Shutdown of steel town shatters the 'iron rice bowl'

Jinan Steel on China's east coast was once famous for its 'hot metal', but the decline in local industry poses a dilemma for younger employees

"To resign, or not to resign, that's the question," says Du Peng, an electrician for Jinan Steel Group.

For the past two years, the 36-year-old has worked at the state-owned company for only two days a week. In truth, he has nothing to do at work but sit and chat, as since 2013 the major steel producer has intermittently suspended production.

Jinan Steel, in eastern Shandong province, has lost nearly 4 billion yuan ($610 million; 544 million euros) since 2012. Two years ago, it announced plans to lay off 10,000 workers by the end of this year.

The decline in business has also forced the company to cut wages. Du makes about 3,000 yuan a month, about half of what he earned five years ago. "Wages will continue to fall, which will force more workers to quit," he says.

Workers within five years of retirement age can opt to leave and receive their pensions immediately. However, that's not an option for younger workers. If they are dissatisfied, their only alternative is to quit.

A working community

Du grew up in the Jinan Steel workers' community, home to 40,000 employees and 60,000 immediate family members. He and his wife have a 12-year-old son. To make ends meet, he also works part-time as a taxi driver.

His father, 64, retired as a security guard at the mill five years ago and is now recovering from a stroke. His 62-year-old mother spent her entire working life as an assistant in a shop owned by the mill.

Du's hesitation over quitting stems from the difficulties he encountered 10 years ago when he tried to get a job for life - the so-called iron rice bowl - at Jinan Steel.

After graduating from a vocational school run by the company, he discovered that his childhood friends had become his rivals in the search for work. If he had been born earlier, he could have taken a job in the steel mill once his mother or father retired, but at that time the company only wanted college graduates, meaning there was no work for him.

Instead, Du trained as a bus driver. But before he could start work, Jinan Steel reversed its policy and began hiring non-graduates. In 2005, he passed an exam arranged for the children of existing employees.

"Jinan Steel children have an ingrained mindset; they are born to become steel workers, nothing else," he says.

In March, the central government announced it had set aside 100 billion yuan to help workers laid off in the coal and steel industries. According to Yin Weimin, the minister of human resources and social security, about 1.3 million coal workers and 500,000 steel workers will lose their jobs this year.

The company is the architect of its own failure, according to Du. "The most advanced steel-rolling equipment in the mill was a secondhand machine imported from Ukraine in the 1990s. The Ukrainians had used it since the late 1970s," he says.

Falling output

Jinan Steel mainly produces steel plates, deformed steel bars for the construction industry and screw-thread bars, which are used to reinforce small ships. Its annual output of crude steel rose from about 7 million metric tons in 2000 to more than 12 million tons in 2007, when the government paid special attention to expanding the production capacities of a number of industries. Last year, the company produced just 6 million tons.

Workers often cite the privately operated Rizhao Steel Group as a comparison. The company, based in Shandong's Rizhao city, is much smaller than Jinan Steel but far more profitable. It has imported advanced equipment from Italy to produce special steel that can be used in the aerospace and aviation industries and in the construction of expressways.

Rizhao Steel has a geographical advantage, too, because it is located near a port on the Yellow Sea. Jinan Steel is 300 kilometers from the nearest port, and 90 percent of its iron ore is imported by ship.

"More important, Rizhao Steel operates like a modern enterprise, while Jinan Steel runs like a small club," says a retired steelworker in Jinan who gave his name only as Rong. "The company provided everything - from daily necessities to apartments, education to medical care."

Having joined the company at age 19, Rong says the steel mill feels like home. "Older workers feel they are the owners of the mill. We would never quit our jobs, but the younger workers only see Jinan Steel as an employer."

Du concedes he has mixed emotions about quitting. "My feelings about Jinan Steel are complicated because my grandparents were among the first generation of workers, the people who built the mill from nothing in the 1950s. My son also grew up here," he says.

A family affair

Du has four uncles and an aunt. All of them worked for Jinan Steel in some capacity, with the exception of one uncle, who was assigned to work as a doctor in another part of the province in the 1970s.

Another uncle was a music teacher at a middle school owned by Jinan Steel. His daughter is now a lawyer in the company's legal office, while his son-in-law is a civil engineer there.

Previously, the school and hospital were only for workers, but they began accepting students and patients from outside about five years ago. Other departments also accept outside business.

Zhang Zhongfa, deputy director of Jinan Steel Hospital, says outsourcing its services saved the medical facility. It has partnered with 15 clinics in nearby townships, and in 2012 began offering first-aid services in more than 30 towns.

Six years ago, the company gave the hospital a subsidy of 40 million yuan, but last year the flow of funds dried up. Despite that, the hospital's operating revenue rose to more than 200 million yuan from 80 million yuan in 2011. The average number of patients treated annually has doubled to nearly 300,000.

New business, new money

Jinan Steel's nonsteel activities are now its major moneymakers. They include energy resources, natural resources, new materials, engineering technology, information technology, logistics, real estate, modern service sectors and agriculture.

In 2012, the operating revenue generated by these activities accounted for about 29 percent of the total, but now they account for more than 50 percent.

Three years ago, the Shandong government announced controversial plans to relocate Jinan Steel - the area's biggest polluter - to a town further southeast. The decline of its steel business stymied the plan, however.

"Without technological breakthroughs and huge input into environmental protection, relocating the company just means relocating the sources of pollution," says Lin Lin, a third-generation Jinan Steel employee.

Lin and Du have been neighbors since childhood and they often discuss their futures. "Technicians can always find a job," Du says. "We're thinking of learning English and going to work in developed countries."

His father, Du Zufeng, looked at him thoughtfully. "That would be the biggest step our family has taken since your grandfather left Qingdao to come here," he says.

Contact the writers through liyang@chinadaily.com.cn