By Jennifer Cheung

At Shenzhen Railway Station, migrant workers, young and old, men and women, can be seen sleeping on the sidewalk, surrounded by their luggage, waiting for the train home.

Observers in Guangdong have said large numbers of small and medium-sized factories have closed their production lines, leading to a very noticeable migration of workers back to their home towns, especially workers over the age of 45, who are at a disadvantage when they try to find a new job.

A report [2] issued by the Guangdong Development and Reform Committee in late July said that owing to insufficient demand, rising costs and financial difficulties, the total profit of those enterprises in the province with annual sales over two million yuan had plummeted by 19 percent in the first five months this year. Labour demand from the 100 enterprises surveyed had fallen by 11 percentage points, adding to employment pressure, it said.

In Zhejiang too, sluggish international trade has forced small and medium sized factories to scale back their workforce or even close their business. In the first half of this year, Zhejiang’s exports increased by just 5.2 percent, compared with 22.3 percent growth in the same period last year, according to Hangzhou Customs [3]. The latest official survey [4]showed that 140 enterprises had closed in the manufacturing centre of Wenzhou alone.

Cai Huantian, vice chairman of Zhejiang Wenzhou Apparel Association, was quoted as saying [5] that the business environment this year was even worse than during the 2008 financial crisis. “The number of orders has fallen by around 30 percent from the same period last year, and the average volume of a single order has declined by 70 percent,” he said.

In addition, rising labour cost have thinned profit margins for those smaller enterprises that don’t have much bargaining power with their customers. In the first half of this year, 16 provinces raised their minimum wage by 20 percent on average, in an effort to stimulate domestic demand. Yet, according to a Guangdong survey, year-on-year domestic industrial product sales in the first half this year dipped 18 percent from the same period last year.

China’s manufacturing PMI in July picked up modestly to a five-month high, but the below-50 reading implied that demand is still weak, with employment under increasing pressure, Qu Hongbin, chief economist China and co-head of Asian Economic Research at HSBC, said in a press release.

A group of workers interviewed at a construction site in Shenzhen said they were planning to leave due to the constant delays in the project. Another construction worker from Shandong, who has been working on a highway project in Guizhou for half a year, said he had found it very difficult to get paid before his scheduled return to his hometown for the autumn harvest.

In Zhejiang, a substantial number of property companies filed for bankruptcy as China tightened lending early this year in a bid to cool the overheated property market. Zhongjiang Holdings, a Zhejiang-based private real estate developer, for example, is now undergoing restructuring of its sizable eight billion yuan debt. And early June, Greentown China, another Zhejiang property developer, sold 23 percent of its stake to get crucial funding for loan repayments and its working capital requirements.

Early July, China’s central bank lowered interest rates for the second time in less than a month. Analysts say this round of policy easing is expected to reduce borrowing costs for enterprises and home buyers and mitigate the risk associated with slowing investment and consumption.

And in a sign that the authorities are now actively seeking to stimulate the flagging economy, Changsha, the provincial capital of Hunan, unveiled this week [6] a US$130 billion comprehensive investment plan that could pave the way for other local governments to launch other stimulus programs if the country’s growth continues to slow.