China's rust belt need reform

In an action plan released in August, the State Council, China's cabinet, laid out in broad strokes reforms aimed to reverse the cooling trend in the region.

High on the central government's agenda is improving efficiency and competitiveness of the region's state-owned firms by selling stakes to private investors. The government also pledged more support for tech-heavy industries such as robotics, marine engineering and integrated circuits.

It also seeks to boost the region's service sector to provide more jobs and address years of unbalanced development.

Not all companies in the northeast are reeling in the face of strong economic headwinds. Some with better technology and better responses to market demands have shown flickers of promise.

A 19-meter-deep, 15,000-square-meter underground machine tool manufacturing base in Dalian offers a model for the northeast to regain its past glory.

"We keep temperature fluctuations here within one degree Celsius because even a minor change in humidity and temperature will affect the precision of machine tool manufacturing," said Yu Dehai, chairman of Dalian Guangyang Science and Technology Engineering Co Ltd.

The company's machinery has been exported to Germany, making it a prime contender for major overseas players such as Japan's Fanuc and Germany's Siemens.

Yu said his company is planning another 240,000-square-meter underground factory to accommodate waves of orders that have overwhelmed the existing facility.

The difference between Yu's company and those struggling to keep their heads above water presents a make-or-break decision for the region: cling to the dated economic system and watch the region's problems turn from bad to worse, or begin a transition that could prove painful but also presents opportunities to reinvent the rust belt into a renewed growth engine.

"There are always bad times in the market, but nobody knows what happens next," said a businessman based in Shenyang, capital of Liaoning. "That's when you need to reform old systems to unleash innovations, which will in turn lead to new territory."