Trouble in the World's Factory: Slowing Economy Spurs Disquiet in China

By Wieland Wagner

With factories running out of money and workers fearing for their wages, the global crisis has hit China at full tilt. The country's political leadership is implementing aggressive countermeasures.

An eerie quiet has descended on the world's factory, especially in places where machines are suddenly at a standstill. In Dongguan in southern China's Pearl River Delta, hundreds of workers from the bankrupt Weixu shoe factory march silently through the city, causing traffic jams on wide streets usually crowded with a constant stream of heavily loaded trucks.

Dongguan is an important motor in the Chinese export machine. The city, not far from Hong Kong, is home to row after row of low-wage factories. The streets are normally empty during the day. At Weixu, for example, migrant workers lived in dormitories directly on the factory grounds, crowded into small, multiple-occupancy rooms.

Factory workers smashed up an office during a protest at Kaida toy factory in Dongguan, Guangdong province in November.
REUTERS

Factory workers smashed up an office during a protest at Kaida toy factory in Dongguan, Guangdong province in November.

But now the drudges are out in public, staging street demonstrations somewhere in Dongguan almost every day. Many factories are running out of money and work now that China's consumers in Europe and the United States are buying less.

The 2,000 Weixu workers do not carry protest signs or use whistles. China does not permit unions that could organize the protests. The men and women, many of them looking young enough to be teenagers, are driven by rage, demanding wages which haven't been paid in months. Their boss, a Taiwanese, fled the city at night.

One worker, who calls herself "Little Li," affixed shoe-size labels to boxes until recently. One day at noon, as she reports, she and other workers overheard suppliers at the factory gate loudly demanding payment for their goods. "We stopped work immediately," she says.

By working overtime, which is common, 24-year-old Li earned up to €130 ($172) a month, twice as much as the paltry minimum wage. But now she lacks the money for a rail ticket back to her native Yunnan Province. She is anxious to leave the Pearl Delta region and is pinning her hopes on promises made by the local government to pay each worker.

The woman is in luck. With the Chinese authorities fearing major unrest, municipalities in the region have been paying workers their outstanding wages with a surprising lack of bureaucracy. It is a program that China can easily afford. It has the world's largest foreign currency reserves: about $1.9 trillion (€1.5 trillion).

The crowds jostling at train stations in the Pearl River Delta are almost as thick as they are during the traditional Chinese New Year festival. Migrant workers are returning to rural areas in large numbers, going home to their families to weather the crisis by growing crops in their own fields once again.

The global economic crisis is hitting China with such force that the government and party have been completely taken by surprise and are increasingly overwhelmed. Even though the police are under strict orders not to provoke demonstrators, friction is growing in Dongguan.

At Kaida Toys, a toy factory owned by investors from Hong Kong, 500 angry workers stormed the administration building last week, smashing windows and computers. Then the crowd tangled with about 1,000 police officers, even turning over squad cars.

More and more protests are flaring up around the country. In the capital Beijing, angry workers picketed the corporate headquarters of liquor-maker China Resources, holding signs demanding the payment of their outstanding wages. Taxi drivers went on strike in Chongqing and other cities.

The protests may be just the beginning. The People's Republic of China, whose economy grew at an astonishing 11.9 percent in 2007, is suddenly feeling the extreme extent to which it depends on the global economy.

Until recently, many Chinese economic experts took a completely different view of the situation. Encouraged by Western economists, they believed that China was in the process of economically "decoupling" itself from the West.

Graphic: Enormous dependency
DER SPIEGEL

Graphic: Enormous dependency

Sounding almost generous, Prime Minister Wen Jiabao noted that China's greatest contribution to the world will continue growing strongly and smoothly. But he failed to explain how that will happen if the main buyers of Chinese mass-produced goods, most of all the United States, are ailing.

Meanwhile, "Grandpa Wen," as the Chinese call their premier, is traveling hastily through the country, and he is apparently horrified by what he sees. "Factors that harm social stability will increase," he warned in the party publication Qiushi (Seeking Truth).

In the past, Wen and his Communist Party strategists viewed growth of eight percent as a magical minimum to preserve social stability and, with it, party control. But last week the World Bank announced its forecast of only 7.5 percent growth for China next year.

It sounds like a lot -- by Western standards. The economies of the major industrialized countries can only dream of such growth rates, even during economic booms. But it is not a lot, given the double-digit growth rates of the last five years and the country's problems. For this reason, the Chinese government is determined to take decisive counter-measures. It plans to invest about €450 billion ($563 billion) in new projects, including bridges, railways and airports, to stimulate flagging growth.

It will be nearly impossible to verify how much of this giant sum China ends up spending. But the party's principal aim is to broadcast a calming message, which President Hu Jintao announced to the world in time for the G-20 summit in Washington: Look at us, we have the situation under control.

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