As factories close, Chinese workers suffer
CHANG'AN, China: Wang Denggui, father of three, arrived more than a year ago in the palm-lined streets of this southern Chinese town with a single goal: toil in a factory to save for his children's school tuition.
But the plans of Wang and thousands of co-workers unraveled at noon on Nov. 1, when the Taiwan chairman of their ailing shoe factory climbed over a factory wall to flee the country and his debts. That left several U.S. shoe companies with unfilled orders and 2,000 workers without jobs.
"He just ran without telling anyone," Wang said.
For decades, the Pearl River Delta that includes southern Guangdong Province served as a primary engine for China's astounding economic growth. But an export slowdown that began this year and that has been magnified by the global financial crisis of recent months is contributing to the closure of tens of thousands of small and midsize factories here and in other coastal regions, forcing laborers to scramble for other jobs or return home to the countryside.
The slowdown also inhibits the ability of China 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, Wang and other 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 Wang, he said.
"I plan to return home once I get my money," Wang said as he stood outside the factory 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. (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, Kroeber said.
The social problems arising from the slowdown is thought to have stirred anxiety in the top leadership of the Chinese Communist Party. 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 introduced a stimulus package worth $586 billion over the next two years ? the largest ever announced in China ? to help create jobs, mostly by building transportation infrastructure.
Foreign governments expecting China to take the lead in addressing the global crisis will be disappointed, analysts and scholars say. Chinese officials say they are focused on trying to ease domestic problems and keeping the country's annual economic growth rate above 8 percent, which they see as vital to generating enough jobs. Some analysts say economic expansion could drop to as little as 5.8 percent in the fourth quarter this year, down from about 11 percent in 2007.
"I think China foresees that it'll need to spend a lot of money to get itself out of the current domestic situation," said Victor Shih, an assistant professor of political science at Northwestern University who studies the political economy of China. "On the global financial crisis, China will not take a leading role."
The mass layoffs have led to a profound change this year in the movements of migrant workers like Wang, who spend virtually the entire year away from home. Many are heading home early for the Chinese New Year, in late January, and say they might not return to work in the coastal regions. A worker in the railway station in Guangzhou said that from Oct. 11 to Oct. 27, there were 1.17 million passengers on trains leaving the station, an increase of 129,000 over the same period last year. There have been reports of a similar jump in other regions.
Once in the interior, the workers will have less incentive than before to return to the coastal provinces. Rising grain prices have made farming more profitable. The Chinese government announced changes to rural land policies last month that could spur some farmers to stay on their land and make better use of it.
A growing number of factories have opened in the interior provinces as well. Wages are still lower than on the coast, but have risen quickly in recent years.
In Zhangmutou, a town here in the Dongguan area, many of the 7,000 workers who lost their jobs when a Hong Kong-owned toy factory called Smart Union shut down last month have returned home. Li Dongmei, a former human resources employee, said her two older brothers who worked in the factory had taken the 20-hour bus ride home to Hunan Province. Li, though, still lives across from the abandoned factory building because she is eight months pregnant.
"This place isn't too stable economically," Li, 25, said as she sat on a terrace outside her cramped apartment. "Guangdong isn't so good anymore."
As was the case with the Weixu shoe factory, Smart Union closed without any notice, and hundreds of angry workers poured into the streets to demand that the local government pay them back wages. Many such factories were run by Taiwan or Hong Kong managers who fled the mainland. The mainland Chinese police and courts have limited reach in Hong Kong, which has a separate legal system, and they have almost no ability to prosecute people in Taiwan, which does not have formal political or diplomatic relations with the mainland.
The wave of factory shutdowns is taking place at a time when migrant workers are more aware than ever of their legal rights and know-how to put pressure on local governments. Two national labor laws were enacted in January that, among other things, require companies to pay severance and give out more long-term labor contracts. The laws could lead to more labor disputes and protests, said Mary Gallagher, director of the Center for Chinese Studies at the University of Michigan.
"Increasingly, the migrant workers know their rights," she said.
Here in Chang'an, nearly 200 workers showed up outside the south gate of the four-story Weixu factory Tuesday to demand from the government severance payments that generally ranged from $1,500 to $3,700 each. They signed their names on a list and put a red fingerprint stamp next to each signature.
"No one's gotten this subsidy yet," said a woman from Qinghai Province who spoke on condition of anonymity because local officials had scolded her for talking to a local newspaper. "The government has been helpful in giving us our back pay, but it hasn't been helpful in paying the subsidy."
The Taiwan chairman of the shoe factory, Zhuang Jiaying, did not return calls seeking comment. The collapse of the factory started a domino effect: Related businesses, like a smaller factory that put labels on Weixu's shoe boxes, have also failed. Hundreds of additional laborers have lost their jobs, and more than 200 creditors have yet to collect millions of dollars, said Yang Qiusheng, the manager of the factory that handled the labels.
"I had to fire people who had worked for me for a long time," he said. "When I see this shoe factory, this enterprise, I feel very sad and sorry. I never thought it would end like this."