CHRISTMAS is coming but there is little cheer for thousands of Chinese toy factories that shipped their goods months ago and are now staring at empty order books.

Yesterday, the latest figures from purchasing managers showed that manufacturing contracted nationwide in September as the world financial crisis cut into demand for China’s low-cost exports.

One after another, once-bustling factories are falling silent and closing their doors while unsold consignments of toys rot in the autumn rains.

Businessmen travelling in the southern Chinese provinces say that entire industrial estates have turned into ghost towns as thousands of migrant workers who have lost jobs head back to the countryside.

The crisis among toymakers is the first visible evidence of the country’s rapid economic slowdown. “China’s economy relies highly on external markets,” said Li Chao, spokesman for the People’s Bank of China. “Recently China’s exports have weakened as a result of weak world demand.” The government said 3,631 toy factories, or about half the industry, has closed down this year.

That is only part of the story. First, the damage is spreading widely among low-cost, labour-intensive manufacturers that made China the workshop of the world - unions would say the sweatshop of the world.

Second, foreign buyers say China’s cheaper factories will be unable to comply with tough new product-safety regulations due to come into effect in the European Union and America next year.

Introduced in response to scandals over toxic paint, contaminated food and fake docu-mentation, the new rules will raise the cost of compliance and make it impossible for many factories to turn a profit.

Third, the global supply chain built on just-in-time ordering and delivery has transmitted the fall in demand back to China with rapid speed.

over the new EU and American regulations,” said one British buyer. “Now they don’t know what to do.”

Orders have dropped by a third, or about $13 billion (£8 billion), at the twice-yearly Canton Trade Fair, the official news agency Xinhua reported on Friday. Foreign buyers had so far placed orders worth $24.8 billion compared with $38.2 billion last year, it said.

The number of overseas customers has also fallen to 140,000 from 192,000.

The value of orders from America, a critical market, fell by almost two-thirds although some of this was offset by strong demand from Africa and the Middle East.

The fair is a bellwether for sales of textiles, clothes, shoes, home appliances, toys, machinery and electronics. It has been watched anxiously by Chinese leaders, who fear that the country’s historic economic expansion is at risk.

The government has already pledged to spend more on public works. It has restored export-tax rebates, reduced property-transaction taxes and cut interest rates three times.

China’s rate of growth eased to 9% in the third quarter and some economists predict that it will fall further.

While many countries would envy any such a figure, economists generally agree that China needs at least 6% growth merely to meet the annual demand for new jobs among its young population.

Fears that fourth-quarter statistics for everything will be much worse prompted the People’s Bank of China to cut its one-year lending rate to 6.66% from 6.93% last Thursday.

Yet policymakers in Beijing face international tension and the risk of a trade war if cuts lead to a sharp fall in the yuan against the dollar.

The Chinese currency has gained about 20% on the greenback since 2005 and the trade surplus eased by 3% to $180 billion in the first three quarters of the year.

However, critics in America say that is not enough to offset the enormous trade imbalance. The yuan ceased its rise over the summer and is now stable, while Chinese officials talk of halting its appreciation.

Barack Obama, the American Democratic candidate, has signalled that he will act on complaints of currency “manipulation” by China if he wins the US presidency on Tuesday.

Obama’s call brought a stiff response from foreign ministry spokeswoman Jiang Yu, who said America should export more to China and reduce trade barriers.

More signs of slowing economic activity have come from the domestic airline industry. The three leading carriers - Air China, China Southern and China Eastern - have all reported heavy losses.

China will gain from the lower oil price but there are also indications that its slowdown will further depress commodity markets.

The price of copper, of which China is the biggest world consumer, has fallen more than 50% since July and the latest reports from Beijing suggest that the state buying authorities intend to stay out of the marketplace.

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