China Feeling Impact Of U.S. Recession

The link between Martin Cohen's 30-percent fall in sales of stirrups in California to falling revenue in China is forged at a factory in Qingdao.

Owner Hyun Ku Kim started business 40 years ago in his native South Korea and moved production here in 1990 to use China's cheaper labor, reports CBS News correspondent Barry Petersen.

And Qingdao's port makes for easy shipping to the U.S. - except these days there's less to ship.

The numbers tell the story. In a good year they'll sell 20,000 stirrups. This year they will be lucky to sell 8,000. And there was one month this past spring when they got no orders at all.

Fewer orders means fewer workers; layoffs cut 500 workers down to 290.

Their empty chairs litter the factory.

"Before the recession, what was it like in here?" Petersen asked Kim.

"This room is fully occupied," Kim said, adding that the empty chairs were a sign of reduced orders.

Factory workers earn about $225 a month, which may not sound like much, but many come from farming villages where the average wage is about $100 a month.

That's why, when factories closed in southern China, workers protested trying to get their good jobs back. It didn't work.

China's unemployment rate went from 4 percent last year to 9.4 percent this year.

Back in Qingdao, a rise in unemployment means more empty seats at places like the Don Korea restaurant serving the factory district. Owner Joo Won Il, worried about his business, cut prices.

A bottle of Korean liquor went from $4.50 down to $2.98.

And they are also cutting corners across town where 1,900 workers at the Far East Gem and Jewelry factory manufacture what America wears. The problem is Americans don't want to spend as much as they used to.

That means making fewer expensive gold pieces (production is down by 280,000) but making more of cheaper silver jewelry (up half a million pieces this year).

Yet when business slumped, bosses at this factory cut costs, not jobs - trying to keep trained workers for when the recession ends and sales come back.

"Other companies have cut staff but not here," says one worker Li Liyan. "So I'm not worried."

But whether Li and her co-workers keep their jobs here at Far East Gem in Qingdao depends on orders booked at trade shows like one in Las Vegas this week.

It's an industry that has done anything but sparkle in the recession.

"This has been the most turbulent time that the jewelry industry has experienced," said Greg Altieri, an American sales executive for Far East Gem. "Many of our competitors have actually gone by the wayside."

If there is a diamond - or a cubic zirconium - in the rough here, it is the expectation that things will turn around.

And if so Chinese workers will feel secure in their future once beauty is back on America's shopping lists.