Great Depression II: 67,000 businesses failed in China in first half of 2008

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Two weeks ago, toymaking giant Smart Union was churning out goods for children across the United States and Europe. Now it is in liquidation and 7,000 former employees are in shock.

"One day we went to work as usual, the next it was all closed," said Wei Sunying, gazing through the barred gate of the factory in Dongguan in southern China where she spent eight years painting plastic components in a fume-filled room.

"Thousands of us are looking for jobs now. We walk around every day till our feet ache but we can't find anything."

Few in the west have heard of Dongguan, but the chances are that your shoes, your TV or your children's toys originated here. Exports have built a city of up to 14 million inhabitants — twice the population of Greater London — almost all migrant workers from the countryside. Its economy has grown 15% annually in recent years.

Now the global financial and economic crisis is proving the final straw for exporters already punished by rising costs and a stronger currency.

In the last year, chill winds have blown through the baking Pearl River Delta. Sixty-seven thousand small and medium-sized businesses in China collapsed in the first half of 2008, many in these manufacturing heartlands, says the national economic planning body. Toy firms have been particularly badly hit, thanks to safety scares and product recalls. Textile firms, with wafer-thin margins, are also reeling.

Next came tighter credit for many foreign-owned firms, such as Hong Kong's Smart Union. And then, in the last two months, a sharp drop in US and European demand as consumers reined in spending.

A local trade association predicts that by the end of January, Dongguan and its neighbours Shenzhen and Guangzhou will lose 9,000 of their 45,000 factories.

"Many factories are looking at completely empty order books," warned Stephen Green, head of China research at Standard Chartered, who believes the export sector will be stagnant and could even shrink next year.

Green predicts that China will grow 7.9% next year — well below the double-digit figures enjoyed over the last half decade — while others suggest it could fall closer to 7%.

That sounds enviable to western countries facing recession. But with the working age population still growing, China needs at least 8% growth to maintain the current employment rate. And the fall-out will be highly concentrated in provinces such as Guangdong.

"The social impact of this is going to be huge. The problems are getting bigger and bigger," said Wooyeal Paik, who is researching Dongguan's industry and migrant workforce at the University of California at Los Angeles.

"Impromptu protests by disgruntled workers left jobless and without pay are becoming more common; they have resorted to petitioning local officials for backpay because they have few other ways to remonstrate and be compensated.

"They will complain more and they will go to local government offices more... You will see demonstrations and picketing. And probably there's a risk of violence against bosses — especially foreigners."

Dongguan's government stepped in to reimburse the Smart Union workers to the tune of 24,000 yuan (£2.2m) after thousands gathered at the factory gates and outside local authority offices.

But two months' back pay — 1200 yuan for most — will not last long. There is no redundancy package and a lawsuit by workers appears to have limited prospects of success.

Wei, from Guizhou, is one of many struggling to find new work. Even if she could read the job adverts, most ask for recruits under 35; she is just over 40.

"I came here as a migrant worker because my children need money for schooling," she said.

"Now I can't support my children. I don't even have enough money to get back home and it's expensive to stay here."

Even job offers aren't always what they seem, said 26-year-old Fang Jianlin, whose friends were recently conned.

"Recruiters told them the conditions and the salaries were very good, but on the way to the place they were asked for money. They got robbed; some were even beaten," he said.

Smart Union was such a popular employer that Fang paid a hefty "introduction fee" to win his job there. At worst, he and his wife would earn around 600 yuan a month; at the busiest times, when production ran until 2am, they could take home 2,100 yuan each.

But he and his wife will return to his village in Sichuan in a few days, where his parents are rearing their children, unless new work turns up. They are not sure how they will support the family, but cannot afford the 50 yuan a day in rent, food and transport to stay here.

It's a sobering end to the dream which lures millions of workers to Dongguan each year, where they struggle and study their way towards the promise of a regular income; perhaps even a place in the burgeoning middle classes. At the city's night schools, thousands of workers end their long days with classes on everything from car maintenance to law.

Bob Li is one of the area's success stories. He arrived in 1995 as a casual labourer. "Everyone in my hometown had heard Guangdong was covered in gold," he said.

Now he manages a factory for Richall, which supplies durable bags to companies such as Walmart, Carlsberg and Disney. Twenty-five thousand totes for Tesco are stacked up awaiting delivery.

But he is unnerved by the economic downturn.

"These days it is getting more and more difficult for factories like us," he said, citing the cost of wages and materials.

"The exchange rate is already a huge issue here; people are losing interest. The price of our materials has risen because they're made from oil... Taken together, costs have risen by 30%-40%."

To some extent, Dongguan has become a victim of its own success. The rising prosperity of the region has created inflationary pressures. Workers want higher wages; new labour laws are designed to wipe out sweatshops but bring higher costs, which squeeze many companies.

Manufacturers have already fled inland to cheaper provinces, in many cases encouraged by Guangdong authorities, who hoped to move the province up the value chain — condensing 200 years of western industrial history into fewer than 15.

"We have a policy to empty the cage for the new birds," Guangdong's vice-governor, Wan Qingliang, told reporters this month.

"The ultimate target is to build the Pearl River Delta into the core region of modern manufacturing."

Others are unsure of the wisdom of the policy in the face of a worldwide downturn.

"Places like Guangdong miscalculated the development of the economy. They actually tried to push those labour intensive and small and medium sized enterprises out of the [established industrial] area because they wanted hi-tech industries there. But when something bad happens, like the economic downturn, what are they going to do?" said Paik.

He acknowledges that numerous East Asian economies, such as Japan, have moved up the value chain in just the same way; and that the Chinese government deserves to be confident, given its economic record.

"But they haven't experienced a serious economic downturn except right after 1989 and have been overconfident in their policy of the quick transformation of industrial structure toward hi-tech in Guangdong," he cautioned.

The risk is that officials push the city off the economic ladder rather than up it. Whether new subsidies, export tax rebates and other support for small businesses can save them remains to be seen.

Yet China's rising living standards in the 30 years since economic reforms were launched has left most people optimistic about its long-term prospects. Migrant workers returning home think they may come back in a few years. A security guard at the shuttered Smart Union plant is plotting out his course to university.

"If we compare the situation to when I first arrived, I have already found my pot of gold," said Li, the factory manager.

"But I can still see it's just the beginning."

http://www.guardian.co.uk/business/2008/oc...a-manufacturing

[mawilson 2,133]

Great. I hope China goes bankrupt soon.

[w¡n9Nµ7 §£@¥€r 123]

Great. I hope China goes bankrupt soon.

In the race to the bottom, may they earn their gold!

[Ban Hammer 13,352]

Great. I hope China goes bankrupt soon.

In the race to the bottom, may they earn their gold!

[Niels Bohr 72]

Hmm....Why the hostility towards China?

[w¡n9Nµ7 §£@¥€r 123]

Hmm....Why the hostility towards China?

In a race to the bottom, someone must lose.

Better them than us.

[Amby 490]

Who cares? It's China.

Hmm....Why the hostility towards China?

In a race to the bottom, someone must lose.

Better them than us.

AJ is correct

[Kevin&Leilei 1]

Great. I hope China goes bankrupt soon.

China and the US are economically intertwined. We will fall together.

[mawilson 2,133]

Great. I hope China goes bankrupt soon.

China and the US are economically intertwined. We will fall together.

Yes, but China will fall harder.

Shanghai Composite - down 70%.

Dow Jones - down 40%.

[Kevin&Leilei 1]

Yes, but China will fall harder.

Shanghai Composite - down 70%.

Dow Jones - down 40%.

And this is a good thing?

[w¡n9Nµ7 §£@¥€r 123]

Yes, but China will fall harder.

Shanghai Composite - down 70%.

Dow Jones - down 40%.

And this is a good thing?

In a race to the bottom, yes.

[mawilson 2,133]

Yes, but China will fall harder.

Shanghai Composite - down 70%.

Dow Jones - down 40%.

And this is a good thing?

Not for China, obviously

[Kevin&Leilei 1]

Not for China, obviously

Maybe I'm a bit biased, as my fiancee is Chinese, but I don't know why you think it's "great."

[w¡n9Nµ7 §£@¥€r 123]

Not for China, obviously

Maybe I'm a bit biased, as my fiancee is Chinese, but I don't know why you think it's "great."

You are biased.

China's success is at our expense and vice versa.

[mawilson 2,133]

Not for China, obviously

Maybe I'm a bit biased, as my fiancee is Chinese, but I don't know why you think it's "great."

China is an economic threat to the United States. It's ok to let China grow as long as their

growth benefits us (and providing they don't grow too much), but at some point we will have

to squeeze them out of our markets.