March 6, 2016 / 10:26 AM / 2 years ago

China's failing state firms need to reform themselves: governor

BEIJING (Reuters) - Struggling state-owned firms need to force through urgent reforms before things get worse, with revenues at local governments no longer sufficient to bail them out, the governor of the Chinese rustbelt province of Heilongjiang said on Sunday.

Local villagers walk along railways, which are used to transfer coal, at Zhengyang coal mine from the state-owned Longmay Group on the outskirts of Jixi, in Heilongjiang province, China, October 22, 2015. REUTERS/Jason Lee

Lu Hao said the northeastern province, which relies heavily on energy and agriculture, has faced severe challenges over the last two years following a rapid collapse in the prices of oil and coal, two of its major industries.

But inefficiency and overmanning at state-owned enterprises has compounded the problems, and they need now to reform themselves, he said.

He cited as an example one of the most prominent victims of the downturn, the Heilongjiang Longmay Group, a province-owned coal miner. The firm said last year that it would adopt a “wartime work atmosphere” to cut its bloated 248,000 headcount by as much as 100,000. It has been making losses since 2012.

Lu said total wages at Longmay were the equivalent of a third of the province’s annual government revenues, but despite job cuts, productivity at the firm was still three times lower than the national average, Lu said.

A general view shows the PetroChina's Daqing oil field in China's northeastern Heilongjiang province November 5, 2007. REUTERS/Stringer

“Under these circumstances, enterprises just cannot continue,” Lu said during a provincial delegation meeting on the sidelines of China’s annual session of parliament. “If they don’t reform now, the problems will just get worse.”

Economic growth in Heilongjiang, which borders Russia, reached 5.7 percent in 2015, but it is targeting 6-6.5 percent in 2016, and will aim to keep registered unemployment rates to within 4.5 percent over the year.

The city of Daqing, the location of China’s biggest oilfield, saw its GDP shrink for the first time in 30 years in 2015 after a sudden collapse in crude oil prices, while the coal cities of Jixi and Qitaihe also saw their economies weaken.

Lu said traditional industries were no longer capable of maintaining growth or replenishing coffers, noting that the oil price slump had cut provincial revenues by as much as 10 billion yuan ($1.54 billion) last year. The cut in state support prices for grain caused further revenue losses of 12 billion yuan.

Zhang Changrong, the mayor of Jixi, where many of the Longmay Group’s coal mines are located, said the city closed around 30 percent of its mines last year, with capacity now at 15.74 million tonnes, down from 31 million tonnes at its peak.

The city cut coal production by 12.8 percent last year and saw tax receipts from the sector plummet by more than 50 percent.

He said Jixi could not completely abandon the coal sector and needed to promote the coal chemical industry. He also called on central government to provide more funds to support the city.

Reporting by David Stanway; Additional reporting by Niu Shuping; Editing by Stephen Powell

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