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MELISSA BLOCK, host

This is All Things Considered from NPR News. I'm Melissa Block.

MICHELE NORRIS, host:

And I'm Michele Norris. The once miraculous Chinese economy is sputtering into slowdown just as the world is counting on it to be a leading engine of growth. One sign of that slowdown is the struggling export sector which has driven 30 years of double-digit growth rates. NPR's Louisa Lim got a firsthand look at those problems on a visit to Dongguan, a major manufacturing hub in the south of China.

(Soundbite of talking plastic Halloween gargoyle)

LOUISA LIM: A talking plastic Halloween gargoyle has pride of place in Mr. Su's office. His factory has been making such gadgets for the past 15 years, in its own small way contributing to China's economic miracle. But now that miracle seems to be going sour.

(Soundbite of talking plastic Halloween Gargoyle)

Mr. SU (Toy Factory Owner): (Through Translator) There's almost no profit. Raw materials have gone up, the cost of labor has gone up, inflation. Everything's gone up except for the cost of the product.

LIM: His factory floor is uncharacteristically quiet. Normally, a hundred workers would be toiling here. Now he's only keeping on 20. Wages have gone up by around 20 percent in the past year because of a new labor law protecting Chinese workers. Raw materials are about 30 percent more expensive. And the Chinese currency has strengthened by about nine percent over the year, meaning Chinese goods are getting pricier. For Mr. Su who exports almost all his toys to the U.S., the financial turmoil is the last straw. It's unlikely Americans will have any spare cash to buy talking plastic gargoyles.

Mr. SU: (Through Translator) It's an economic tsunami. America's problems are washing over Asia and the whole world. It's like an economic world war.

LIM: So far, he's one of the luckier ones. Xinhua News Agency says nearly 80 percent of toy factories in Guangdong province have closed, along with almost half the shoe factories. According to one state-run newspaper, 37 percent of Dongguan businesses are losing money.

Mr. CHRIS CROSSING (Lighting Factory Owner): We've probably lost 40 to 45 percent of our turnover in the last four months. We have for the first time in 10 years no orders on the books for November and December.

LIM: Australian expat Chris Crossing owns a lighting factory in Dongguan. He says smaller business producing low-end goods are hurting badly. And the rash of bankruptcies will affect American consumers.

Mr. CROSSING: I believe that basic necessities that we all take for granted - the plastic clothes baskets, the plastic pegs, the toothpicks that we all buy in our local supermarkets - they are going to be hard to find in the future, because they're just not being produced in China because the companies are not there any longer.

LIM: Exports account for around a third of China's economic growth. So, many economists are revising their China growth estimates down to single digits for almost the first time in 30 years. Austin Dolezal, who works for Skechers shoes in China, says price tags for made-in-China goods will go up.

Mr. AUSTIN DOLEZAL (Executive, Skechers, China): Yes, in the end, the consumer has to start paying a bit more. They can't go on forever getting these low prices and then lower and lower prices if that cycle has come towards an end.

LIM: Things are so bad in factories here, the local authorities have put together their own bailout package of $150 million for struggling businesses. But much of the problem was actually created by the central government in Beijing rather than by the economic turmoil. Harley Seyedin, the president of the American Chamber of Commerce in South China, says this slowdown was the result of deliberate action by the government.

Mr. HARLEY SEYEDIN (President, American Chamber of Commerce, South China): The majority of this happened because of the changes in regulations last year deliberately decided by the Chinese government in order to slow down the economy, one; and two, move away from the reprocessing, labor-intensive, environmentally unfriendly, and energy-intensive kind of companies. And certainly some companies have suffered as a result of that.

LIM: With unemployed workers crowding the local labor exchange, some economists believe the government was too aggressive in forcing change. State-run newspapers say 20 million Chinese workers have lost their jobs in the first half of this year. China's Communist Party has based its legitimacy on the promise of economic prosperity and rising living standards. It's kept that promise for three decades, but the perfect storm created by its own reforms and the financial turmoil overseas could mean trouble ahead. Louisa Lim, NPR News, Dongguan, China.

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