Men looked for work in Chang’an, China, a town in the coastal region that had fueled China’s export growth.

By EDWARD WONG

CHANG’AN, China - Wang Denggui, father of three, arrived more than a year ago in the palm-lined streets of this southern town with a single goal: toil in a factory to save for his children’s school tuition.
But the plans of Mr. Wang and thousands of co-workers unraveled at noon on November 1, when the Taiwanese chairman of their ailing shoe factory climbed over a factory wall to flee the country and his debts. That left several American shoe companies with unfilled orders and 2,000 workers without jobs.
“He just ran without telling anyone,” Mr. Wang said.
For decades, the steamy Pearl River Delta area of southern Guangdong Province served as a primary engine for China’s astounding economic growth. But an export slowdown that began earlier this year and that has been magnified by the global financial crisis of recent months is contributing to the shutdown of tens of thousands of small and mid-size factories here and in other coastal regions, forcing laborers to scramble for other jobs or return home to the countryside.
Furthermore, the slowdown inhibits China’s ability to work with other nations in alleviating the global crisis.
The Pearl River Delta, known as the world’s factory, powered an export industry that pushed China’s annual growth rate into the double digits and provided work for migrants from interior provinces with poor farmland. But circumstances have changed quickly. The slowdown in exports contributed to the closing of at least 67,000 factories across China in the first half of the year, according to government statistics. Labor disputes and protests over lost back wages have surged, igniting fear in local officials.
Local officials are also trying to tamp down unrest by doling out back wages. In Chang’an, after the protest, the government distributed more than $1 million to pay back wages to most of the workers at the shoe factory.
The slowdown in exports has accelerated a major shift in the nature of Chinese manufacturing: small factories that were already being pinched by rising costs of labor, transportation and raw materials, as well as by the appreciating yuan, are closing en masse. That is especially the case in these towns scattered around the city of Dongguan, known for churning out low-end products. Soon the labor-intensive factories that rely solely on migrant work could disappear from southern China, and foreign companies could contract with similar factories in Vietnam and other countries where costs are lower.
“There’s very serious damage being done there, and I think it’ll get worse because we haven’t seen the full impact of the economic downturn in Europe,” said Arthur Kroeber, managing director of Dragonomics, an economic research and advisory based in Beijing. “I think next year we might see export growth in the country as a whole go down to 0 percent.”
The export sector is still growing but has slowed considerably; year-on-year growth was at 9 percent in October compared with 26 percent in September 2007, Mr. Kroeber said.
The mass layoffs have led to a profound change in the movements this year of migrant workers like Mr. Wang who spend virtually the entire year away from home. Many are heading home early for the Chinese New Year, in late January, and say they might not return to work in the coastal regions.
Once in the interior, the workers will have less incentive than in the past to return to the coastal provinces. Rising grain prices have made farming more profitable. The government recently announced a rural land reform that could spur some farmers to stay on their land and make better use of it.
The social problems arising from the slowdown have stirred anxiety in the top leadership of the Communist Party, whose legitimacy is based on maintaining economic growth. Prime Minister Wen Jiabao is pushing for policies that will increase domestic consumer consumption to wean China off its reliance on exports. Recently, the government unveiled a stimulus package worth $586 billion over the next two years to help create jobs .
Foreign governments expecting China to take the lead in addressing the global crisis will be disappointed, say analysts and scholars. Chinese officials say they are focused on trying to ease domestic problems and keeping the country’s annual growth rate above 8 percent . Some analysts say growth could drop to as little as 5.
8 percent in the fourth quarter this year, down from about 11 percent in 2007.
“I think China foresees that it’ll need to spend a lot of money to get itself out of the current domestic situation,” said Victor Shih, an assistant professor of political science at Northwestern University . “On the global financial crisis, China will not take a leading role.”