DONGGUAN, China (AFP) — At least 2.7 million factory workers in southern China could lose their jobs as the global economic crisis hits demand for electronics, toys and clothes, according to industry estimates.
The region has seen massive export-driven expansion in recent years by supplying the world with cheap consumer goods, but rising production costs and falling US and European demand have marked a swift end to the boom.
Now 9,000 of the 45,000 factories in the cities of Guangzhou, Dongguan, and Shenzhen are expected to close before the Chinese New Year in late January, the Dongguan City Association of Enterprises with Foreign Investment estimates.
By then, the association expects overseas demand for products from the three manufacturing hubs to have shrunk by 30 percent, as the knock-on effects of the US housing market collapse and credit crunch filter down to Chinese workers.
"I am afraid it is not going to look good on the Chinese government if the decline of the export-led industries and the unemployment problem continue to worsen," Eddie Leung, the association's president told AFP.
Leung, also a member of the Chinese Manufacturers' Association, said the estimate of 2.7 million job losses was conservative, given that many of the larger factories in Guangdong province employ thousands of workers.
One of them, Hong Kong-listed Smart Union, a major toy manufacturer in Dongguan supplying US giants Mattel and Disney, closed its doors last week, leaving 7,000 workers out of work and with several weeks of back pay owed.
Clement Chan, chairman of the Federation of Hong Kong Industries, said a quarter of the 70,000 Hong Kong-owned companies in southern China, 17,500 businesses, could go to the wall by the end of January.
Describing the likelihood as a "worst case scenario," he said Hong Kong firms in the region employed a total of 10 million workers, but did not want to speculate on the extent of possible job losses.
While small and medium-sized factories are especially prone, the threat of lay offs looms just as large over the region's manufacturing giants, further squeezed by the appreciation of the yuan.
Harry To's Mansfield Manufacturing is a classic example of the spectacular growth in China's industrial heartland over the last three decades.
To started a metal business from a small room in Hong Kong in 1975. In 1991, he joined hundreds of other Hong Kong entrepreneurs moving their production across the border into China to take advantage of cheap labour and land.
He now employs 8,500 workers in 11 factories in China and Europe. His six factories in Dongguan cover 140,000 square meters (1.5 million square feet).
To's company, which is now a subsidiary of Singapore-listed InnoTek Ltd. supplies metal components for cars, plasma televisions, printers and other electrical appliances to Japanese brands including Canon, Toshiba, Epson, Minolta and Fuji-Xerox.
Business for the company, among the largest in its field in China, has grown by 40 percent annually in recent years, but with credit being harder to come by, no manufacturer is safe, he said.
"With banks being so tight on their lending policies now, bringing down a factory overnight has now become very easy."
All his expansion plans have had to be put on hold.
"Some of our long-time Japanese and European clients have asked us to stop producing for them in the next two to three weeks," he said.
"They said they did not want to have too much stock piled up in their warehouse as demand continues to dwindle."
To recently started building a new 70,000 square metre factory in Dongguan and was planning to hire 2,000 more workers later this year. But now, all work on the unfinished factory has stopped until more orders roll in.
"No one would expand their business when the prospects for the entire manufacturing industry look so grim," he said.
Instead of hiring more workers, To is looking at cutting 1,000 employees across his operations.
But far from being downhearted, he is shifting part of the company's export-led production to developing energy-saving electrical appliances for the domestic market, which he sees as weathering the current financial turmoil.
"In the long run, I am confident that mainland Chinese consumers' purchasing power will keep rising as their Western counterparts continue to lose out."
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