China's rust belt

Chinese megacities like Beijing, Shanghai and Shenzhen are capturing the world's attention with their glittering skylines, Fortune 500 firms and outsized wealth, but the country also has hundreds of shrinking, forgotten cities that are beginning to resemble America's Rust Belt.

Why it matters: The slowdown in these once-booming industrial towns is chipping away at China's economic might.

Background: In the Mao era, China opened massive state-owned steel plants and coal mines in the northeast of the country to jump-start the economy. For the next 4 decades, the materials and energy coming out of that region fueled China's rise, helping build its gargantuan cities.

• But as China's economy started to modernize and shift away from heavy industry toward services, the plants, which were sucking government money, were downsized, putting millions out of work.
• Now, the government is investing in its own Silicon Valley — coastal cities like Shenzhen and Hangzhou that are home to Tencent and Alibaba — and the industrial centers are getting left behind, says Shehzad Qazi, managing director of China Beige Book, which analyzes China’s economy based on thousands of surveys of Chinese companies.

Today, many of the shrinking cities in northeastern China are full of quiet streets and empty shops, as more and more young people go to the megacities to find work delivering packages or waiting tables at restaurants.

• Among the people who are still there, "you’re beginning to see opioid addictions," says Nathan Attrill, a scholar at Australian National University who studies the region. "There’s a depression settling in that there is no future."

By the numbers: A recent analysis from Tsinghua University identified 180 cities in China that are losing people — and many of them are in the northeast.

• Northeastern China's share of the country's GDP was around 6% in 2018, reports the South China Morning Post. Compare that to the 11% it commanded in 1990.
• On net, 22% fewer companies reported new hiring between the second and third quarters of 2019, according to China Beige Book. That was largely driven by a steep decline in manufacturing jobs, Qazi says.
• If northeast China were its own country, it would have the lowest birthrate in the world, says Attrill.

But, but, but: While the U.S.-China trade war is hurting other parts of the Chinese economy, its rust belt is actually benefitting, Attrill says. Half of the soybeans China consumes are grown in the northeast, and the region is becoming key as the country stops buying American soybeans. Most of the goods produced in the northeast are sold domestically, so it doesn't rely on exporting to the American market.

What to watch: "China is obsessed with social stability, so when you have a lot of unemployed workers in one place that really worries them," Attrill says. So far, no plan to re-energize the northeast has worked. "They’ve had to revitalize their revitalization plan twice since 2003."

• And the government may soon have to deal with more rust belts as factories in other parts of the country shut down. "Chinese officials are already talking about the regions around Shanghai and Guangdong going through their own deindustrialization," Attrill says.