Exit the dragon

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[/audioplayer]I stood alongside the chairman of the board of a state-owned enterprise in eastern China. The factory floor, partially open to the elements, stretched out far in front of us, littered with towers and blades designed for some of the world’s largest wind turbines. It was an impressive sight, one to which regular visitors to mainland factories are accustomed: China as the workshop of the world.

But something was missing: workers. ‘They’ve been given the day off,’ the chairman said with a slight cough, as we stared out over the vast compound. On a Wednesday? It was hot but not searing, and workers get the day off only once the mercury tops 40°C. ‘It’s a local holiday,’ he said. But there are no such things in the People’s Republic, and national holidays only occur in May, October and around Chinese New Year.

I didn’t push it, but a later conversation with the firm’s senior engineer, a stocky chap in blue overalls clutching a pipe wrench, revealed the real problem. His cheery demeanour vanished when we started discussing the future. The factory, he admitted, hadn’t run at close to full capacity for a year. Experienced workers had been put on unpaid leave; migrant labourers from the countryside — lacking a local work permit, or hukou — had been told to hop it.

The company’s woes are a microcosm of the daunting challenges that face China’s stuttering economy, the world’s second largest after the United States. This week China devalued its currency by 3.6 per cent in a dramatic bid to encourage exports — a clear sign that Beijing is panicking. Forget Greece. This could be the biggest financial story of the year. Even the threat of a significant slowdown in China’s economy could be enough to send the rest of the world tumbling back into recession.