[YonkFiorc]

Shenzhen, China - For Mr. Duan, Chinese New Year is just more unwanted time off.

Two factories in four months have told him – and many other migrant workers here – to take an indefinite, unpaid "vacation."

"I'm not hopeful work will pick up," the young man says. He'll spend the holiday at his village 400 miles away, giving fewer gifts while figuring out his next steps.

At dusk in this factory city, just ahead of the Lunar New Year, neighbors chitchat on the street, brimming with news of more factory closures and rumors of layoffs to come. Some women walk home in groups, while others head out for their night shift.

The workers who powered China's meteoric rise as the world's factory are under pressures few could have imagined just a year ago. Conditions were often difficult and vacations short, but workers could thrive relative to peasants in the countryside – and send money home.

Now, the global recession is shuttering manufacturers and pushing millions of laborers out of work or into lower wages.

Chinese leaders are struggling to balance the desire to help workers quickly with the need to avoid damaging long-term growth by rescuing failing industries or building bridges to nowhere. And they're keeping a keen eye on stability in a society where the gaps between haves and have-nots has widened sharply.

"In this coming year, especially in the [first half], China is facing the biggest challenge it's faced certainly for 20 years," says Kenneth Lieberthal, a China expert at the Brookings Institution in Washington.

Layoffs' ripple effects

China's economic growth slowed to a seven-year low of 6.8 percent last quarter, dragging 2008 growth down to 9 percent, from 13 percent the year before.

Unemployment estimates vary widely, but the Ministry of Human Resources and Social Security says more than 10 million migrants have lost their jobs. Officials in Guangdong Province – China's manufacturing heartland, with sprawling factory cities like Shenzhen and Dongguan – say 600,000 migrants went home last year.

In Dongguan's "Sweater Town," where blocks upon blocks of knitting factories form a squat skyline, streets are emptier these days, says a factory boss. Many shops have shut for the holiday – or for good.

Even migrants with jobs are hurting, as bosses cut salaries and overtime from a modest average wage of less than 1,000 yuan ($150) a month, says Liu Kaiming, director of the Shenzhen-based Institute of Contemporary Observation (ICO). The losses are rippling down to migrant shopkeepers who cater to them, and to workers' families, who rely on remittances.

There's hope that migrants will return to the cities to look for work after the holiday, says Mr. Lieberthal. That's when the extent of layoffs and wage cuts will become clearer.

Meanwhile, the government is concerned that frustrated migrants will stir social unrest. They are "very pessimistic about the economy," and demonstrations often break out, says Zhang Zhiru, whose fluorescent-lit legal aid center in Shenzhen receives clients late into the evening.

But the prospect of major upheaval seems dim, if only because officials have learned how to nip protests in the bud, says Joseph Fewsmith, an expert on Chinese politics at Boston University.

"The government is pretty good at figuring out how to stanch the problem, which is frequently [by] a combination of giving in to some demands and cracking down on the people who seem to be the so-called ringleaders," he explains. This strategy works better with "bread and butter" demands, which are easier to meet than ideological ones.

To start, the authorities are tackling immediate grievances like unpaid wages. Labor disputes have multiplied as bankrupt factory bosses skip town before payday. Local officials then help to pay arrears.

Zhou Chunxiang, from Hunan Province, says the Shenzhen government readily paid her and her peers' back pay. She hasn't found work since her DVD factory shuttered last November, but will look again after going home for the New Year, the young woman said recently as she sat at the train station, surrounded by her luggage and thousands of village-bound migrants.

But many such wrongs aren't righted. Shenzhen, whose government is required by law to provide back pay for failed factories and has one of the best track records, is covering only about 80 percent of what's owed, says Mr. Liu.

To help preserve jobs, Beijing this month decided to prop up low-profit, high-polluting factories, which it has sought for years to close, by reinstating an export rebate tax that helps them cut costs.