Hundreds of workers at a factory in Shenyang, northeast China, weld automated machines 95 meters long that will be used to drill subway tunnels. At another factory there, employees are assembling robots that China’s solar panel makers will use to streamline their production.
Shenyang is the capital of Liaoning Province, one of three major northeastern provinces that represent the cradle of China’s heavy industry. Now the central government is turning to cities like Shenyang as it faces an economy that has slowed due to a housing crisis that has no easy solution. The hope is to bring more productivity and efficiency out of the region’s factories.
But these factories tell only part of the story of northeast China’s economy and underscore the challenges facing policymakers in Beijing. Many economists believe they are moving toward an outdated plan that focuses on industrial investment rather than greater social benefits for consumers.
The region’s birth rate is falling: a quarter of the population is 65 or older, and that share is growing by about two percentage points annually, while the share of working-age adults is falling by about the same amount. Fewer people are buying new homes, housing prices are falling and construction cranes are less active.
Northeast China is similar to Michigan and Ohio in Chinese industry, but has a significantly grayer population than Florida. In many ways, the region is a mix of the most entrenched problems facing the country’s economy.
The area is heavily in debt. Due to the real estate crisis, government revenues are falling. Pensions are the responsibility of the region’s three provincial governments – Liaoning, Jilin and Heilongjiang – and their costs are rising rapidly.
On a recent evening, Zhang Shaocheng, 70, a retiree from a state-owned paint factory, was waiting with other seniors for a free outdoor movie at a closed machinery factory in Shenyang. He appreciates that today’s factories emit fewer pollutants than the ones he worked in, but he and other seniors rely on the government to take care of them.
“The air is good now and I have a pension,” Mr. Zhang said.
As China’s economy has slowed this year, the Northeast is dangerously close to slipping into recession. Ensuring that the economy of China’s industrial heartland can continue to grow and support a rising pension burden and produce more exports has become a top priority in Beijing.
When heads of state gathered in New Delhi for the Group of 20 summit in early September, China’s supreme leader Xi Jinping stayed home and traveled to northeastern China.
The region is of strategic importance. It includes sensitive regions on the border with North Korea and Russia. It houses much of China’s defense industry and was first built with Soviet advisers in the 1950s. It is China’s top grain and crude oil producer. And it has been a bastion of the Chinese Communist Party and a center of often strident nationalism since the 1940s.
Mr. Xi called for quick action. What emerged after the trip and from media briefings organized by the national government in Liaoning is a plan largely focused on increased public investment, a long-standing theme of Beijing politics. A notable aspect of the program involves digital technology, such as upgrading car factories with robots.
What’s missing are measures that could boost consumer confidence, such as expanding unemployment benefits and pensions or direct payments to households to boost spending. Such steps have so far been missing from measures to support the national economy.
The biggest move yet to boost demand for goods from the Northeast is also the move most likely to anger the West: selling more to Russia. Chinese automakers, for example, have captured half of the auto market there after Western competitors withdrew following Russia’s invasion of Ukraine last year.
“The Northeast is an important gateway for our country to open up to the north,” Mr. Xi said 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 shy away from factory jobs and seek office work for half the wage. But there are still many multi-generational families of technicians in the Northeast.
“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 machine factories are largely unaffected by trade issues such as U.S. restrictions on superfast semiconductors. A factory in Shenyang that makes car seats for the German BMW, for example, imports a less advanced semiconductor from Italy to control the seat’s complex movements.
“It is not a high-end chip, so there is no impact,” said Kou Chuang, managing director of the factory owned by two Chinese auto parts makers Jinbei and Yanfeng.
Shenyang has also joined a recent nationwide move by Chinese cities to ease mortgage regulations. Home buyers are now entitled to the same reduced interest rate as first-time buyers, even if they previously owned a home and had already paid off the mortgage.
The Northeast is home to many state-owned companies, some of which sought greater efficiency by gradually transitioning to partial private ownership.
Northern Heavy Industries in Shenyang, which had expanded rapidly since the 1950s, underwent a corporate restructuring in 2013. Today, the Fangda Group, a private conglomerate from Liaoning, holds a majority stake. Bingshan Group, a refrigerator giant in Liaoning, is one-third owned by the Dalian city government, where it is headquartered, but has sold a small stake to Japan’s Panasonic.
To stabilize consumer spending in the region, the government is investing in building cultural-themed malls and museums that could encourage local residents and tourists to spend.
Officials in Liaoning have increased spending on cultural institutions such as the Liaoning Ballet Troupe, which had 30 performances in 2022 and more than 40 this year.
The company recently performed an original composition called “Iron Man” about industrial workers in the 1950s, hoping to attract the province’s many senior citizens while attracting a younger audience.
“We want young people to know what their fathers did,” said Qu Zijiao, the ballet’s director.
Summer tourism increased after Covid controls were lifted in December. The cool weather made the northeast a popular travel destination, while other parts of China experienced scorching temperatures.
Sue Sui, 50, an accountant from Beijing, sat on a beach in Dalian on a mid-September afternoon. She said she couldn’t visit in midsummer because every affordable hotel was fully booked.
“There is revenge for tourism spending,” she said.
Nevertheless, weaknesses in consumer spending remain. Retail sales per person in Liaoning province are only a third of those in Beijing or Shanghai and half of those in the vibrant provinces of southeast China.
There was almost no opportunity to spend money in the well-preserved brick factory buildings where Mr. Zhang, the pensioner and others attended the open-air cinema. Hidden behind a windowless door in a remote, unlit corner with no signage was a small café.
On the night of the movie it was almost empty.
Li You contributed to the research.
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