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Financial Crisis Leaves Dongguan with Nothing (Part I)

Nanfang People Weekly, a weekly magazine under the Guangdong Province’s
state run Nanfang Media Group enterprise, which is noted for
maintaining a more liberal style than other state-run media, published
a three-piece series of interviews with people in Dongguan City,
Guangdong Province, about their personal experiences with the chilling
effect by the global financial crisis. The following is the first
story. [1]

What is happening in Dongguan? What will migrant workers do as jobs disappear? [2]
Dongguan City, Guangdong Province, the base of China’s export-oriented enterprises, grew to be “the world manufacturing factory,” by undertaking a large number of manufacturing and processing industries transferred from Hong Kong and Taiwan. Due to its close proximity to Hong Kong and blessing of China’s Reform and Opening-up policy, Dongguan has become a microcosm of China during the globalization of the free market economy. To some extent, “made in China” is an alias of “manufactured in Dongguan.”

During a short span of 30 years, Dongguan has grown from a little-known small agricultural county, to a very important city in the south of Guangdong Province. In 2007, Dongguan, with a resident population of only 6.5 million people in the prefecture scale, was nearly as rich as a normal province in China, with a GDP over 300 billion Yuan.
However, faced with the financial crisis in the United States starting in the second half of 2008, Dongguan also felt the piercing cold. On many public occasions, China’s Premier Wen Jiabao said what he worried about most was Guangdong province. Since September of last year, newspapers have been reporting that Dongguan was “becoming hollow inside,” with a loss of core industries and production slowing down to screeching halt. Wen Jiabao has visited Guangdong four times within just a few months near the end of last year. Dongguan became more than a local economy, but rather a focal point for him to better understand all of China’s economy.

What is going on in Dongguan? Do those migrant workers who had worked there come back after a short trip home (for Chinese New Year)? Do they find jobs after coming back? What should the second generation migrant workers who grew up in the urban fringe but don’t want to go back to farmland do?

In a sense, observing Dongguan and observing whether those off-farm workers can find jobs is not only a benchmark to explore whether China’s economy has hit the bottom and is ready to rise, but also a critical step to see whether China can achieve its smooth transition (to a balanced, less export-dependent economy) and truly build up a "harmonious society."
Let us start from a group of people in Dongguan including factory owners, adult migrant workers, and the young second-generation migrant workers. Perhaps this critical moment in their lives represents a turning point for tens of millions of people in Dongguan.
 Chen Jingchi, the Village Chief on the Run to Put out Fires [1]
– By reporter Wang Daqi and intern reporter Li Shaoqing, from Dongguan

At noon, our car was running on the spacious road, with the shops on both sides pulling down their metal gates. A few patrons sat sparsely at the entrances of sporadically opening restaurants. The iron gates of the surrounding factories were locked, and only one or two security guards sat bored in front of the factories, entertaining themselves with their cell phones.

Our car turned onto a small street, going through the gate of a leather processing factory. We went upstairs following the factory manager.

“Originally, there were so many workers crowding the room from wall to wall. The endless orders could not be finished on time so they had to be contracted out to some small workshops. However, now you can see that all stopped. Originally, the number of workers in the factory was 800, but now it diminished to around 100.”

Chen Jingchi, the chief of Jiuxibian village, also the manager of the factory felt somewhat depressed when standing in the once clamorous factory, which now stood empty.

Chen Jingchi, a native of Dongguan, is commonly known as the "landlord" by the media. Dongguan was the great base of “made in China.” Almost all the local residents made money by renting out workshops. Because they were able to make a fortune on the spot, they spent most of their time eating, drinking and enjoying except for regular rent collection times.

Smart people established their own factories. Village chief Chen also has his own leather factory, restaurant and hotel. He could earn 4,000 yuan per month by collecting rent from tenants. The rent of the workshops was even calculated by millions of yuan.

In addition, as the village head, he must bear responsibility for the villagers’ dividends. In the past it was said, “The redder (due to wine-drinking) the village chief’s face is, the more dividends the villagers get.” But now he has to think twice even to eat at his own restaurant. The first reason is that the social activities have decreased, and the second reason is that the villagers’ dividends are big issues this year. So many people are staring at him. As a village chief for seven years, he doesn’t dare to eat there.

From Mr. Chen’s experience, we can find that it is not an easy job to be a village chief in the Pearl River Delta, Guangdong Province. He has multiple roles to play with and had to switch hats when communicating with higher up or lower levels. He often goes to meetings in the morning and then collects the rent at factory in the afternoon. He needs not only to take care of his own business but also to resolve the villagers’ disputes. Since the financial crisis began, he often finds himself in the center of the storm, endlessly entangled with all kinds of contradictions and conflicts.

Because of his position, he has not only firsthand experience but also a much soberer realization of the current situation about global economic crisis’ impact on the local economy than other people.

"I Have to Take Pain-Relievers Every Night"

There are two million permanent residents, and even up to eight million off-farm workers in Dongguan. The factory closure and layoff triggered by the financial tsunami, as well as the exodus of a large number of migrant workers have given rise to a chain reaction of other industries. The recession of the manufacturing industry depresses other industries as well.

“I think the government should, without discrimination, give more support to the small and medium sized enterprises under the current circumstances, not only provide support to the so-called high-tech and leading enterprises.” said Chen Jingchi.

In response to the financial crisis, Dongguan city government stipulates that the enterprises which lay off more than ten people must be registered to the relevant departments. If the enterprises are unable to settle financial disputes with the migrant workers after closure, the village committee where the enterprise is located should pay the money in advance. The villages will be compensated after the auction of the enterprises’ assets.

Chen Jingchi said: “The reality is that most of the factories going through lay-offs are struggling. If the factories don’t lay off workers, they have to shut down themselves eventually. Although the bankrupting factories have some equipment to auction, with so many factories shutting down, who will buy the equipments? They can only be sold as waste products. The price of waste products is so low this year that the scrap metal sells for slightly more than 4 yuan per pound. The money collected by the equipment auction is just a drop in the bucket.”

Mr. Chen told the reporters that he had received a fax from Hong Kong last month, with only two lines on it: “I have to shut down the factory because I was unable to operate it.” The sender was the boss who leased the village’s workshop.

When seeing such words, his mind went blank. Finally, he gathered himself to face the reality. He went to the factory with a megaphone in hand to appease the crowd. Under mounting pressure, he took out 2 million yuan from the village committee as the severance pay for the employees. He estimated that the abandoned factory’s equipments were only worth a few hundred thousands yuan. His village had to eat up the loss.

"The money originally belongs to all the villagers. How do we protect our villagers’ interests when using that money to pay for the workers’ salaries?” Chen Jingchi felt that under these circumstances, "the Government should not rob Peter to pay Paul." “After all, it is not a permanent solution to sacrifice the interests of one group to satisfy the interests of another."

Chen Jingchi also told the reporters: "It is good for Dongguan to advocate the industrial transition (from export-oriented labor intensive industries to balanced intellectual property protected industries), but the reality is that there are more than three hundred thousand processing and manufacturing enterprises in Dongguan with nearly eight million employees and a huge revenue. It is not something that can be easily transitioned as you want. For example, our village had one million rent income from these factories every year in the past. Now the biggest factory was closed and another one owes us 12 months’ rent. Three hundred thousand yuan income disappears for our village. If other factories continue to shut down, the consequences would be unimaginable. "

Seeing the factories shutting down one by one and workshops not being able to rent out, Chen Jingchi’s heart is torn. "I have to take pain-reliever every night" to alleviate the worsening headache. He said, “I have stomach bleeding due to overdoses of medicine.” This year, Chen Jingchi reduced the workshop rent to 8,000 yuan from 12,000 yuan per square meter. The store rent was down to 700 yuan from 1,500 yuan. But there still half not rented out.

Chen’s leather factory also had a large layoff, but he didn’t register with the government. Chen argued: “Layoff is the normal behavior of the enterprise. I am not in arrears with salaries, therefore it is not necessary to register.”

 In Chen Jingchi’s view, the layoff is inevitable, "We all had a comfortable life several years ago, and anyone could open a factory to make money. Factories with dozens of people are everywhere. The orders were flooding and the big enterprises could not fulfill all of them, so they contracted out to these small factories. All factories hired workers crazily.

Now the orders at the large enterprises diminish and the small enterprises don’t have orders at all. They have to make some much lower level products. All of us have excess employees in the past. It now results in the vicious cycle. "

The effect must have its cause. Chen Jingchi doesn’t think that the government should put all the employment pressure on business. “Transition is not a slogan. It needs more practical actions (from the government).”

Now there is only one production line in operation in Chen’s factory. It produces the environmental protection bags, much simpler and more practical than the previous produced high-end hand-made schoolbags and suitcases. Chen Jingchi said the orders are the most important thing, the actual product does not matter, as long as he can pay his people salaries.
Finally, he told reporters that the factory would last up to August at most in accordance with the current situation. He would have to shut down his factory if the economic environment doesn’t improve.
“The Owners Are Working on Orders”

Jianhua Hardware Ornament factory which has been in arrears with 12 months’ rent mentioned by Chen Jingchi, is located at Jiuxibian village, Dongcheng District, just at the junction of urban and rural areas of Dongguan.

The scale of the privately-owned factory was quite large before, with 500 to 600 workers. The roar of the factory continued to midnight every day. The mold maintenance master Lao You from Guang’an County in Shichuan Province, who has been here for 8 years, told the reporter: “In the past, because of noise, the villagers often went to the village committee to complain about that. The village committee then came to the factory to coordinate whether the working time could be shortened. But now, no one has come to complain about the noise issue any more. What we are thinking about is how we can work more.”
By the end of 2008, the factory orders slowed down and the crisis of operation started. Many workers left and only 140 workers are still here. Lao You has nothing to do at work. He was reassigned to be a security guard by the factory this year due to “the excess mold maintenance personnel”.

But he is unwilling to be a security guard: “Although the salaries are similar, I have technical skills and don’t want to lose them. What’s more, security is a really boring job."

During the Chinese New Year this year, he went to Houjie and Chang’an job fairs in Dongguan and found it was still relatively easy to find a job for skilled workers like him. By the end of February, he handed in his resignation letter to the factory. But the factory kept him using the excuse that it had no money to pay his last two months’ salary and said that such a technical backbone like he is the irreplaceable resource of the company. Once the economy improves, he will certainly be able to re-apply his skills to work.
Lao You said that he made allowance for the factory’s difficulty, but he was ready to move on. “If I cannot find a job in Dongguan, then I will go back to Guang’an. Guang’an is also developing well. I will come out again when the economy becomes better in the future.” You said that although he had confidence, he still had the feeling that a time of prosperity was now over when looking at the empty factory.

When we asked him whether we could have an interview with the owners, he said the owners were with two big customers then to get orders and seldom came back.

[1] “Village Chief Chen Jingchi,” Nanfang People Weekly, April 13, 2009
[2] “Financial Crisis Leaves Dongguan with Nothing,” Wenxue City, April 12, 2009 [Note: This introduction section could not be found on Nanfang People Weekly’s website, but was available on Wenxue City’s website when it reprinted Nanfang People Weekly’s articles]