By Audrey Murray

Once a struggling industrial city, Shenyang has experienced an economic revival in recent years with a government boost

Shenyang, the capital of Liaoning province, is emerging from two decades of policy reforms and establishing itself as one of China's new financial powerhouses.

Its economic revival is largely due to its status as one of only two cities in China – along with Shanghai's Lujiazui – that is home to a finance and trade development zone. The northeastern city has come a long way from being a struggling rust-belt city with high unemployment and unprofitable state-owned enterprises (SOEs).

In 1997, the national government instituted a policy to privatize, close or release control of small- and medium-sized SOEs while retaining control of larger organizations. At the time, SOEs in Liaoning province were experiencing massive losses, and the provincial government initiated a program to combine smaller SOEs into larger enterprise groups. But these enterprises fared even worse than the individual organizations they had absorbed: By 1999, there were 61 enterprise groups in Liaoning, and their combined profits had decreased 64% from the combined profits of the individual organizations in 1996. 

Economic rebirth

"In this period, due to reform in China, and combined with the development of traditional SOEs, the area faced a lot of problems," said Wang Xiaobai, vice president of Siemens and a board member of the European Union Chamber of Commerce in Shenyang. "At that time, [unemployment] was widespread – in some jobs as high as 50%."

Massive layoffs ensued and by 2002, the unemployment rate in Shenyang had reached 17.7%, according to the China Urban Labor Survey.

Shenyang's recent rapid development was jumpstarted in 2003, when the central government launched the Northeast China Revitalization Program. The goal was to stimulate former industrial economies in the northern coastal provinces.

"First, the government focused on cooperating with foreign companies and attracting more foreign investment," said Wang. "They also tried to encourage the development of private enterprises."

Wang said the central government invested US$77 billion to help private firms grow. The revitalization program also provided foreign companies with about US$15,400 in subsidies if they established an office in Shenyang, US$77,000 for regional headquarters, and US$154,000 if Shenyang was the base of a company's China operations.

By the first quarter of 2004, foreign investment was up 219% compared with a year earlier. Multinational corporations flocked to the city, including South Korea's Hana Bank in 2004, which was the first foreign bank to open a branch in Shenyang.

Made in Shenyang

Hans Zhou, managing director for CB Richard Ellis in Shenyang, said this government program has been a success. "Since 2003, the government has attracted more than 240 service firms and 64 international banks," Zhou said.

Another important development was Shenyang's expansion of its manufacturing capabilities. Long known for its focus on heavy industry – including aerospace, machine tools and defense equipment – the city has rapidly developed its software and automotive manufacturing industries in recent years.

And its efforts have paid off. Shenyang is now home to a number of prominent corporations, including General Motors, Siemens and BMW Group, which is currently building a second factory in the city with an investment of US$1.42 billion. In the long term, the two plants will have a combined capacity to produce more than 300,000 vehicles a year, according to BMW.

Another government effort has been focusing on promoting a "Made in Shenyang" brand. As part of the city's 11th Five-Year Plan, the government in 2006 said its goal was to develop 30 local brands that would be well known throughout China, 200 for the Liaoning market, and 300 that would carry strong name recognition in Shenyang itself. Companies that achieved these distinctions would be rewarded with subsidies and marketing support.

But the program has had mixed success. Zhou said that while Shenyang has long been known for heavy industry, only brands like Shenyang Aircraft Corporation – which holds contracts with companies like Boeing – have been able to gain some brand recognition outside of the city.

"Services and other brands in Shenyang have been developing over a short time, so they're not famous. They need more time to develop," he said. "Like other cities, Shenyang's economy has now developed into something more advanced, and people need time to adjust to the new reputation."