By NORIHIKO SHIROUZU The Wall Street Journal
DONGGUAN, China -- Workers have flocked to southern China for plentiful manufacturing jobs in industries that offer better pay than farm work. Now, they are finding themselves in an unusual jam: lining up for increasingly scarce employment.
On a recent Saturday, Dongguan was rife with trademarks of a thriving southern China city, with smog-choked skies and cars honking in traffic. But in the midst of the bustling scene some 2,000 people, many of them newly out of work, were trying to land jobs at an outdoor employment fair in front of the city's railway station.
Most were victims of a severe slowdown in China's toy, textile and plastics industries. "It's very difficult to find jobs these days; people worry a lot about the future," said Li Wuhui, 28 years old, who was fired a few weeks ago from his job as a sales manager at a factory that makes capacitors.
As the global slowdown weakens demand for China's exports, signs of weakness are spreading. Bankruptcies and unemployment are growing throughout southern China, one of the country's main manufacturing zones.
China's customs agency recently reported that half of China's toy exporters that it tracks -- some 3,600 companies -- were driven out of the market in the first seven months of this year. A majority of those were in and around Dongguan, often called the toy-making capital of the world.
It isn't clear whether all of the companies were driven out of business by softening sales. Government policies, set in motion before the current slowdown, were designed to upgrade the economy and improve living conditions, but have raised costs for employers in labor-intensive industries.
Official unemployment data in China are unreliable because government agencies don't tally workers who aren't registered with local governments. In places like Dongguan, unregistered migrant workers comprise a huge share of the work force.
By early spring, according to the Dongguan Association of Foreign-invested Enterprises, some 9,000 factories could shutter their operations in Guangdong, the province that includes Dongguan, resulting in more than 2.7 million new job losses.
Higher prices for energy and raw materials have driven up costs. The Chinese currency has appreciated, which tends to make Chinese-produced goods more expensive overseas. Tougher enforcement of environmental-protection policies has raised costs, as has a new labor law that makes it harder for companies to lay off workers and forces employers to pay for more benefits.
Early this year, those trends already were prompting manufacturers -- especially those from overseas -- to ditch China for certain types of manufacturing, and shift to Vietnam, Cambodia, Bangladesh or Mexico.
Rising unemployment has huge potential ramifications for China's government. Beijing has sought to grow its economy rapidly in recent decades, in part by encouraging exports, in order to soak up huge population flows from rural areas to cities.
The policy was so successful that officials saw an opening in the past two years to upgrade China's industrial base toward more high-tech products, despite the short-term disruptions that shift might cause.
Officials didn't foresee the sudden slowdown triggered by the current global financial crunch. The slump has raised fears among government policy makers that large-scale factory closures could lead to widening unrest. It also could stall the rise in prosperity that has underpinned support for the ruling Communist Party since economic reforms started 30 years ago.
GST Autoleather, a maker of automotive leather products from Southfield, Mich., recently terminated Chinese production of leather products for Japan's Honda Motor Co. GST sent the production, about $11 million annually, to its facilities in Mexico.
China's export-tax refund rates may go still lower. "It certainly forces us to take a look at shifting more production out of China" and into other countries such as Vietnam and Thailand, said Joe Cooley, vice president of sales for GST's Chinese unit in Shanghai.
By year end, Japanese digital camera maker Olympus Corp. plans to begin producing its lower-end digital-camera lenses and lens-and-zoom units in Vietnam instead of its Chinese factories in Shenzhen and Guangzhou. The company made the change in part because of rising costs in China, according to Kazuya Abe, a senior Olympus executive in Shenzhen.
Beijing is trying to reverse course on export-tax refunds to help them improve profit margins and slow the pace of job losses, but foreign investors are skeptical about whether the moves will last. Over the long term, they believe China will continue to reduce the incentives. The policy is meant in part to improve air and water quality in China. And the tax changes may not be enough to help many small Chinese factories that have been hit by the slump. At the job fair in Dongguan, Zhou Fang, a human-resources manager for an electronics factory, took in 20 résumés during the three-hour fair, 18 of which she said came from people who recently lost jobs. "Just a year ago, wages were rising steadily as we grappled with labor shortages," Ms. Zhou said. "Now, there are so many people available."
—Gao Sen, Kersten Zhang and Sue Feng contributed to this article.
On a recent Saturday, Dongguan was rife with trademarks of a thriving southern China city, with smog-choked skies and cars honking in traffic. But in the midst of the bustling scene some 2,000 people, many of them newly out of work, were trying to land jobs at an outdoor employment fair in front of the city's railway station.
Most were victims of a severe slowdown in China's toy, textile and plastics industries. "It's very difficult to find jobs these days; people worry a lot about the future," said Li Wuhui, 28 years old, who was fired a few weeks ago from his job as a sales manager at a factory that makes capacitors.
As the global slowdown weakens demand for China's exports, signs of weakness are spreading. Bankruptcies and unemployment are growing throughout southern China, one of the country's main manufacturing zones.
China's customs agency recently reported that half of China's toy exporters that it tracks -- some 3,600 companies -- were driven out of the market in the first seven months of this year. A majority of those were in and around Dongguan, often called the toy-making capital of the world.
It isn't clear whether all of the companies were driven out of business by softening sales. Government policies, set in motion before the current slowdown, were designed to upgrade the economy and improve living conditions, but have raised costs for employers in labor-intensive industries.
Official unemployment data in China are unreliable because government agencies don't tally workers who aren't registered with local governments. In places like Dongguan, unregistered migrant workers comprise a huge share of the work force.
By early spring, according to the Dongguan Association of Foreign-invested Enterprises, some 9,000 factories could shutter their operations in Guangdong, the province that includes Dongguan, resulting in more than 2.7 million new job losses.
Higher prices for energy and raw materials have driven up costs. The Chinese currency has appreciated, which tends to make Chinese-produced goods more expensive overseas. Tougher enforcement of environmental-protection policies has raised costs, as has a new labor law that makes it harder for companies to lay off workers and forces employers to pay for more benefits.
Early this year, those trends already were prompting manufacturers -- especially those from overseas -- to ditch China for certain types of manufacturing, and shift to Vietnam, Cambodia, Bangladesh or Mexico.
Rising unemployment has huge potential ramifications for China's government. Beijing has sought to grow its economy rapidly in recent decades, in part by encouraging exports, in order to soak up huge population flows from rural areas to cities.
The policy was so successful that officials saw an opening in the past two years to upgrade China's industrial base toward more high-tech products, despite the short-term disruptions that shift might cause.
Officials didn't foresee the sudden slowdown triggered by the current global financial crunch. The slump has raised fears among government policy makers that large-scale factory closures could lead to widening unrest. It also could stall the rise in prosperity that has underpinned support for the ruling Communist Party since economic reforms started 30 years ago.
GST Autoleather, a maker of automotive leather products from Southfield, Mich., recently terminated Chinese production of leather products for Japan's Honda Motor Co. GST sent the production, about $11 million annually, to its facilities in Mexico.
China's export-tax refund rates may go still lower. "It certainly forces us to take a look at shifting more production out of China" and into other countries such as Vietnam and Thailand, said Joe Cooley, vice president of sales for GST's Chinese unit in Shanghai.
By year end, Japanese digital camera maker Olympus Corp. plans to begin producing its lower-end digital-camera lenses and lens-and-zoom units in Vietnam instead of its Chinese factories in Shenzhen and Guangzhou. The company made the change in part because of rising costs in China, according to Kazuya Abe, a senior Olympus executive in Shenzhen.
Beijing is trying to reverse course on export-tax refunds to help them improve profit margins and slow the pace of job losses, but foreign investors are skeptical about whether the moves will last. Over the long term, they believe China will continue to reduce the incentives. The policy is meant in part to improve air and water quality in China. And the tax changes may not be enough to help many small Chinese factories that have been hit by the slump. At the job fair in Dongguan, Zhou Fang, a human-resources manager for an electronics factory, took in 20 résumés during the three-hour fair, 18 of which she said came from people who recently lost jobs. "Just a year ago, wages were rising steadily as we grappled with labor shortages," Ms. Zhou said. "Now, there are so many people available."
—Gao Sen, Kersten Zhang and Sue Feng contributed to this article.
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