Page last updated at 16:08 GMT, Sunday, 26 October 2008

China faces getting rich less quickly

By Quentin Sommerville
BBC Beijing correspondent

China seamstress
Demand for toys from China has fallen markedly

The Xin Ying Xin Ye factory lies on the dusty outskirts of Beijing.

Two lonely workers - one of them the sister of the owner - sit sewing smiling faces onto cuddly toys.

A large guard dog barks in the yard. Otherwise the place is quiet.

"The problem we have now is that the business is not as good as it has been during the past two years. Not as many customers," says Wang Suzhen.

There is no doubt here that the global slowdown is already affecting China. A year ago there were 80 people working at the factory.

"We're thinking about giving up on toys and switching to making slippers," Wang Suzhen adds.

Slowing orders

Most of the world's toys are made in China.

But in the last seven months, half the country's toymakers have gone out of business.

Last year's toy scandal, when lead paint was found in Chinese made toys sold in the US, was the beginning of the trouble.

Wang Suzhen
Wang Suzhen has seen orders at her factory slip

New safety regulations added to costs, wages were on the rise, and then factory owners noticed that their orders from overseas were beginning to dwindle as customers in America and Europe cut back because they have less money to spend.

As I leave, Wang Suzhen, insists on loading me up with an armful of cuddly pandas.

Written on them: "Wo ai Bei jing". I love Beijing.

They were ordered by a foreigner, but he never came to pick them up, she says.

And it is not just the toymakers who are suffering. In almost every industry, the orders from overseas are rising slower than they once were.

Low income

When western shoppers were going wild with their credit cards, buying everything and anything "Made in China"; the country became rich.

Now that they have stopped spending, will it become poor?

That is unlikely.

It has long been the expectation from the government here that they would be less reliant on exports in the future.

That this would become a domestic economy where China's own middle class did most of the spending and wealth creation.

But it is still a long way off.

Here, the average income is only about 1,000. In the US, it is almost 15 times as much.

Chinese wallets are no match for big spending Europeans and Americans.

Tightening the belts

And just like the middle classes everywhere else, in China they are counting their pennies more carefully than ever.

Car sales, house prices and the stock market are all falling.

Here they are learning the rules of capitalism, that even more experienced western consumers appear to have forgotten; prices fall, as well as rise.

And at the top of the newly created wealth list, China's 101 billionaires are hurting too.

They've seen their income fall by more than a fifth in the last year.

Yang Huiyan, a 26 year old property heiress, who was last year's number one on the China Hurun Rich List has slipped to number three in the newly published version - her wealth dropping by 5bn to just below 3bn.

builder
Can anyone be worse off than we are? Our living standards are very low. We have nothing to cut back
Wang Fanjun
Construction worker in Beijing

China's richest person is now the 39 year old Huang Guangyu, a self-made man, who owns Gome, a household appliance shop.

With fewer houses being bought and sold, there will be fewer homeowners needing new refrigerators and washing machines, so whether he can hold onto his spot by next year is perhaps unlikely.

Recession irrelevant

Despite the growing numbers of super-rich and newly rich, China is still mostly a country of migrant workers and farmers.

Wang Fanjun is a labourer on a construction site. He looks older than his 35 years and the long work days have taken their toll.

For him every penny matters and he skimps on meat in his noodles so he can send more money home to his family back in Anhui - one of China's poorest provinces.

He has heard about the financial crisis ravaging the outside world, and he knows that falling house prices here at home might mean fewer construction jobs, but he says it doesn't matter.

"Can anyone be worse off than we are?", he asked. "My wife is a farmer, we've got a 12-year-old son, our living standards are very low. We have nothing to cut back".

The economic wellbeing of Wang Funjun and the hundreds of millions like him will be weighing heavily on the minds of China's leadership.

Last weekend they promised to double farmers' income over the next 12 years. The countryside has been left behind during China's economic transformation. The wealth gap has never been greater between rich and poor - those living in the cities and those living in the countryside.

China's scorching hot economy is cooling and over the next couple of years it is forecast to fall from 12% growth to about 8% - still enough to leave countries in the west burning with envy.

China has undergone an industrial revolution of historic proportions - a recession won't make this country poor again, but it will make getting richer, that little bit harder.

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