Govt works to eliminate debt-ridden COEs in NE China

By Li Xuanmin in Benxi, Anshan and Chen Qingqing in Changchun Source:Global Times Published: 2016/12/19 18:43:40

Culling the collective

Revamping Northeast China's State-owned enterprises (SOEs) has become one of the central government's priorities in revitalizing the region's lackluster economy. For example, the central government plans to make substantial progress in eliminating collectively owned enterprises (COEs) by the end of 2017. The Global Times recently visited Northeast China's Liaoning and Jilin provinces to look into the operating status of COEs there and the difficulties that have emerged in reforming them. This is the last part of a four-part story.

Snow caps the front gate of Ansteel Group Co in Anshan, Northeast China's Liaoning Province, on Thursday. The collectively owned enterprises operated by the company owe hundreds of millions of yuan in debt, according to sources close to the matter. Photo: Li Xuanmin/GT

Snow caps the front gate of Ansteel Group Co in Anshan, Northeast China's Liaoning Province, on Thursday. The collectively owned enterprises operated by the company owe hundreds of millions of yuan in debt, according to sources close to the matter. Photo: Li Xuanmin/GT

"Do you need to fix a lock?" Dai Kaixin anxiously asked every pedestrian passing through the Yongfeng Flyover in Benxi on Thursday. Benxi is an industrial city in Northeast China's Liaoning Province.

Dai wore a white board over his clothes that listed the service he could provide. The 53-year-old man had been standing there for an hour, but as the snow fell and temperature dropped to -10 C, pedestrians waved him away and quickly walked past.

"You don't make a steady income doing this job," Dai told the Global Times on Thursday as he rubbed his hands together to stay warm.

"It's typically around 1,000 yuan ($144.34), far below the minimum standard of living in the city," Dai said.

Making a living has been hard for Dai, who used to work as a maintenance worker at No.3 Rolling Mill, a collectively owned factory operated by State-owned Benxi Steel Co.

Collectively owned enterprises (COEs) used to be owned by State-owned companies, but they will operate independently after reforms. This will not only take place in Northeast China, but in the rest of the country.

In 2002, Dai was told he would "be furloughed for an indefinite period" with no severance after Benxi Steel began reforms to separate COEs from State-owned enterprises (SOEs).

The reforms forced COEs to take responsibility for their own profits and losses, and their assets were all transferred to Benxi Steel Integrated Industrial Company (BSIIC).

Since then, Dai has not received a salary or other financial benefits from the factory, including medical insurances. Dai had to shoulder the expenses for a surgery on his stomach and another on his spine. The surgeries cost 30,000 yuan, which emptied his life savings.

Dai is also desperate as he closes in the mandatory retirement age. "To retire, I have to first pay the old-age and medical insurance premiums that the factory owed to the local government ... it's about 40,000 yuan," Dai said.

He is considering finding a night job to earn the money.

The area under the Yongfeng Flyover overpass, known among locals as "Benxi labor market," is filled with dozens of unemployed former factory workers, many in their 50s, who like Dai were laid off from Benxi Steel's COEs.

"One of my colleagues at No.1 Steel Integrated Factory just passed away several months ago, and BSIIC didn't even cover his funeral expenses," a 49-year-old worker, surnamed Huang, told the Global Times on Wednesday.

Decades of debt

It has been estimated that BSIIC owes at least 300 million yuan to around 40,000 employees of its 30 COEs - people like Dai and Huang.

Those debts include obligations such as back pay, pensions, medical insurance premiums as well as heating and funeral subsidies, a senior manager at Benxi Steel, who only gave his surname Jun, told the Global Times on Wednesday, noting that only "a small proportion" of those workers are actually still working for the company.

"But BSIIC, as well as Benxi Steel, is already operating at a heavy loss, so it is unable to allocate funds to those employees or transfer them to other positions," Jun said.

The chairman of BSIIC, Qian Zhende, declined to talk about the matter. This was a common response from Benxi Steel's senior executives whom the Global Times contacted on Thursday.

The COEs of Ansteel Group Co in Anshan, another industrial city in Liaoning, have been struggling under similar financial burdens.

In 2011, Ansteel was running more than 100 COEs, including 16 hospitals, 20 kindergartens, 86 resorts, and other organizations like fire departments, resulting in hundreds of millions of yuan in debt, said a senior executive at the steel maker, who spoke on the condition of anonymity.

"It's historical burden … and Ansteel had been financially supporting them for a long time," the executive told the Global Times on Thursday.

To cut costs, factory workers' monthly salaries have been halved to less than 1,000 yuan, according to several sources familiar with the matter.

The company also lowered the mandatory retirement age from 55 years old to 52 years old.

Some workers have left COEs after receiving severance payments of 500 yuan on average for every year they worked for their companies.

Bad business

COEs have trouble paying these legacy costs because they are barely profitable. And they are barely profitable because they are not competitive.

For example, when there is a shortage of manpower at Benxi Steel, the company prefers to hire contractors from the market, instead of outsourcing the orders to related collectively owned plants, due to the concerns about "the limited expertise and skills of workers" as most COE workers have not received systematic training and only obtained an elementary school education, Jun noted.

Similarly, a 4,000-square-meter paint coating factory in Changchun, capital of Northeast China's Jilin Province, which used to be part of a local SOE, shut down recently after two decades of operation because it had accumulated 100,000 yuan in debt that it wasn't profitable enough to repay, according to the company's general manager, who preferred not to be named.

"It was running on an outdated business model, and its technology needed to be upgraded," the general manager told the Global Times on Saturday. Corruption has exacerbated these problems.

"In 2010, the manager from No.1 Steel Integrated Factory told us that he was going to sell the factory's equipment to seek better development opportunities, so all of the workers had to sign a sales agreement," Huang said.

"We saw the machines being removed, but the money went into the manager's pocket. There was no production equipment in the factory, but soon after, he was promoted," Huang noted.

Dai and his colleagues have tried to petition authorities dozens of times regarding these issues.

"We would like to appeal to governments of Shenyang [the capital of Liaoning], or Beijing. But almost every time we were blocked by local authorities," Dai said.

The road to revitalization

In the revitalization of Northeast China, SOEs reform has been a highlight. The State Council, the country's cabinet, has a schedule and plans to "make substantial progress" in eliminating the COEs in the Northeast regions by the end of 2017.

An important way to achieve the goal is mixed-ownership reform, which is conducted by diversifying the shareholding structure of SOEs and bringing in private capitals, according to a central government plan released in mid-November.

In line with the central government's agenda, the Liaoning provincial government will choose 10 to 20 SOEs to try out the reforms, according to a statement the Liaoning provincial government sent to the Global Times on Wednesday.

Yet private firms have adopted a reserved attitude toward acquiring SOEs shares due to uncertainty over corporate control. Meanwhile, SOEs are also concerned about the potential outflow of State-owned assets.

"We hope that the local government can come up with a detailed plan for us to follow," said Li Hongwu, deputy public relations director at Benxi Steel, told the Global Times on Wednesday.


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