Bankruptcies, unemployment and social unrest are spreading more widely in
China than officially reported, according to independent research that
paints an ominous picture for the world economy.
The research was conducted for The Sunday Times over the last two months in
three provinces vital to Chinese trade – Guangdong, Zhejiang and Jiangsu. It
found that the global economic crisis has scythed through exports and set
off dozens of protests that are never mentioned by the state media.
While troubling for the Chinese government, this should strengthen the
argument of Premier Wen Jiabao, who will say on a visit to London this week
that his country faces enormous problems and cannot let its currency rise in
response to American demands.
The new US Treasury secretary, Timothy Geithner, has alarmed Beijing and
raised fears of a trade war by stating that China manipulates the yuan to
However, a growing number of economists say the unrest proves that it is not
the exchange rate but years of sweatshop wages and income inequality in
China that have distorted global competition and stifled domestic demand.
The influential Far Eastern Economic Review headlined its latest issue “The
coming crack-up of the China Model”.
Yasheng Huang, a professor at the Massachusetts Institute of Technology, said
corruption and a deeply flawed model of economic reform had led to a
collapse in personal income growth and a wealth gap that could leave China
looking like a Latin American economy.
Richard Duncan, a partner at Blackhorse Asset Management in Singapore, has
argued that the only way to create consumers is to raise wages to a legal
minimum of $5 (£3.50) a day across Asia – a “trickle up” theory.
The instability may peak when millions of migrant workers flood back from
celebrating the Chinese new year to find they no longer have jobs. That
spells political trouble and there are already signs that the government’s
$585 billion stimulus package will not be enough to achieve its goal of 8%
growth this year.
The American economist Nouriel Roubini said growth figures of 6.8% in the
fourth quarter of 2008 masked the reality that China was already in
recession – a view privately shared by many Chinese financial analysts who
dare not say so in public.
Even security guards and teachers have staged protests as disorder sweeps
through the industrial zones that were built on cheap manufacturing for
multinational companies. Worker dormitory suburbs already resemble ghost
In the southern province of Guangdong, three jobless men detonated a bomb in a
business travellers’ hotel in the commercial city of Foshan to extort money
from the management.
The Communist party is so concerned to buy off trouble that in one case,
confirmed by a local government official in Foshan, armed police forced a
factory owner to withdraw cash from the bank to pay his workers.
“Hundreds of workers protested outside the city government so we ordered the
boss to settle the back pay and sent police armed with machine-guns to take
him to the bank and deliver the money to his workforce that very night,” the
On January 15 there were pitched battles at a textile factory in the nearby
city of Dongguan between striking workers and security guards.
On January 16, about 100 auxiliary security officers, known in Chinese as Bao
An, staged a street protest after they were sacked by a state-owned firm in
Shenzhen, a boom town adjoining Hong Kong.
About 1,000 teachers confronted police on the streets of Yangjiang on January
5, demanding their wages from the local authorities.
In one sample week in late December, 2,000 workers at a Singapore-owned firm
in Shanghai held a wage protest and thousands of farmers staged 12 days of
mass demonstrations over economic problems outside the city.
All along the coast, angry workers besieged labour offices and government
buildings after dozens of factories closed their doors without paying wages
and their owners went back to Hong Kong, Taiwan or South Korea.
In southern China, hundreds of workers blocked a highway to protest against
pay cuts imposed by managers. At several factories, there were scenes of
chaos as police were called to stop creditors breaking in to seize equipment
in lieu of debts.
In northern China, television journalists were punished after they prepared a
story on the occupation of a textile mill by 6,000 workers. Furious local
leaders in the city of Linfen said the news item would “destroy social
stability” and banned it.
At textile companies in Suzhou, historic centre of the silk trade, sales
managers told of a collapse in export orders. “This time last year our
monthly output to Britain and other markets was 60,000 metres of cloth. This
month it’s 3,000 metres,” said one.
She said companies dared not accept orders in pounds or euros for fear of wild
currency fluctuations. Trade finance has all but ceased. Some 40% of the
workforce had been laid off, she added.
Nearby, in the industrial hub of Changshu, all the talk was of
Singapore-listed Ferro China, which exported steel products to customers in
Britain, Germany, Korea and Japan. Last October its shares were suspended.
The company is reported to have been weighed down by $800m in debts and,
according to the specialist business magazine Caijing, has started a
A researcher found the gates closed and under tight guard, 2,000 employees out
of work and witnesses who told of company vehicles being seized by impatient
creditors. Holders of Ferro China debt include Credit Suisse and Citi-group.
Even in the city regarded as the most entrepreneurial in China, Wenzhou, the
business community is reeling. “We estimate that foreign companies have
defaulted on payments for 20 billion yuan (£20 billion) owed to Wenzhou
firms,” said Zhou Dewen, chairman of the city’s association for small and
“British businessmen are better than other customers because even if they owe
money they can be contacted and promise to pay their bills if they can raise
the cash but many other foreigners just disappear,” he said.
Slumping demand for consumer electronics in Britain has been blamed for the
crisis engulfing the southern city of Shunde, in Guangdong, where a cluster
of 3,000 electrical firms has grown up around big exporters like Kelon, a
“The impact on us from the slowdown in the British market will be huge,” said
a manager at Kelon, who asked not to be named.
Shunde is one of the amazing one-industry Chinese towns that has come from
nothing to generate 20% of China’s export production of domestic electrical
appliances, making 60% of its sales to Europe.
Now the whole province is wrestling with sudden, sharp decline. A researcher
who watched officials handling complaints at a local labour bureau reported
“class hatred” among workers.
“Why did the boss cut your salary? You must be lazy or absent from work,” an
official told one group of petitioners.
“What do you mean? Are you an official of the people’s government or a slave
of the bosses?” demanded an irate worker.
Their claim dismissed, the group warned onlookers: “We are thinking of taking
A legal advocate for migrant workers, Xiao Qingshan, told a tale of violent
intimidation by the state in collusion with unscrupulous businessmen.
On January 9, Xiao said, 14 security officers from the local labour bureau
broke into his office, confiscated 600 legal case files, 160 law books, his
computer, his photocopier, his television set and 100,000 yuan in cash.
“That evening I was ambushed near the office by five strangers who forced a
black bag over my head and then threw me into a shallow polluted canal,” he
said. His landlord has since given him notice to quit his rented home.
Xiao said he was defying bribery and threats to speak to the foreign media
because he wants international businesses to know what is really happening
in “the workshop of the world”.