Although China doesn't celebrate Christmas, Lou Qijun is one of the many Chinese toy and gift manufacturers who anticipates a visit from Santa Claus every year in the form of seasonal orders from the Europe and North America.

Not so this year, says Lou, chairman of Yiwu Qiling Toys Co. Ltd., a leading toy producer in east China's Yiwu City, Zhejiang Province, after returning from the Canton Fair, the country's biggest trade show which concluded on Thursday.

Lou's Christmas orders from Europe and the United States down by more than a third. The financial crisis has forced Western families to tighten their purse-strings this Christmas.

Lou says their busy season in Yiwu, a major production base, usually runs from June to October, as big foreign toy companies generally place their Christmas orders months in advance. "It is apity we have not seen a rush of orders so far this year."

Lou and his peers have also been disturbed by cancelled orders. Lou's plant had about 8 percent of Christmas tree orders cancelled because many small outlets in Europe and the United States had pulled back orders from intermediary purchasers who signed agreements with Lou.

Lou is simply one of many toy makers who has fallen victim to deepening global economic downturn that has gripped the West. Many foreign buyers became extremely cautious this year, either cutting purchases or putting short-term orders, according to a survey by the Ministry of Commerce (MOC).

Challenges

The financial crisis that originated on Wall Street and swept the world has gone beyond the toy sector and bitten into the Chinese economy.

Chinese manufacturers from other export-oriented sectors, including textiles, garments and shoes, also felt the pinch of slackening demand. Over the past two months, many labor-intensive factories have shut down, including those run by large Hong Kong-listed manufacturers, leaving massive numbers of workers jobless.

China Customs figures show exports, a major driving force of the national economy, at US$1.07 trillion in the first three quarters. Although 22.3 percent up from the same period last year, the growth rate was 4.8 percentage points lower.

During the same period, China's GDP growth slowed to 9.9 percent, down 2.3 percentage points from the same period last year and falling to single figures for the first time in five years.

The slowdown of the Chinese economy, the world's fourth largest, is partly due to shrinking demand from abroad and partly to worsening downward pressure from weak domestic demand, a consequence of an inadequate social security system, and higher costs of raw materials and labor, which have hurt corporate investment.

Lingering inflationary pressure reined in domestic demand, experts said. In the nine months from September 2007, the CPI had signaled caution.

China's consumer price index (CPI), the main gauge of inflation, rose 4.6 percent in September over the same period last year, the National Bureau of Statistics said. The figure was markedly down from 7.1 percent in June, 6.3 percent in July, 4.9 percent in August and a near 12-year-high of 8.7 percent in February.

"The figure indicated the government's measures to tame inflation were effective, and the inflationary pressure has been greatly eased," said Zhuang Jian, an Asian Development Bank (ADB) economist.

Despite all the difficulties and uncertainties, Chinese officials largely believe the economy remains in good shape and will maintain stable and relatively fast growth.

National Bureau of Statistics (NBS) chief Ma Jiantang ascribed sound economic fundamentals to four factors.

First, China maintained the world's fastest economic growth rate. Although it fell by 2.3 percentage points year on year, the 9.9 percent GDP growth in the first three quarters remained much higher than those of Western countries and was still at the average of the past 30 years of the country's reform and opening up.

Second, China had succeeded with commodity price controls. The consumer price index (CPI), the main gauge of inflation, eased to 4.6 percent in September from the same period last year. It hit a 12-year high of 8.7 percent in February.

At the end of the month, the broad money supply (corporate and individual deposits plus cash in circulation) increased 15.29 percent from the same period of last year. The rate was the lowest in three years. The growth in narrow money (current deposits plus cash in circulation) supply slowed to 9.43 percent.

Lu Zhengwei, chief economist with the Industrial Bank, predicted a CPI rise of 4.2 to 4.4 percent in October, based on weak market demand and a decrease in money supply.

Third, China had increasing foreign exchange reserves. China's current account surplus rose by 18 percent to US$191.7 billion in the first half, according to the State Administration of Foreign Exchange (SAFE), the foreign exchange regulator. The balance sheet revealed foreign exchange reserves of almost US$1.81 trillion at the end of June.

Fourth, China had good employment rates. Ministry of Human Resources and Social Security (MOHRSS) spokesman Yin Chengji said the country created 9.36 million jobs in the first three quarters, and helped another 4.09 million laid-off workers find new jobs.

By the end of September, China's registered unemployment rate was unchanged from the end of last year at 4 percent, with about 8.3 million unemployed.

"We should be confident in the country's economic outlook," said Ma Jiantang. "The country has rich resource reserves, great market potential, vigorous enterprises and the government has strong macro-control abilities."