China's "world factory" struggles to find its feet

By James Pomfret

DONGGUAN, China (Reuters) - Strolling the production lines of his toy factory in southern China, Peter Lin barks orders as hundreds of workers in green overalls snap wheels onto toy cars and affix tiny batteries into die-cast replica jets.

Twelve months ago Lin could rest easy. Despite the shadow of U.S. toy giant Mattel's massive recall of China-made toys, business was good.

Most of his orders were locked in, and containers full of his toys were steaming for ports in the United States and Europe to fill store shelves in time for Christmas.

This year, with over half China's toymakers having gone bust, he's racked with doubt.

"We're carrying a big boulder across a river right now," said Lin, who started his Dongguan factory 12 years ago.

"In January, things may get even more serious. My conservative estimate is that orders will fall 30-40 percent more," said Lin, whose orders were down 15 percent this year.

Over the past year or so, China's southern manufacturing hub of Guangdong has taken a flurry of different blows that have devastated their "factory of the world" business model.

The voracious demand of Western consumers for cheaply made Chinese goods has shriveled with the global financial crisis; the appreciating yuan has made goods more expensive; quality concerns hit orders after the Mattel lead-tainted toy scandal; and a new labor law has raised production costs.

In many of the dusty boomtowns dotted about the industrial hinterlands of the Pearl River Delta, the effects of a sharp slowdown are increasingly evident.

Main streets that once bustled with factory workers on their evenings off are now much quieter; fewer container trucks rumble to the nearby port in Hong Kong, and hordes of disenchanted migrant workers have hopped on trains home.

Social tensions have also risen, with blue-collar crowds more and more willing to protest against layoffs at stricken firms.

"Even without the financial crisis, many of the firms have been in a difficult situation ... and the scale of difficulty for those affected regions may be unprecedented since 1978," said Xiang Bing, dean of the Cheung Kong Graduate School in Beijing, referring to the year when China embarked on market reforms.

OUT OF WORK

Outside the shuttered Winbest Electronics and Plastics Factory in Dongguan's Fenggang township, a few down-and-out workers pecked around on the sidewalks, scouting for work.

"I want to find a stable, good job. But relatively speaking, jobs are few and competition for work is great," said Wang Jinse, who recently lost his job in a nearby factory making MP3 players.