When Zhejiang Jianglong, a large-scale textile dye company, went under in October, half the 4,000-strong workforce took to the streets. They blocked roads and scuffled with police, constantly asking the burning question: When will we be paid? Within 24 hours, the local government worked out a deal.
Social unrest is the nightmare scenario for China’s policymakers as they try to bail out a manufacturing sector that is losing export orders and shedding jobs. Given that many owners find it easier to lock the gate and walk away rather than go through lengthy bankruptcy proceedings, it is hard to tell just how many jobs have been lost so far.
In Jianglong’s home city of Shao-xing, the downturn is being felt particularly keenly. The city has a population of less than 4.5 million and the textile industry accounts for nearly 60% of GDP.
"Every company is worried about going bankrupt," said Hu Yongxiang, general manager of Shaoxing Haiyang Knitting, which has seen its revenue fall by around 70% in recent months. "If big companies can go bankrupt, what are the small ones supposed to do? Lots of small companies have already had to shut because of a lack of orders."
Shaoxing is not only a microcosm of China’s textile industry – it is also an example of the "cluster effect," whereby all the components for a particular product are made within reach of the main factory. It has been a huge competitive advantage for China; now, it has become a weakness.
"The cluster effect that has been the lifeblood of these factories is actually making it tougher for many of them to survive as the supplier network breaks down," said Alexandra Harney, author of The China Price, which examines the human and environmental costs of the country’s manufacturing boom.
Jianglong’s demise left around 300 suppliers out of pocket. The vice governor of Shaoxing county reportedly said that the local government would bail out four more large textiles players in the city to avert further damage.
As the export shock spreads through China’s manufacturing sector, other mono-industry cities may well start to feel the pain. 2008-11-26Christopher Devereux, managing director of Chinasavvy, a Hong Kong- and Guangzhou-based company involved in manufacturing and sourcing, points to Guzhen as a likely candidate. The town in Guangdong province depends on the lighting industry for nearly 80% of its GDP.
Long Jun, general manager of Manlong Lighting Group, has seen a 50% drop in export orders, but he stresses that the local market accounts for the majority of Guzhen’s business. This won’t be much help should the domestic economy weaken still further.
"The lighting industry has not been good this year," said Long. "Real estate development is slow and so the demand for home decoration is reduced."