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Last Updated: Thursday, 10 March 2005, 15:35 GMT
Hi-tech revolution in China's rustbelt
By Peter Day
BBC World Service 'Global Business' presenter in north-east China

There has never been anything like the Chinese industrial revolution, the great transformation from basic needs centrally-controlled Communism into a so-called socialist market economy.

Unpaid migrant construction workers threaten to jump from a rooftop in Shenyang, north China
Life is hard for many in north east China as factories fail
But it's a patchy revolution: huge parts of this vast country have yet to experience fully the gale of modernisation blowing through Shanghai, Beijing and the south.

It has yet to bring its full force to China's north-eastern provinces.

Twenty years ago, they were the industrial heartland of communist China. But now the area has become the country's rustbelt.

Battling the past

In provinces such as Liaoning, you will find shuttered, state-owned factories and grey towns with mass unemployment.

Foreign visitors like me are much rarer than in Beijing or Shanghai.

A man cycles past a power plant in Fuxin, Liaoning province
This was China's top industrial region for decades, but no longer

As the development thrust of the new China has shifted south, the hugely inefficient heavy industries have shed thousands of workers to cope with competition from places such as South Korea, only 300 kilometres away.

Many of them are propped up by state-owned banks which themselves are effectively bankrupt.

One company trying to transform itself as global competition reaches deep into China's traditional industrial base is the Shenyang Machine Tool Group.

New strategies

It is based in the industrial suburbs of Liaoning province's capital, Shenyang, where it busy applying new computer technology to traditional machine tools.

Last year it bought a German company to learn more about skilled engineering and find new customers in Europe. Dozens more Chinese firms have done similar things.

Every year we make 6% of our workers redundant if they are unqualified
Zhang Weiming, SMTG

Zhang Weiming, deputy party secretary of the Shenyang Machine Tool Group, tells of the changes that have engulfed this once sheltered company.

"Now there is only one manager in the work shop where there used to be five or six.

"We also reduced the workforce from 30,000 to 10,000 and now we just hire skilled people. On top of that, every year we make 6% of our workers redundant if they are unqualified."

These changes are designed to turn an old-style manufacturer into a global powerhouse: "We rank thirteenth or fourteenth in the world. By 2007, we want to be in the top five in the world," says Mr Zhang.

As China's boom turns the country it into the workshop of the whole world, I had thought the revolution was confined to manufacturing.

Well, it's bigger than just making things - even in the northeast rustbelt.

New industries

There are striking new companies specialising in the kind of offshore computer work I had thought was being done mainly in India in places such as Bangalore.

Neusoft chairman Liu Jiren
We know how to face difficulty and how to face a challenge
Liu Jiren, Neusoft chairman

In China, the software industry also is on the march.

Shenyang has the imposing lakeside campus-style headquarters of a company called Neusoft, founded 13 years ago by a university computer professor, Liu Jiren, to write computer programs for industries such as banks and telecommunications.

Prof Liu, now Neusoft's chairman and chief executive, presides over a stock-market quoted firm with 6,000 staff and four software parks. But he admits it was "a kind of accident".

Thirteen years ago, he set up Neusoft to generate revenue for his research to overcome funding constraints and help him up the academic ladder.

Back then, he did not have a telephone. When a call came from overseas, Prof Liu had to run two to three minutes to a neighbouring company whose phone line he was borrowing.

"We learned from that experience...and we know how to face difficulty and how to face a challenge," he says proudly.

Hi-tech outsourcing

Three or four hours south of Shenyang is the rival city (and busy port) of Dalian, facing towards Japan and South Korea.

Snow carvings at a festival near Shenyang, north China
Hi-tech and tourism: The north is sprouting surprising new industries

There, another ex-academic, Zhang Limin, is co-founder and chief executive of software firm Dalian Hi-Think Computer Technology Company.

He uses China's cheap but skilled labour in outsourcing for Japanese companies. I had no idea Liaoning was already becoming China's Bangalore.

"Compared to the business in India, the software business here is relatively small, but we grow very fast," says Mr Zhang.

The region's troubled history with Japan is now a source of strength for his company. As former-Manchuria, Liaoning was in foreign hands for much of the 20th century as Russian and Japanese armies battled for control.

Hi-Think's staff are hired for their prowess in Japanese, enabling them to take advantage of Japan's outsourcing of software work.

"China is still the kind of place for cheap products, but we are catching up for more high tech, advanced technologies," Mr Zhang points out.

"Now the demand from Japan is still huge and growing. If we don't grow ourselves very fast to keep our pace, that's our own problem, it's not because of the market."

Remember the computer boffins when people tell you China is becoming the world's manufacturing workshop, which it is. But for better or for worse, it's bigger than merely manufacturing, even in the old rustbelt.

Global Business is broadcast on the World Service. You can listen to the first of two programmes from Manchuria from Friday 11 March.

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