As the economic downturn reaches China, sacked workers and a struggling factory manager talk about their fears
Link to this video
The dislocated head of a baby doll stares blindly through the gate; WALL-E and Barbie Pet Doctor boxes are strewn across the yard.
Two weeks ago, toymaker Smart Union was churning out playthings for children across the United States and Europe. Now it is in liquidation - leaving 7,000 employees in shock.
"One day we went to work as usual, the next it was all closed," said Wei Sunying, at the gate of the factory in Dongguan, 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 14 million inhabitants, almost all migrant workers from the countryside. Its economy has sustained 15% annual growth in recent years. The global economic crisis is proving the final straw for exporters punished by rising costs and stronger currency.
In the past year, chill winds have blown through the Pearl River Delta. Sixty-seven thousand small firms 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, by safety scares and product recalls. Textile firms, with wafer-thin margins, are also reeling. Next came tighter credit for many foreign-owned firms, like Hong Kong's Smart Union. And then, in the past two months, a sharp drop in US and European consumer demand.
A local trade association predicts that by late 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 may even shrink next year. Green believes China will see 7.9% growth in 2009 - well below the double digit figures of the past five years.
That may sound enviable to western countries facing recession, but with the working age population still growing, China needs to grow by at least 8% to maintain its employment rate. The fall-out will be 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, researching Dongguan's industry and migrant workforce at the University of California at Los Angeles.
"Disgruntled workers left jobless will complain 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 24m yuan (£2.2m) after thousands gathered at the factory gates and outside local authority offices. But two month's back pay - 1,200 yuan for most - will not last long. Wei, from Guizhou, is one of many struggling to find work. "I came here as a migrant worker because my children need money for schooling," she said. New job offers aren't always what they seem, added 26-year-old Fang Jianlin, whose friends were recently conned.
"Recruiters told them the salaries were very good, but 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 get his job there. At worst, he and his wife would earn about 600 yuan a month; at the busiest times, when production ran until 2am, they could take home 2,100 yuan each.
It's a tragic 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. At the city's night schools, thousands of workers end their days with classes on every subject from car maintenance to law. Bob Li is one of the success stories. He arrived in 1995 as a labourer; "everyone in my hometown had heard Guangdong was covered in gold," he explained.
Now he manages a factory for Richall, supplying durable bags to companies such as Walmart, Carlsberg and Disney. 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 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 that 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 two hundred years of western industrial development 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 out those labour intensive and small and medium sized enterprises [SMEs] 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 have moved up the value chain in 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 might push the city off the economic ladder rather than up it. Whether subsidies, tax rebates and other support for small firms 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.
"If we compare the situation to when I first arrived, I have already found my pot of gold," said Bob Li. "But I can still see it's just the beginning."
