In February, friends Jay Wang and Zhou Ping were among the millions of Chinese manufacturers battling to resume production after the coronavirus outbreak shuttered key industrial sectors across the economy.
But when the pair finally managed to restart their separate operations last month, after rigorous quarantining of workers and disinfection of factory floors, they encountered an even bigger problem: clients from Europe and the United States were suspending orders as the pandemic spread throughout the rest of the world.
“In late February, I took orders for more than 90,000 pairs of shoes, but 80,000 were cancelled last week,” said Wang, who like Zhou has run a factory in the industrial and export hub Dongguan in southern China for about a decade.
With a global recession all but a certainty this year, the outlook is increasingly grim for the long-time friends and scores of other firms like theirs in the Pearl River Delta city, where many factories remain closed and the streets are largely empty.
In late February, I took orders for more than 90,000 pairs of shoes, but 80,000 were cancelled last week
The fate of their businesses underlines the challenges facing Beijing as it tries to restart China’s industrial engine and prevent the world’s second largest economy tipping over into an economic contraction in the first quarter for the first time since 1976.
“The current situation is becoming very pessimistic, and many of foreign buyers have called to suspend their orders in the past couple weeks,” Zhou said.
“My workers were expediting orders for an April 3 shipment to one of our biggest customers from Italy. But the trading agent called yesterday and asked us to hold it.
“An order from a Japanese customer is still in production, but I don’t dare call him because I’m afraid he will cancel it.”
An order from a Japanese customer is still in production, but I don’t dare call him because I’m afraid he will cancel it
Both companies will ask most of their workforce to take leave on minimum wage in mid-April or May because of the worsening situation overseas.
“Many factories like us had already paid in advance to buy raw materials, and the current trend of increasing cancellations and postponements of orders increases risk and uncertainty,” Zhou said.
Dongguan, once a centre of labour-intensive manufacturers from shoes to electronics, started to lose its shine following the global financial crisis in 2008-2009 and it is no longer so appealing to China’s estimated 290 million rural migrant workers.
While the industrial hub was once thriving with commerce, rows of empty stores and restaurants, peppered with for lease and sale signs, are common features of the cityscape today.
The cancellation of export orders, which have kept local factory owners awake at night, is also of growing concern for China’s leaders as the country braces for a second wave economic shock as Covid-19 saps consumer demand in Europe and the US.
The early impact of the virus on China’s economy was laid bare in recent economic data, which showed industrial production, investment and exports plunged in the double digits in the first two months of the year.
President Xi Jinping has said China, which exported US$2.5 trillion worth of products in 2019 – making it the world’s largest exporter – needs to work hard to ensure its position in the global value chain.
Xu Xiaonian, a professor of economics and finance at China Europe International Business School, said last week that China was headed for a severe economic downturn due to its reliance on overseas markets.
“China not only lacks food and oil but also a market for orders. Our per capita [gross domestic product] is about a fifth of that in the US and a quarter of Europe. China’s domestic purchasing power just cannot support our huge manufacturing capacity,” said Xu in a speech.
Slumping overseas demand is already beginning to ripple through Dongguan’s job market.
Li Dian and Zhang Qing – both in their 20s – arrived in the city from Hunan province, some eight hours drive to the north, to look for a “good factory” job offering a monthly salary of at least 4,000 yuan (US$563), a day off a week and free food and accommodation
As they stood in line at a recruitment agency office, they said they had already found wages were lower than last year, but they wanted to start work as soon as possible.
China not only lacks food and oil but also a market for orders. China’s domestic purchasing power just cannot support our huge manufacturing capacity
“My parents were scared [about the outbreak] and didn’t allow us to leave home until late March,” Li said. “We’ve been looking for a good factory in Dongguan but found many factories have stopped recruitment. We want to find a stable factory as soon as possible...but many are laying off workers.”
The number of jobseekers in Dongguan is much smaller than usual but demand for staff is shrinking even faster, leading to reduced wages which have not been seen in the city for at least a decade, local labour agencies said.
The second quarter is usually peak season for hiring as factories need as many hands as possible to prepare deliveries, said Zhang Xi, a recruitment agent in Liaobu township in Dongguan.
“Factories usually ask for a lot of workers on a temporary basis, but this year many have frozen hiring or even cut jobs,” he said, adding the hourly rate for temporary workers has fallen from 16 yuan (US2.25) to as low as 13 yuan in recent weeks.
On a poster advertising job listings outside one labour agency named Zaomeng, or ‘dream making’, an electronics company had crossed out an hourly rate of 17 yuan with pencil and scribbled 15.
Nearby, electronics manufacturer VTech advertised positions with monthly salaries of between 3,000 yuan to 5,500 yuan at the entrance to its factory in Liabou. Young jobseekers huddled around a recruitment booth to register their personal information and flash their health QR code to prove they were safe to hire.
The weak state of the local economy is also trickling down to small vendors and restaurants that depend on migrant workers.
Standing in his empty restaurant on the corner of a deserted road in Liabou, Li Tian lamented that his daily revenues no longer covered his costs, forcing him to recently sack his only waiter.
“Restaurants have closed one after another,” said Li, who is in his 50s and now runs the eatery with just his wife. “My wife thinks maybe we should close the restaurant and look for factory jobs – but it’s not easy to find a factory job at my age.”
Beijing has been publishing numbers to show that the economy, especially construction and production, has been returning to normal and the government is stepping up its stimulus, pumping money into the banking system and accelerating state-led investments.
Dongguan’s government has yet to provide economic indicators for the first two months of this year, but the municipal authority has claimed that all but five of its 284 “key investment projects” – mostly in infrastructure – had resumed by late March.
But the quiet streets of the city tell another story. While there is a dearth of hard data to show the state of manufacturing in Dongguan, anecdotal evidence indicates unemployment and factory closures are getting serious, damaging factories that have been in the city for decades and contributed to China’s export boom.
Good Will Watch, a watch manufacturer that has been operating in Dongguan since the 1990s, has encouraged staff to resign after its largest client, US watch retailer Fossil, shut all its stores in North America and Europe due to the coronavirus outbreak, internal documents leaked to social media showed last month.
The local labour and social security authority confirmed on March 24 that the company was encouraging its employees to resign or take leave “voluntarily”.
Another local company, Fantastic Toys, an 18-year-old factory operation that at its peak employed 1,200 workers, recently collapsed after orders dried up, leaving some workers with unpaid salaries, the labour authority said last month. The company’s legal representative has gone incommunicado and the landlord has been ordered to pay the outstanding wages instead.
China’s official nationwide jobless rate surged to an all-time high of 6.2 per cent at the end of February, a figure that did not include migrant workers.
And the situation could get a lot worse for places like Dongguan, where half a million small businesses and factories are registered, if export orders continued to slide.
An employee at a local labour agency, who did not want to be identified, said the downturn was broad based.
“Toy factories, shoe factories, and electronics factories...have been cutting recruitment,” the agent said. “If a good factory needs about 50 workers, it easily has 200 applicants to choose from.”
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This article Coronavirus: China manufacturing hub Dongguan faces grim test as global export orders vanish first appeared on South China Morning Post