Five months ago, Hao Liwei was living the good life, funded by a 36 percent annual return on a property investment. Then her nightmare began.

Interest payments ceased in August and attempts to recover her money failed. Her home town, the steel-production city of Handan, 450 kilometers (280 miles) southwest of Beijing in Hebei province, was grappling with plunging demand for steel and plummeting prices. Economic growth slumped to 5.5 percent in the first nine months of last year, from 10.5 percent in 2012.

“The sky collapsed and I thought of killing myself,” said Hao, 40, now a taxi driver. “It was just like a dream: I had everything but when I woke up it was all gone.”

Hao is among the collateral damage as China reins in years of debt-fueled investment-led growth that’s evoked comparisons to the period preceding Japan’s lost decades. As policy shifts China toward greater consumption and innovation-led growth, Handan’s reliance on the steel industry for expansion has left it among cities feeling the brunt of adjustment pain.

“Steel towns have been decimated many times before, in Pittsburgh, in the U.K., in France, inBelgium,” said Junheng Li, founder of researcher JL Warren Capital LLC in New York. “Handan has a choice: cling to steel and suffer an inexorable decline or invest in the future, wherever it may be.”

Illegal Fundraising

Handan’s woes deepened in September, when local authorities sent work teams into 13 property developers to contain risks after a failure to repay funds raised illegally from the public sparked panic, Xinhua News Agency reported. Thirty-two homebuilders had raised a combined 9.3 billion yuan ($1.5 billion) in illegal fundraising or high-return deposits, causing police to detain 94 people, Xinhua reported.

In freezing, pollution-darkened air that exceeded the World Health Organization’s safety limit by more than 14 times, Wu Ren waited last week outside a property development in downtown Handan in hope of recovering funds he invested in a developer named Century in Gold. Wu, in his mid-40s, said he invested 500,000 yuan for a return exceeding 18 percent a year. The developer’s boss disappeared in August, he said.

“I thought it’s a harmonious society,” said Wu, referring to a phrase used to describe part of former President Hu Jintao’s ideological vision for China. “I didn’t expect this, to be cheated.”

Phone calls by Bloomberg News to Century in Gold’s sales office hot line last week went unanswered.

China’s shift away from investment-led growth has led to bear markets in everything from iron ore to coal. Contracts for steel rebar, or reinforcing steel used in construction, on the Shanghai Futures Exchange have fallen more than 25 percent in the past year.

Cyclical Downturn

Goldman Sachs Group Inc. last year joined other banks in calling an end to the commodities supercycle after a decade of price gains fueled by Chinese demand. The biggest consumer of industrial metals and iron ore and the largest oil user after the U.S. posted the slowest full-year expansion since 1990, according to economists projections of gross domestic product data for 2014 that’s due to be released on Tuesday.

In another abandoned property project named Century Garden, also developed by Century in Gold, the sales office was locked last week. A notice from police and the local court stuck on its windows asks those involved in “illegal deposit taking” to turn themselves in while another policy notice warns against “illegal petitioning practices” such as blocking government office gates and public roads.

Behind the office, there’s no sign of activity on unfinished apartment blocks. A huge advertisement hanging on one building promoted the project as “the choice of the wise.”

Overcapacity Story

“This is a classic showcase of China’s overcapacity story,” said Dong Tao, chief regional economist for Asia excluding Japan at Credit Suisse Group AG in Hong Kong. “Industrial overcapacity to start with, followed by property overcapacity and then government-driven infrastructure overcapacity.”

In another corner of the street, Zhao Kejin sat on the concrete stairways of the closed Sunshine Shore property project office. Hand-written white banners hung across its front say, “Give me my blood-sweat money.”

The 55-year-old cement engineering contractor said he had worked on the project for a year and is owed 10 million yuan.

“I need the money to pay my fellow workers,” he said, burning wood in a metal bucket to keep warm. “But no progress yet.”

Evidence from places as far afield as Scotland suggests it will be difficult for towns and cities built off one industry to transition to new growth drivers.

“New industries that will develop if China is successful in moving toward consumer-led growth will require different skills and those can often be found in places that are very far removed from the old growth centers,” said Freya Beamish, a Hong Kong-based economist at Lombard Street Research Ltd. “There are still towns in Scotland where there are simply no jobs.”

                                                                                                                               XINSTEEL  NEWS