The most commonly used countermeasure was to slash prices to woo foreign customers. Many small suppliers have been offering 50-percent discounts to trigger a pre-Christmas purchasing rush, an understandable tactic since late client payments and strained cash flows have already pushed them to the brink of bankruptcy.

The Shenzhen International Greeting Co. Ltd., a medium-sized gift manufacturer that employs roughly 1,700 workers, took financial measures to protect market shares at the expense of margins.

While most of its domestic competitors reeled from a bleak Christmas scenario, the company has preserved its orders from Europe and the United States intact—by cutting its prices by a dizzying 20 percent.

"We have no other choice in the face of worsening financial distress and a dark trade sentiment," said Xu Zhaoren, General Manager of the company. "Nowadays foreign traders place orders for Christmas more hesitantly and intend to hunt for cheap bargains."

"The consequence was that our profit margin dipped to nearly zero," he said. "This will be an extremely chilly, if not the worst Christmas ever."

Despite the collective downsizing of demand, not all exporters will get buried in snow this Christmas season. Some larger companies are benefiting from the failures of smaller rivals and most importantly, unmatched prowess of quality improvement and client loyalty.

The success story of Guangdong-headquartered Jetta (China) Industries Co. Ltd., an export processing company of toys, is a case in point.

"Our Christmas orders have rebounded 10 percent in recent months from a bottom seen earlier this year, when the overall export sector succumbed to the full force of the global economic turmoil," said Wang Yuanlu, a public relations manager of the company.

Though still well below the peak level a few years ago, it was an encouraging sign and the best reward for Jetta's commitment to product qualities, Wang added.

Unlike some smaller processors focused on shoddy manufacturing for quick returns, Jetta has spent millions of dollars on upgrading technologies to ensure quality and safety of all links, from raw materials to packaging. It even set up several well-equipped labs for pre- and post-production testing.

These efforts, however, did not give the company an edge over competitors until 2007 when the U.S. company Mattel Inc. recalled massive China-made toys for lead contamination. Though the defect later proved to be caused by the U.S. design flaws rather than Chinese manufacturing, it shed light on the importance of product safety, paving the way for Jetta to stand out.

Wang told Beijing Review that the company has held layoffs at bay, though the quality controls had already added to their costs. "It is part of our efforts to prevent labor shortages once the trade mood warms up," he said.

Restructuring on the way

The processing business of Jetta may be surviving rather than thriving, but it does provide a preview to the onset of a more positive trend on a broader scale. After years of exponential growth, many Chinese exporters are at a crossroads as the financial gloom takes the shine off their once-gleaming labor-intensive and low added-value model. A switch into high added-value manufacturing and technological innovation would require heavier investments and a stretch on short-term capital gains, but given its far-reaching implications, it is well worth the effort.

In an interview with Beijing Review, Guo Tianyong said now is the best time for manufacturers to upgrade industrial structure, innovate in manufacturing techniques, as well as put more effort into branding. That way they can position themselves for future growth when orders come roaring back, he said.

In east coastal Zhejiang Province, the vanguard and beating heart of China's dynamic private economy, some market-savvy players are already riding the wave.

Zhao Senlin, Vice President of Ningbo Chi Mei Optoelectronics Corp., told Beijing Review that their orders for Christmas this year have staged a more than 20-percent run-up from one year earlier thanks to cutting-edge technologies that appealed to foreign buyers.

The Taiwan-invested company is the world's fourth largest supplier of advanced TFT-LCD (thin film transistor liquid crystal display) for a number of mobile phone and appliance makers including Haier and TCL.

"In spite of the growth, trade with the United States and Japan still remains quiet as Western consumers have adopted a frugal mind-set," he said. "But the vibrant domestic demands provided an effective cushion."

"We are working around the clock to develop new products to recover lost ground overseas," he added.