On the pages of the Global Times, the nationalistic Beijing tabloid, there’s often a little gloating these days about the financial crisis in the U.S. Down in the trenches of China’s manufacturing sector, not everyone is so happy. They know how quickly economic problems in the West will lead to reduced consumer demand and weakening exports for China. For a glimpse of how unpleasant things can get, look at what is happening in the southern Chinese manufacturing town of Dongguan, where the closure of a toy manufacturer sent thousands of workers into the streets. (For scenes of how Asia and Europe are beginning to feel the economic spillover, see this TIME story out today.)
Earlier this week my colleague Lin Yang spoke with Shi Junmin, ceo of Pinghu Bag and Suitcase Co., which is based outside Shanghai. “It has been very, very bad,” Shi tells Lin. “How bad? We can no longer manufacture our own products.” Shi blames his six-year-old company’s woes on the financial crisis and the subsequent economic turmoil in the U.S. Fears of an economic slowdown have caused Shi’s export business collapse. “Although there was no decline in the number of orders we received, our clients simply stopped paying on time,” Shi says. Revenues last year were down nearly a third. As of June, Shi says his company was owed $3.2 million in outstanding payments. “This immediately set the company back by a few years,” he says. In June he stopped all exports to the U.S., and is now relying on the Chinese market to stay afloat. “Processing for domestic factories is our only option,” he says. “We just ran out of money to buy materials to manufacture on our own.” His peak workforce of 400 employees is now down to 200.
Those type of layoffs worry the Pinghu city government. In a report this spring it said the city’s 77 luggage manufacturers “are up against a huge challenge. They face tough competition and some will even go bankrupt. Although failure is an inevitable part of the free market, it’s bad for this city’s development and building a harmonious society.” Some economists believe that China’s exports, which grew by 20% in September, could expand by as little as 5% next year. While most economies would welcome that kind of growth, for China it’s hardly enough to create new jobs for the country’s rapidly urbanizing population. Layoffs like those in Dongguan will likely become a more common sight. And the Global Times might not have as much to gloat over.