new high-rise residential buildings are seen under construction on a hazy day in the city centre of Tangshan

In the past month alone Chinese media have reported on at least nine large steel mills that appeared to be suspended in limbo after halting production but which are forbidden from going formally bankrupt.

The outstanding volume of non-performing loans in the Chinese banking sector has increased 50 per cent since the beginning of 2013, according to estimates from ANZ, the Australian bank, but the sector-wide NPL ratio remains extremely low, at just over 1.2 per cent.

In private, however, senior Chinese financial officials admit the real ratio is almost certainly much higher, obscured by local governments trying to prop up companies.

Read more here…

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But apart from that… sure buy Chinese stocks, because well, they are going up…

2 thoughts on “China’s ‘Illusion Of Prosperity’ Exposed: Forget Ghost Cities, Meet Ghost Factories”

  1. Many of the greedy gut corporations have moved elsewhere as the environment in China is so filthy that no competent manager will go there for any price….also Vietnam and Taiwan offer a cleaner environment and cheaper labor.
    Also, the US rents corporations convict labor at 70cents a day………and gives the corporations huge tax breaks for using convicts. Since the US puts people in jail for anything, there are many decent people in jail who can do the work. It is no longer just the lower classes, it is now Americans of all classes, except those who can buy their way out.

    People can go to jail for driving over 110mph……….and all sorts of driving tricks that we all did when I was young. It is unbelievable. If you are on medication and get in an auto accident, the first thing they do is drug test you. If you refuse, you go to jail. Regardless of prescriptions or not, they will jail people for anything.

    Because of my cancer, they have me on medications that I will not drive on. It is self preservation, and also, don’t want to hurt anyone. I don’t think I would, but I am not willing to take the risk……..we have a government of the corporation by the corporation, for the corporations, not the people.

  2. Listening to Tom Keene, the one Bloomberg reporter who actually makes sense at times……Will growth benefit anyone but the corporations?
    How do we get wages to rise?
    How do we get education affordable again?
    They are saying the corporations will lead growth……they have led
    They see China as the global stabilizer……the country that will stabilize at lower rates, but will spend 6-7% of GDP for future growth.
    The US will ride along, doing nothing thanks to the worthless congress.
    Following will be Europe and Japan…….

    I used to hold Tom Keene in higher regard than the other reporters, but he is allowing his guests to spew the propaganda from CNN…..too bad, he used to invite smarter people.

    They talk as if nothing has changed in the world economy. I guess they want people to find out after the fate accompli…..but that isn’t good reporting.
    Russia and China have masterminded an economic system that isolated the US and EU, empowering all other nations who joined with BRICS. They were very careful; they said not a word until they were four years into the project and had over half the world economy in their membership.

    As it stands, the US now relies on the EU to keep the dollar afloat. Once the EU (heavily indebted and poorly planned and put together) starts to crumble in its corners, the dollar will fall with it. This will cause chaos on a global scale not seen in modern history.

    33% of the world economies now use the dollar to complete international transactions, down from 100% in January of 2010. The links to which I could send people to verify my numbers have been scrubbed, all such data has been abridged to a sentence or two, nothing more. Fortunately, I found the stories at the time, and the Internet was far more open than it is today. Next month, they are having hearings to cut out truth even more……nothing is said, as usual, the oligarchs get their way.

    I am tired of listing the reasons, the many nations that have joined BRICS and abandoned the use of the dollar. It was a death blow to the US dollar and the US future as a financial world leader. The US is a shell of its former greatness, and as usual, the fools talk as if the US were still the #1 world leader………and it isn’t.

    I really feel like a voice in the wilderness. The lies continue to be told, the fools continue to listen, and they don’t want to hear what I have to say……..the outcome is far too painful. I don’t look forward to the collapse of the dollar, either, but there is nothing behind it. No technology, no gold, no economic growth except for the few at the top…… continue to melt away and nothing is said past the “weekly jobless claims” early every Thursday morning, before they are forgotten.

    Greedy guts rule.
    I see no future for anyone.
    The latest smart technology is being used to monitor bad areas using cameras instead of cops, they watch from a TV screen instead of putting themselves into danger……….also, they can get away with hiring fewer people. Smart technology plans to put the nearly one million delivery people out of work using drones, and now Robots are learning to cook. Get rid of cooks, and that eliminates a few more million workers. For every job lost, so can go seven more that support it.

    How can there be an economy with no workers?
    This is madness.
    And, I am too tired to write about it any more.

    The theme will be sustainable growth models.


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