Guangdong exodus spells rural pain

PUBLISHED : Monday, 17 November, 2008, 12:00am
UPDATED : Monday, 17 November, 2008, 12:00am

The factory assembly lines in Guangdong would normally be humming at this time of year, gathering momentum to fill big orders from the US and Europe.

Hundreds of thousands of migrant workers, mainly from rural inland provinces, would be chalking up overtime hours to churn out toys, electronic goods and garments to make shipments in time for the yearly holiday shopping season.

But this year the lines are a little quieter, as a growing number of workers are heading home early because plunging overseas demand is forcing factories in the manufacturing hub to shut in droves.

At the Shenzhen railway station, the tougher economic prospects could not be better reflected than by workers like Li Qiang, clinging to his bundle of luggage and blanket, waiting for his passage home to Sichuan province.

'We worked fewer than 10 days per month in the last two months, and the boss paid us little,' he sighed. 'My factory has had back-pay problems for a long time. I'm afraid we won't get our salary in time.'

The factory worker has therefor e opted for an early return to his hometown of Guangan to beat the spring festival railway crowds and has no plans to return after the Lunar New Year.

Similarly homebound was Zhou Xueming, who worked in a Dongguan factory producing environmental protection materials.

'I have worked in Dongguan for five years,' she said. 'I heard this year was tough for many export-oriented factories. Our factory won't be so adversely affected, but business is still awful.'

Guangdong, which by value accounts for 28 per cent of the country's overseas shipments, saw growth in exports fall 10.9 percentage points to 13.5 per cent in the first nine months of the year.

Slowing growth will put the squeeze on the mainland's export-reliant economy. Exports fell 5.9 per cent last month from September to US$128.3 million. But the mainland still managed to post a record trade surplus, as it has imported less during the domestic slowdown.

Mark Tu, a Shenzhen-based sales manager with Canadian transport company CN Worldwide, is seeing first hand the impact of the global slowdown. He said one client, a furniture maker, had failed to collect payment from a US retailer that filed for bankruptcy soon after receiving the shipment.

According to the agreement, the furniture exporter should have received the payment a month after the retailer collected the cargo.

'The client became extremely cautious after the payment default, and our transport business was also affected,' Mr Tu said. 'We are one link of the chain. The global recession has also hurt other companies.'

Foreign exchange regulations now require all mainland companies to register their claims to debts arising from foreign trade. Mr Tu said losses from deferred or missed payments could be huge.

'I have seen quite a few small and medium-sized companies close down their factories,' he said. 'I am worried about our company's business, because the worst has yet to come.'

Other negative signs of the worsening climate are rapidly gripping the mainland, one of the world's fastest growing economies in the past decade.

Fiscal revenue dropped 0.3 per cent last month from October last year, the first decline in 12 years, with Premier Wen Jiabao warning that the global crisis' impact on the mainland is 'much worse than many had expected'.

Factory output last month slowed from September to 8.2 per cent, the slowest pace in seven years. The increasing number of factory shutdowns is severely pressuring the job market, which millions of school leavers enter every year, casting a darker cloud on work opportunities for migrant workers.

The crisis is particularly bad news for economic development in the rural areas from which most of these migrant workers hail. Guangdong alone employs at least 190 million migrant workers, and their remittances back to their villages have been critical in improving rural life over the years. Rising factory joblessness creates big challenges for the government's wider plan to lift wealth in the countryside.

'Migrant workers' job instability in the cities will affect their earning power,' said Du Xiaoshan, the deputy director of the Chinese Academy of Social Sciences' Rural Development Institute.

'Many will be forced to return to the countryside, and incomes will shrink, as farming income itself is very low.'

The backwardness of China's rural areas is a longstanding and complex issue that policies introduced over the years have attempted to tackle - including the abolition of agricultural tax and the push for a proper rural financial framework.

But these moves have yet to substantially lift farmers' spending power. On the contrary, the breakneck speed of urbanisation has lured millions to leave farms to work in the cities, and while the remitted incomes help sustain growth in the villages, the mass migration has simultaneously widened the urban-rural income gap.

A major rural policy milestone came last month when Beijing announced it would allow farmers to transfer their land-use rights.

The aim is to develop large-scale agriculture and meet the party's goal to double per capita disposable income of rural residents by 2020 from 4,140 yuan (HK$4,695) last year.

Markets will be established to lease contracted farmland - which under mainland law is collectively owned but allocated to farmers in small plots under long-term leasing contracts, typically 30 years - and for the transfer of land-use rights, allowing farmers to subcontract, lease or exchange their rights.

The authorities have also pledged to build a social welfare framework in the countryside by boosting spending on health care and education, as well as to integrate the urban and rural economies by merging household registration systems. These systems restrict where citizens can live and work.

In addition, banking regulators are expanding financial products and services such as microcredit in rural areas and increasing the types of collateral allowed for banks to offer credit. Priority will be given to areas where financial facilities are lagging, the China Banking Regulatory Commission said last week.

These policies could help cushion the negative effects spreading across broad sectors of the mainland economy resulting from the global financial crisis. For example, income from land transfers could help farmers enter new areas of businesses in cities and at home.

In broader terms, Beijing has announced a series of policies to stem the slowdown in economic growth - from cutting interest rates three times in two months to its 4 trillion yuan stimulus package. It has also introduced measures to boost exports, including further tax rebates and raising loan caps for banks.

The central government's fiscal spending spree parallels the pump-priming that began in 1998 after the Asian financial crisis. Fixed-asset investment began to grow at a double-digit pace from 1999, accounting for an increasing portion of the country's GDP since. In the past three years, it has made up about 48 to 55 per cent of the economy, growing at about 25 per cent annually. In contrast, retail sales hovered at 13 to 16 per cent during those three years.

Sure enough, domestic consumer spending has grown, albeit more rapidly in the cities, as urban residents became more affluent, benefiting from rapid industrialisation and surges in the stock and property markets.

Rural income growth continues to lag, limiting policymakers' ultimate aim of building a broader consumer base in the countryside.

Rural growth is also deterred by the government's minimum procurement prices for grains.

The nation's top planning agency, the National Development and Reform Commission, is introducing price rises, to take effect in January, for various grains, such as corn, rice and rapeseed, for the national reserves. .

The commission said it would also provide more subsidies to cover rising fertiliser and equipment expenses.

Despite the fanfare surrounding the 4trillion yuan stimulus scheme, sceptics question the true impact of the package, as parts of it had been announced previously.

More pertinent is how the additional rail lines, ports, pipelines and low-cost housing that will create jobs and employment can lead to increasing spending power for rural residents.

Of the 4 trillion yuan, 1.18 trillion yuan will come from the central government, with local governments, companies and other sources, including foreign investors, also chipping in.

The first 100 billion yuan tranche of the central government's expenditure will be spent in the fourth quarter, the NDRC said on Friday.

Of that, 10 billion yuan will be spent on welfare housing, 34 billion yuan on rural infrastructure and welfare, and 25 billion yuan on infrastructure projects. Another 13 billion yuan has been allocated to health care, education and social welfare, 12 billion yuan to energy, environmental protection and emission reduction, and 6 billion yuan on technology upgrading and industrial restructuring.

But with the bulk of the funding coming from local governments and companies, the pressure on local officials to invest to pump-prime the slowing economy could create another set of problems, the effects of which may extend beyond economics.