How US restrictions on China can revive its rust belt – the former industrial powerhouse near Russia

Xi's trip had come two months after a major shareholder of the robotics giant – the Shenyang Institute of Automation – was added by the US government to its export blacklist.

But even amid Washington's intensifying efforts to block China from the global high-tech supply chain that supports the production of advanced military equipment, for China's northeastern rust region, economic opportunities may be growing.

“Carbs [from the United States] have inevitably affected our supply chain, but at the same time it has also provided development opportunities for our local industrial chain,” said Wang Danqun, deputy director of the Liaoning Provincial Department of Industrial and Information Technology, in response to a question from the Post at a media briefing in September .

As for the “next step,” Wang said, “Liaoning Province will focus on doing what the country needs – accelerating the construction of a modern industrial system.”

Comprised of Liaoning, Jilin and Heilongjiang provinces and part of the Inner Mongolia autonomous region, China's northeastern region has largely lagged behind southern coastal provinces during the decades of economic takeoff since the country's opening in 1978, amid a deeply entrenched state- planning mentality that continues to inhibit change, resulting in a reduced business climate.

But as China looks increasingly inward, the region's legacy – replete with state-owned enterprises (SOEs) in equipment manufacturing – is turning from a burden into a unique asset.

“At present, the promotion of the overall revitalization of northeast China faces great new opportunities,” Xi said during a symposium held in the provincial capital Harbin, according to party mouthpiece Xinhua.

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China's push to revitalize the Northeast officially began 20 years ago. While an optimistic dynamic was largely maintained during the first decade, the second was characterized by economic depression.

The decline has stifled not only businesses and investors but also talent, with the region's population aging at the fastest rate in China, according to official figures.

“Now may be a turning point for Liaoning,” said Li Kai, an economics professor at Northeastern University in Shenyang.

“We are still a long way from the central government's demands for comprehensive revitalization. Now we're just getting better at catching up with the rest of the country,” said Li, who is also deputy head of the China Academy of Northeast Revitalisation.

Two local officials in Liaoning who spoke to the Post attributed the above-average growth to the fruits of a painful decades-long structural reform of the region's economic system and machinery, especially mixed reforms to revive “large but weak” state-owned enterprises. its businesses. – by absorbing private and foreign capital and correcting the problems of staff layoffs, low efficiency, poor management and slow market response.

Refrigeration and air-conditioning equipment giant Bingshan Group, based in Liaoning's Dalian port, has gone through two rounds of ownership restructuring since 2008. A third of its stake is now owned by the municipal government, while the rest has been privatized or sold to foreign companies. , including Japan's Panasonic.

“Our cooperation with foreign shareholders has been very pleasant,” said Ji Zhijian, chairman of Bingshan, during a group interview attended by the Post.

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In the southwestern suburb of Shenyang, Northern Heavy Industries Group boasts improvements made after a corporate restructuring in 2019, when private conglomerate Fangda Group became the largest stakeholder in the mining and tunnel engineering equipment maker.

“Management efficiency has improved, our techniques have improved and staff wages have increased,” said factory manager Liu Zhiyang, speaking at the front gate of the tunnel boring machine factory.

Despite the change in stake, the company still appears entrenched in state trappings: in the grand lobby of its office building, propaganda slogans – also in bright red – and a prominent image of Xi adorn the white marble slab walls.

“We have to listen to it [Chinese Communist] Party and follow the Party,” reads one of the slogans.

“Running a business should be beneficial for the country, the company and the workers,” says another.

The three years of the pandemic, during which state-owned enterprises handled more emergency production orders than the state, further strengthened Beijing's belief in their importance.

“As the trend of deglobalization intensifies, the acceleration of industrial transformation and the upgrading and achievement of high technology have become the main goal of China's short- and medium-term economic development,” according to a March report by Sinolink Securities.

State-owned enterprises based in innovation or security-related industries may be the focus of subsequent reform and support, the report said.

And it seems that Beijing has trusted Liaoning to play an important role in this process. In November, Hao Peng, former head of the State-owned Assets Supervision and Administration Commission – China's state-owned asset watchdog – was appointed the new provincial party chief.

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“[It is necessary] to improve the core competitiveness of state-owned enterprises, promote the concentration of state-owned capital in important industries and core sectors, and strengthen their strategic supporting role,” Xi said during the Harbin symposium.

Similar to America's Rust Belt cities, northeast China has some of the country's top universities and research institutions in science and engineering, and is increasingly seen as an asset for cultivating emerging strategic industries.

Dalian Rongke Power, a leading producer of advanced batteries in China, is one such local initiative, as the Dalian Institute of Chemical Physics under the Chinese Academy of Sciences – also a major shareholder in the company – provides technical and intellectual support to its research and development.

As China boosts the share of renewable energy in its electricity grid, the need for storage technologies is also increasing due to the volatile nature of solar and wind power.

“Dalian Institute of Chemical Physics is a leader in China and even the whole world in energy technology innovation,” said Rongke General Manager Wang Xiaoli.

“The Liaoning Provincial Government and the Dalian Municipal Government also regard the emerging energy storage industry as an important development point for the future economy, and this gives us an opportunity to pilot it,” he said.

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Some institutions, however, have already been targeted by the US government for their close ties to the Chinese military and defense industry.

Those already added to the so-called entity list – which effectively blocks companies from accessing critical goods, software and technologies in the US unless their American suppliers obtain express sales approvals – also include the prestigious Harbin Institute of Technology and Harbin Engineering University. as the Shenyang Institute of Automation, which owns the aforementioned majority stake in robot maker Siasun and also operates under the Chinese Academy of Sciences.

Zhang Lei, Siasun's chief technology officer, said the company is deeply involved in the global industrial chain, with software and hardware imported from countries such as Japan, Germany and the US, but its daily operations have not yet been affected by the Washington technology restrictions. – including restrictions on China's access to advanced semiconductors.

The semiconductors in the company's current products are outside the scope of the US restrictions and global supply is sufficient, he added.

Looking ahead, given China's position as the world's factory, the demand for industrial robots like those manufactured by Siasun is expected to continue to grow, and the company intends to meet that demand.

“But if our products or certain processes were subject to restrictions or interruptions,” Zhang said, “we would have to think of other solutions.”