* Xinming Steel Pipe Plant shut this month leaving workers
* Another example of the pressure debt-laden steel firms are
* Beijing trying to end years of support for bloated
sector's such as steel
* Firms can no longer rely on local government bail outs
By David Stanway
TANGSHAN, China, July 23 In Tangshan, a polluted
industrial Chinese city that produces more steel a year than the
entire United States, the Xinming Steel Pipe Plant shut earlier
this month leaving more than 400 workers and a host of creditors
The turmoil at the firm shows how huge overcapacity 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 centre of a campaign aimed at
closing obsolete and polluting steel works.
After a devastating 1976 earthquake killed at least 250,000
people and levelled 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-fuelled 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
"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.
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
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.
($1 = 6.2086 Chinese Yuan)
(Additional reporting by Ruby Lian in SHANGHAI; Editing by Ed