2014-05-13

Heilongjiang Oil Field Depression; Firms Shut Doors As Market Forces Begin Reshaping the Industry

For all the focus on real estate this year, the slowdown in GDP thus far is mainly the result of market reforms and weakness in base industries. Shanxi, Hebei and Heilongjiang are at the forefront of China's economic slowdown. All are dominated by industrial sectors: Shanxi coal; Hebei steel; Heilongjiang oil. The Daqing oil field in Heilongjiang is the largest oil field in China and was one of the most productive in the world, but it has passed its peak production.

The massive, aging oil fields at the heart of China’s latest corruption purge
Output from Daqing and Shengli is likely to “decline significantly in the coming years,” according to an analysis by the US government. Daqing produces about 800,000 barrels of oil a day—down from 1 million barrels per day a few years ago—and it contributed over half of PetroChina’s net profit margin in 2012, according to a recent report by Tianto Info Consulting (link in Chinese).

The slowing output may be where PetroChina’s corruption problems began.

PetroChina is a vertically integrated giant that even manufactures its own drill bits and trucks, said Simon Powell, the head of oil and gas in Asia for brokerage CSLA. But China’s slow-to-change state-run industries often do not have the latest technology such as tools for “enhanced oil recovery,” the more aggressive drilling methods used on older wells.

Daqing and other fields started bringing in third party companies and independent contractors in recent years, which opened the door wide for potential temptations for officials to enrich themselves.

“The opportunities for corruption and nepotism are almost boundless when you bring in external companies to work with a state-run one,” said Powell, in part because China’s state-run industries (even publicly traded arms like PetroChina) do not have a transparent tendering process.

China has misallocated a large amount of resources. The slowdown in the coal, steel and oil industries is driven in part by government reforms that will allow a greater role for the market in allocating resources. This causes a temporary depression in economic activity during the transition period, but long-term GDP growth rates will be higher than they would under a continuation of old policies. The changes are good and the slowdown in GDP is a good sign that reforms are taking place, but not everyone is happy.

Petrochina sparks protests after tightening rules on hiring workers' children
Thousands of Daqing Oilfield workers and their families railed against parent company Petrochina’s decision to change a policy that guaranteed jobs for all workers’ children who graduate from university.
It is still the case at many SOEs that a parent's job can be passed to their son or daughter.

Adding to the pain for the local economy is often a real estate boom that was driven by optimistic growth forecasts in the core industry. Boom has turned to bust as many downstream oil firms shut their doors.

黑龙江的“烦恼”:油田不振 数百下游企业停产 (Heilongjiang's Distress: Oil Fields Depressed Countless Downstream Oil Companies Shut Production)
A quarter GDP of Heilongjiang Province 265 billion yuan, an increase of 4.1%, the country ranked near the bottom. The proportion of the energy industry's economic structure is too high, domestic overcapacity in a number of areas, local industrial enterprises less competitive and other aspects, is considered to be the main reason. A quarter of Heilongjiang negative growth of investment in fixed assets of 25.9%, the proportion of total industrial scale in more than 50% of the Daqing Oilfield emerged over the years never had negative growth. Fixed-asset investment increased prescription to turn the tide, "big projects, having a good project," is becoming the consensus of Heilongjiang province. Daqing is a city born because of the oil, not the oil, Daqing how to go? Vigorously develop the petrochemical, equipment manufacturing, food and other industries of comparative advantage, become Daqing choice.

"To grasp the development does not relax, make great efforts to promote industrial projects." This is the first quarter of Heilongjiang held recently analyzed the economic situation would be for the province's economic development prescription.

According to the first quarter of 2014 economic statistics have been published, Heilongjiang GDP growth rate of 4.1 percent, the data is almost at the bottom, in the provinces. More than three months ago, Heilongjiang in place "two sessions", announced the GDP growth target from 8 percent to 8.5 percent. Growth of 8.5% in the first quarter and a far cry from the goal.

Behind the weak GDP figures, Heilongjiang little redness in the face.

"Big projects, having a good project," is becoming the consensus of Heilongjiang province. Heilongjiang looking through increased investment in fixed assets to achieve the stabilization and recovery of economic growth.

"Daily Economic News" reporter from the Heilongjiang Province Development and Reform Commission obtained documents showing Heilongjiang "big project", "plus investment" urgent: Improving water infrastructure, improve the project in the shortest possible time, and the EIA approval, works June 25 started; accelerate the construction of transportation infrastructure, good rail and strive to start in Kazakhstan in June, Kazakhstan male Railway Bridge, Tunnel restriction works to start in October, Mishan to Xingkaihu tourism highway project to fight in June started ......

Energy province 722 scale enterprises stop production

Energy industry in Heilongjiang province.

Data show that over the past decade the energy industry accounted for the lowest proportion of above-scale industries in Heilongjiang was 53.8%, the highest reaching 72.9% during this period, the highest growth rate of the energy industry in Heilongjiang was 13.1%, the lowest it has 6.3%, but last year only an increase of 0.1%. The situation is worse in the first quarter of this year reached its peak, the data for the first time there has been a negative growth of -2.2%.

It is worth noting that the proportion of above-scale industries accounted for about 50% of the Daqing Oilfield emerged over the years never had negative growth.

April 25, industrial enterprises in Heilongjiang Province teleconference pointed out that domestic overcapacity in a number of areas in Heilongjiang Province, the petrochemical industry, equipment manufacturing and local coal industry have a greater impact on production and prices, resulting in added value to decline.

After combing the data difficult to find, Heilongjiang's economic growth is half of the energy industry before loading the line devour a downward trend.

April 28 was held in Heilongjiang Province in the first quarter economic analysis meeting, the proportion of the energy industry's economic structure is too high, excess capacity in several areas, local industrial enterprises less competitive and other aspects, is considered a downside quarterly data reasons.

"The province's industrial and overall economic growth is largely affected by external circumstances." Proportion of a Heilongjiang Development and Reform Commission on the "Daily Economic News" reporter, said, energy, petrochemical, industrial equipment, accounting for more than Heilongjiang scale industrial added value nearly 70% of the industrial structure of Heilongjiang relatively high dependence on resources.

Downstream energy industry has brought downstream enterprises to stop production.

Data "Daily Economic News" reporter obtained in Heilongjiang authorities show that a quarter of Heilongjiang province's 4,388 above-scale enterprises, the output value of 1,270 companies declined, 722 enterprises have ceased production, nearly half of the new production enterprises, stop the affected by seasonal and market factors.

Data show that over the past 10 years, economic growth in Heilongjiang province's industrial contribution rate above 50%.

To fully maintain the stable operation of the industrial economy, the governor of Heilongjiang Mayor Lu Hao asked around to hear reports on the situation once a month, deputy mayor and deputy mayor in charge of industry to understand where the problem lies Local production and operation of enterprises above designated size encountered and difficulties, what the problem is research what the problem could solve any problem to solve any problems, need government support should be given strong support.

"Daily Economic News" correspondent in Heilongjiang provincial departments got the documents show, Heilongjiang Province, above-scale enterprises in the province intends to conduct door-monthly analysis, strengthening the scheduling support to help resolve the difficulties, has been formed to invest in industrial projects, a caught in the end, until the start forming production capacity.

Province, "projects" full investment

Heilongjiang's economy, an important contribution to the energy industry. Heilongjiang observe the development of policy in recent years and "concept" launch, difficult to find, Heilongjiang too anxious to adjust the energy industry accounted for the status quo.

Harbin, Daqing, Qiqihar, three cities on the map hardly a straight line. 10 years ago, Heilongjiang planning on this line of 921 square kilometers of land, a desire to achieve "industrial corridor" to the energy, chemicals, equipment, automotive , food, high-tech six plates based framework, to create China's "The fourth growth pole."

Now, the concept of "Ha-Da-Qi Industrial Corridor" has actually become weakened, Heilongjiang want the layout is more industrial projects within the province.


A Heilongjiang Development and Reform Commission told the "Daily Economic News" reporter, industrial projects is an important way to promote economic restructuring, "Ha-Da-Qi Industrial Corridor" is not not mention, but pay more attention to the province to build the industrial chain to "ten major focus of the industry "as the main direction of the stock upgrade technology, joint venture, relying on the stock of incremental investments and projects to enhance the level of contrast, Heilongjiang province more attention to project a more balanced, which also explains the economic development extend outward from the center of gravity is gradually energy industry.

Heilongjiang Development and Reform Commission in a quarterly economic analysis suggested that "must increase investment in fixed assets as an active force of economic growth, to effectively curb the trend of the current economic downturn."

May 6, Heilongjiang also held a special meeting to strengthen the investment projects.

"Daily Economic News" reporter and city officials in Heilongjiang, a place that, at present the majority of cities are full mobilization of Heilongjiang pull together to recruit investment. While non-investment sector cooperation projects have also mobilized to attract investment easily move sparked controversy, but for a quarter of negative growth in fixed asset investment of 25.9% of the data, it seems a rational expression, especially the desire to reverse the plight of the structure of Heilongjiang and Introduction.

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