Chang’an, China: November 14, 2008 -  IR Summary/NYT – China is suffering a lot, it has closed many factories due to little orders or no orders. For decades, the steamy Pearl River Delta area of southern Guangdong Province has been serving primary engine for China’s astounding economic growth.

But an export slowdown that began earlier this year and that has been magnified by the global financial crisis of recent months is contributing to the shutdown of tens of thousands of small and mid-size factories here and in other coastal regions, forcing laborers to scramble for other jobs or return home to the countryside.

Furthermore, the slowdown inhibits China’s ability to work with other nations in alleviating the worldwide crisis.

The Pearl River Delta, known as the world’s factory, powered an export industry that pushed China’s annual growth rate into the double digits and provided work for migrants from interior provinces with poor farmland. But circumstances have changed quickly. The slowdown in exports contributed to the closing of at least 67,000 factories across China in the first half of the year, according to government statistics. Labor disputes and protests over lost back wages have surged, igniting fear in local officials.

After the shutdown of their shoe factory, called Weixu in Chinese and China Top Industries in English, Mr. Wang and some co-workers took to the streets in protest, demanding two months of back pay, or $440 on average. The government called in the riot police. Seven workers were thrown in jail and six were beaten, including Mr. Wang, he said.

“I plan to return home once I get my money,” Mr. Wang said as he stood outside the factory on Tuesday, showing the bloody shin wound that he said resulted from a blow from a metal baton. (The police declined to comment.) “I’m over 50 years old, and I won’t be able to find work. I’ll just retire.”

Under pressure from Beijing to maintain social stability, local officials are also trying to tamp down unrest by doling out back wages. Here in Chang’an, after the worker protest, the government shelled out more than $1 million to pay back wages to most of the workers at the shoe factory. (Mr. Wang and some other laborers say they are still without back pay.)

The slowdown in exports has accelerated a major shift in the nature of Chinese manufacturing: small factories that were already being pinched by rising costs of labor, transportation and raw materials, as well as by the appreciating yuan, are closing en masse. That is especially the case in these towns scattered around the city of Dongguan, known for churning out low-end products. Soon the labor-intensive factories that rely solely on migrant work could disappear from southern China, and foreign companies could contract with similar factories in Vietnam and other countries where costs are lower.

“There’s very serious damage being done down there, I don’t deny it, and I think it’ll get worse because we haven’t seen the full impact of the economic downturn in Europe,” said Arthur Kroeber, managing director of Dragonomics, an economic research and advisory firm based in Beijing. “I think next year we might see export growth in the country as a whole go down to 0 percent.”

The export sector is still growing but has slowed considerably; year-on-year growth was at 9 percent in October compared with 26 percent in September 2007, Mr. Kroeber said.

The social problems arising from the slowdown have stirred anxiety in the top leadership of the Communist Party, whose legitimacy is based on maintaining economic growth. Prime Minister Wen Jiabao is pushing for policies that will increase domestic consumer consumption to wean China off its reliance on exports.
Last Sunday, the government unveiled a stimulus package worth $586 billion over the next two years — the largest ever announced in China — to help create jobs, mostly by building new transportation infrastructure.Full