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 The turmoil at the firm shows how huge over capacity is pushing
scores of similar steel enterprises to the brink of bankruptcy.
Unlike in the past, however, provincial governments are now
unwilling or unable to bail them out.
In a bid to rebalance the world's second-biggest economy, Beijing is
dismantling a local government support structure that has given
steel firms a lifeline of cheap credit, lucrative construction
contracts and preferential tax rates.
This support has saddled the steel industry with huge debts and at
least 200 million tonnes of excess production capacity -- far more
than either U.S. output of 87 million tonnes or the European Union's
166 million tonnes.
China is estimated to have a steel production capacity of more than
1 billion tonnes.
Tangshan, just east of Beijing in Hebei province, produces 100
million tonnes of mostly low-end steel used in construction every
year and has been at the center of a campaign aimed at closing
obsolete and polluting steel works.
After a devastating 1976 earthquake killed at least 250,000 people
and leveled much of the city, Tangshan was given free rein to use
steel to rebuild its shattered economy.
But it is now feeling the heat from Beijing's efforts to control
this type of chaotic credit-fueled growth in the world's
second-biggest economy.
China has also launched a "war on pollution" to impose tough
standards and targets on the steel sector and promised that the
market will play a decisive role in tackling the glut.
With cash-strapped regional authorities now less able to offer
support, hit by credit restrictions and falling government revenue
from bloated sectors such as steel, they have been stepping in only
to ease some of the strife brought about by unpaid wages and mass
layoffs.
BULLDOZER GUARDS ENTRANCE
At the Xinming Steel Pipe plant, a bulldozer was parked at the
entrance to prevent anyone driving in and stealing what remained of
stock and equipment. The plant appeared deserted during a recent
visit by Reuters apart from two security guards standing in the
distance.
The firm owes around 10 million yuan ($1.61 million) in wages to
more than 400 staff, as well as debts to various suppliers and
creditors, according to documents seen by Reuters.
"The boss kept delaying our wages, saying next month will be fine,
and then next month, and then he disappeared," said a worker waiting
outside the plant, who only gave his surname as Zhang. He was among
a small group of workers outside the plant also who said they were
trying to get their wages.
Calls made to phone numbers listed for the firm's chairman, Fu
Baozhong, and other officials were not answered.
A manager at one of Xinming's creditors said that while the
government was holding discussions with creditors to see whether the
firm's debts could be rescheduled there was a prospect of bankruptcy
proceedings being launched if there was no agreement
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"This is just one example of many -- most firms have been trying to
cling on until rivals disappeared and the market improved, but they
can't all do so," said the manager, who said his firm was owed "tens
of millions of yuan".
The manager, who did not want to be named due to the sensitivity of
the situation, said if the administrative staff could not be reached
it would make retrieving money harder.
The local governments of Tangshan, the steel district of Fengrun
where Xinming is located and the provincial government all declined
to comment.
CHAIN REACTION
With the banking sector under pressure from Beijing to rein in cheap
credit, the sector is getting less money.
The All-China Chamber of Commerce for Small Metallurgical
Enterprises estimates that credit given to the steel sector has
fallen by around 140 billion yuan this year, about 10 percent of the
total.
Unable to obtain bank loans, some firms have been forced to borrow
from other steel companies at higher rates of interest. This puts
them under even more pressure when other struggling mills call in
their loans, risking a chain reaction.
In Hebei, at least 16 mills have shut because they are unable to pay
their bills, its governor Zhang Qingwei said in March, and the
problems have spread to other areas of China.
Earlier in July, the semi-official China Business News reported that
Xilin Iron and Steel Group in Heilongjiang province, was struggling
with heavy debt and had not paid its workers for five months. Calls
made to Xilin were unanswered.
Elsewhere, Highsee Steel in Shanxi province has also been shut for
three months, with official media reporting that a rescue package
was unlikely.
"It's not that local governments don't support us - they just can't.
They have no money and are under big pressure," said a private mill
official in Tangshan.
(This story has been refiled to correct punctuation in third bullet
point)
(Additional reporting by Ruby Lian in SHANGHAI; Editing by Ed
Davies)
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