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As global economy slows, Chinese factory shifts sights from Europe to home

China's economy has slowed dramatically, as factories produce less – and buy less from the world. At the Kaiyee factory, workers who churned out toys for overseas kids now stitch scarves for Chinese.

By Staff writer / September 13, 2012

A woman employee at the Kaiyee factory sews a Christmas scarf that will be sold in China. The company once depended on exports, but has turned to the home market as orders from abroad have slump since the 2008 crisis.

Peter Ford/The Christian Science Monitor

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Jixian, China

For two decades, every plush toy that the Kaiyee factory churned out was packed off to Europe or Japan. Like tens of thousands of Chinese firms, Kaiyee thrived on exports.

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Not anymore. As Christmas approaches this year, the women bent over sewing machines in this industrial suburb of the port city of Tianjin are making red furry children's scarves for a Chinese chain of supermarkets.

The bottom has fallen out of the European toy market, says Kaiyee manager Sun Shulun. The euro crisis means that “I don’t think Europeans are buying gifts the way they used to,” he laments. “Our sales to Europe have gone down 50 percent since 2010.”

Kaiyee is at the sharp end of a dramatic slowdown in China’s economic growth, long one of the wonders of the modern world. Annual growth in the second quarter of this year reached only 7.6 percent; that may sound high to American ears, but it was the lowest pace China had seen for three years, and marked the economy’s sixth straight quarter of declining growth rates.

That is bad news for the rest of the world; as Chinese companies adjust to the slowdown by producing and investing less, they need less of the machinery that countries such as the US, Germany, and Japan make, and fewer of the raw materials that commodity producers in Australia, Africa, and Latin America sell.

August’s trade figures were eloquent. Chinese imports actually fell by 2.6 percent – an almost unheard-of drop. Exports grew by an anemic 2.7 percent and are on course to increase by less than 10 percent over the year as a whole. That compares with annual leaps of 30 percent and more in recent decades.

Disappointing exports are only part of the reason for China’s slowing growth. Compounding the problem has been a similar trend in construction, the other main motor for Chinese economic growth, because of the sector’s appetite for cement, steel, and other products.

Construction is down because the government got spooked last year by a housing bubble and took steps to make it harder and more expensive to buy property. That lowered property prices and discouraged more construction.

The bubble had been inflated in the first place by the $600 billion stimulus plan that the authorities unleashed in 2008 and 2009 to hold the Chinese economy clear of the global financial and economic crisis.

The plan worked, but at a price. Inflation took off, along with home prices, banks made a lot of bad loans in their rush to flood the economy with credit, and local governments saddled themselves with a lot of bad debt.

Government acts – but it's not riding to the rescue

That’s why, this time, the government does not seem keen to step in too firmly to try to reverse the slowdown in growth, says Andrew Batson, an analyst with the Dragonomics business consultancy in Beijing.

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