As China's Losses Mount, Confidence Turns to Fear

The government's efforts to prop up individual companies are a radical move for a country that in recent years has tried to move away from its "iron rice bowl" philosophy, in which jobs and wages are guaranteed for life, and transition to a more sink-or-swim-style capitalism.

In the coastal province of Zhejiang, the local government is setting up a special $9.5 million loan fund to help companies such as the deeply indebted Feiyue Group, which exports sewing machines and suitcases. In Jiangsu province, the government extended unemployment benefits to migrant workers laid off from ailing factories; these workers had previously been shut out of public services because they don't have residency cards.

The Guangdong provincial government in the south is scrambling to set up a special fund to compensate laid-off workers in order to "protect against some of the financial and social problems caused by such closures."

Eddie Leung, chairman of the Dailywin Group, which makes Movado and Anne Klein watches, said Guangdong officials also seem to be backing down from efforts to transform the area from a manufacturing hub into a high-tech and services center. In recent years, the government had been content to see polluting factories and sweatshops go out of business to make room for companies higher in the value chain. Now the government seems inclined to help them survive.

Chong Yik Toy is but one of a number of bankrupt companies whose employees have received payoffs from the government.

In the eastern city of Wujiang, nearly 1,000 workers from bankrupt Chunyu Textile Co. received four months' salary on Oct. 27 after they swarmed the area's four main roads to draw attention to their cause. After more than 1,000 workers for home appliance maker BEP International Holdings gathered outside the factory to protest, district officials gave them $44 each late last month. The employees were also allowed to continue living in the defunct factory's dormitories for free. The same week, the government offered three months' back pay to the 900 workers at Gangsheng, an electronics supplier, after they staged a protest at a shop near their factory.

In the neighboring city of Dongguan, the local government handed out about $3.5 million on Oct. 21 to the employees of Smart Union -- which sold its toys to Mattel, Disney and Hasbro -- after the 7,000 workers staged a strike.

Hu Weicai, 38, who worked with the plastic molds used to make electronic toys, said employees became nervous when the owners slipped three months behind on salary payments. The workers occupied the factory and the surrounding streets until government officials promised them they would be paid.

"The government was very afraid when they saw what was happening. What the government fears most is workers making trouble. They paid us to stabilize our moods," Hu said.

But employees said a one-time payment will provide only a temporary reprieve from the unrest if the workers are unable to find new jobs.

Jia Yingge's husband, a guard, received a little less than his monthly salary of $300. With no employment prospects in sight, she worries about how the couple will support their newborn son.

"If you mention this company's name, no one wants to hire you because they know about the blockade and now we have a bad reputation," Jia said.

When Liu Fangping, 38, was paid, the government took his fingerprints with red ink -- presumably to make sure the right person was receiving the payment. But Liu noted that the prints could also be used to pinpoint troublemakers who continue to protest despite the handouts.

"I don't think the government is doing its best to protect the rights of workers," Liu said, adding that officials seemed more interested in controlling unrest than helping individual workers.

Indeed, signs posted at the gates of closed factories did not direct former workers to places where they could get help, but instead displayed a warning. In large black characters, they reminded workers that they could be detained for stirring up unrest, for disobeying security officials or even for "unlawful gathering."

Researchers Crissie Ding and Liu Liu contributed to this report.