18/6/2014 China City Crash-Lands to Zero Growth on Coal Bust - Bloomberg

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China City Crash-Lands to Zero Growth on Coal Bust
By Bloomberg News - Jun 4, 2014
Economic growth in the northern Chinese city of Taiyuan, Shanxi province, has crashed to zero
from 12 percent in one year. Yan Xiaofengs coal-equipment business has gone down with it.
Yan, 38, said last week that hes recorded 1 million yuan ($160,000) in sales so far this year from
supplying gear and parts to coal mines, down from more than 10 million yuan a year in the boom
times of 2009. The economy in Shanxi is very simple: Its all about coal, said Yan, whos been in
business in the region for 15 years. When the coal industry is in decline, every other business
follows.
Taiyuans hard landing shows how Chinas transition to slower growth from decades averaging 10
percent expansion will be messy in some places, especially Shanxi, which is suffering from anti-
pollution policies aimed at curtailing coal use. The citys situation highlights the challenge for
policy makers in coming up with jobs and industries to replace manufacturing in regions
dependent on commodities with diminishing demand.
Its always very hard to find a way to truly transform a local economy, said Gao Shanwen, chief
economist at Essence Securities Co. in Beijing, who previously worked at the Peoples Bank of
China. If the ills in places like Taiyuan could be quickly cured, then hopes should be high for the
Chinese economy. Unfortunately, the facts on the ground are harsh, and thats an obvious reason
why people are cautious about the economic outlook.
Industrial Production
Taiyuan, with a population of 4.3 million, reported growth of 0.1 percent in the first quarter from a
year earlier, compared with an 11.9 percent pace in the same period in 2013 and 8.1 percent for the
full year. The citys industrial production fell 9.3 percent in the January-March period, while fixed-
asset investment rose 25.5 percent, a sign of efforts to revive expansion.
Its not the only commodity-dependent region undergoing a hard landing. Heilongjiang province in
the northeast reported a slump on a very rare fall in output from a major oilfield, according to
the Heilongjiang Daily. The official newspaper said growth was 4.1 percent, while the National
Bureau of Statistics later said 2.9 percent.
Hebei, which borders Beijing and is Chinas biggest steelmaking region, grew 4.2 percent last
quarter, compared with 8.2 percent in 2013.
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Shanxi, Chinas second-largest coal-producing province behind Inner Mongolia, accounted for
about one-fourth of the nations output of the resource in 2012. Its first-quarter growth of 5.5
percent was third-slowest among Chinas 31 provinces.
Debt Risks
The slowdown risks exacerbating debt dangers in the province, which Moodys Investors Service
said had 27 percent of its borrowing in trust products last year, the highest proportion in the
nation. Shanxis fiscal revenue fell 0.8 percent in the first four months of 2014 from a year earlier,
including a 19.8 percent plunge in April, according to the local statistics agency.
Local-government data suggest Taiyuans economic situation worsened in April, as the citys
decline in industrial production and coal output accelerated while fixed-asset investment growth
slowed.
Chinas government has intensified stimulus efforts in recent weeks, even as manufacturing
surveys suggest the economy is stabilizing this quarter. Gross domestic product rose 7.4 percent in
January-to-March from a year earlier, the slowest in six quarters and down from 7.7 percent in
the previous three months. GDP is forecast by analysts to grow 7.3 percent this year, which would
be the slowest pace since 1990.
More Sustainable
A private services Purchasing Managers Index for China fell to 50.7 in May from 51.4 in April,
HSBC Holdings Plc and Markit Economics reported today. That tied with January as the weakest
reading since August 2011, HSBC said.
Chinas benchmark stock gauge, the Shanghai Composite Index (SHCOMP), was down 0.1 percent
at 10:18 a.m. local time. The measure has fallen 4.3 percent this year through yesterday.
Pollution controls may affect economic growth in the short term and will help achieve more-
sustainable development in the long term, Vice Minister of Environmental Protection Li Ganjie
said yesterday at a briefing in Beijing, according to a government transcript.
Taiyuans coal bust is affecting other area businesses. Yan Lifang, a saleswoman for a group of
condominium buildings called Royal View Grandeur Mansion, said demand is slowing as
sentiment declines.
You wont want to get a better or bigger home when you arent confident about your salary or
even your job, said Yan, 27.
China, the worlds biggest carbon emitter, is trying to cut its dependence on coal to help clear smog
thats choked cities across the nation. The government accelerated to this year from 2017 a plan to
get less than 65 percent of its energy from coal, down from more than 70 percent in 2010.
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Coal Prices
The nations benchmark coal price has dropped 11 percent this year and is near the lowest level in
more than five years, according to data from the China Coal Transport and Distribution
Association.
China Coal Energy Co. (1898), the nations second-largest producer, in April forecast a drop in
first-half profit, citing the decline in prices. Datong Coal Industry Co., the listed unit of Shanxis
largest coal producer, reported a loss of 1.4 billion yuan in 2013, compared with profit of 62.6
million yuan in 2012.
While coal-equipment supplier Yan said his customers are delaying payment by at least a few
months, he hasnt noticed reports of strikes or protests that signal worker unrest. Infrastructure
spending was visible last week, with a skyline dotted with construction cranes, a new railway
station set to open in July to accommodate high-speed lines and the old station under renovation.
Shenzhen Lesson
Even so, the key to replacing lost jobs and industries may be less government intervention, not
more, said Gao of Essence Securities. He cited the southern city of Shenzhen, which has blossomed
around companies that have capitalized on the Internet, like Huawei Technologies Co. (002502)
and Tencent Holdings Ltd., after an exodus of manufacturers last decade.
Prospects for places like Taiyuan depend on whether the city has the ability to innovate, said
Justin Lin, former chief economist for the World Bank and now a professor at Peking University.
The government needs to play a kind of facilitation role to help them diversify into new
industries.
The drop in business in Taiyuan is enough to make coal-truck driver Zhang Junwen consider
leaving home to be a migrant worker. He said his daily gross, once 2,000 yuan, has dropped to
slightly more than 200 yuan.
After deductions for fuel and repairs, I really make no money from this business, Zhang, 33, said
as he sat near his vehicle in Taiyuan, waiting outside a coal mine for work in afternoon heat
reaching 96 degrees Fahrenheit (36 degrees Celsius). My wife has begun to complain, and its time
to think about going somewhere else.
To contact Bloomberg News staff for this story: Xin Zhou in Beijing at xzhou68@bloomberg.net;
Kevin Hamlin in Beijing at khamlin@bloomberg.net
To contact the editors responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
Scott Lanman, Chris Anstey
2014 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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