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Economy

China's northern industrial regions left out of recovery

'Old economy' companies in dire straits while nation turns up

HONG KONG -- While China's economy as a whole is showing signs of revival, old industrial companies in the north are struggling.

The March purchasing managers index, announced Friday, reached its highest level in about five years. Yet in the northern provinces, where new industries have been slow to take root, the economy is stagnant and some local companies are in trouble.

China Business News reported Tuesday that Qixing Group in Shandong Province has about 10 billion yuan ($1.45 billion) in accounts payable. The government-affiliated group operates aluminum processing, electricity supply and telecom infrastructure businesses, and used to be a major presence in its home city of Binzhou. Now production has been halted, and the group is in negotiations with creditors, according to the report.

Shares in Xiwang Foodstuffs, a Shenzhen-listed company under the Qixing Group, plunged 10% on Wednesday after the report was released. Xiwang Foodstuffs said Thursday in a disclosure document to the exchange that the stock drop will have only a small impact on its business and earnings, but this probably did little to allay investor concerns.

On March 23, Liaoning Province dairy giant China Huishan Dairy Holdings, which is listed in Hong Kong, plummeted as much as 91% on downbeat reports about its operations. The company issued a statement denying the gist of the reports, while admitting its financial condition has worsened. It was once called a "star" among private-sector companies.

The three northeastern provinces of Liaoning, Jilin and Heilongjiang have mainly traditional heavy industries and few new ones, said Huang Yongxi, representative of the Shanghai office of Toyo Securities.

Shandong has a sizable presence of light industries as well, but it still has many heavy industry businesses like Qixing Group. Shandong has seen many large companies default on debts and go under since 2014.

The People's Bank of China is moving to tighten its monetary policy to keep funds from fleeing the country as the U.S. raises interest rates. The Chinese economy has yet to fully pick up momentum. So a direct hit from tighter monetary policy would be even more bad news for struggling local companies, says Toyo Securities' Huang.

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