Lin Wei, head of toymaker Big Tree Toys in Shantou, Guangdong, says the toy industry has experienced a 30 percent drop, affected by the crisis in the EU and the US. [Qiu Quanlin / China Daily]

Last year, Guangdong's GDP ranked first in the country, with key cities like Shenzhen and provincial capital Guangzhou recording GDP growth ranging from 10 percent to 12 percent, industry figures show.

Chinese exports continue to increase year-on-year, but they are doing so at the slowest pace since December 2009, figures from the General Administration of Customs show. Exports increased almost 16 percent year-on-year to more than $157 billion in October but that was the slowest growth in eight months. The total figure actually dropped from September's $169.7 billion, amid economic problems in the US and Europe. China's manufacturing activity also contracted last month for the first time in 33 months, latest available figures show.

Guangdong itself is expecting the worst in foreign trade in the first half of next year, Zheng Jianrong, deputy director of the provincial foreign and economic department, recently said.

Similarly, currency appreciation and rising costs are squeezing the profits of many Chinese exporters. The yuan has gained about 10 percent against the US dollar since China ended a two-year peg to the dollar in June last year.

Labor, one of the main factors behind economic success in the PRD, is also threatening development in an area known for its inexpensive workforce. Many areas in the PRD are raising minimum wages along with rising inflation and labor shortages, as workers are less drawn to work in the region compared to their home provinces where the cost of living is lower.

By the end of September, 21 local governments nationwide had raised the minimum wage by an average of 21.7 percent, the Ministry of Human Resources and Social Security reported.

Earlier this year, Shenzhen authorities said they would raise the minimum wage by 20 percent to 1,320 yuan ($200, 150 euros) a month - the highest in the country. There are now plans to increase that to 1,500 yuan a month next year. Wages in many areas in the PRD have risen more than 30 percent with pay for ordinary workers averaging nearly 3,000 yuan a month. King Tree's Peng says he expects his wages to continue rising.

"For the West, Christmas trees are a necessity during this time of the year. So mid-sized businesses like us will always be able to survive, in one way or another. But the smaller players and the ones that make the ornaments and the decorations, already hit by rising costs, might feel any cutback in Christmas buying more severely," he says.

Wu Yaqin, secretary-general of Shenzhen's handicrafts and gifts industry association, says many manufacturers in the area that are struggling to stay afloat amid the tightening market are already moving to nearby provinces such as Zhejiang for cheaper labor and costs, in part by outsourcing work to villages.

Chen Guanghan, an economics professor and director of the center for studies of Hong Kong, Macao and the Pearl River Delta at Sun Yat-sen University, says the smaller manufacturers in the PRD will most definitely suffer from decreasing orders for Christmas goods in the West.

"The small players will have no room to maneuver or upgrade and many of these will probably be the casualties of the economic downturn. The bigger players might be able to cope and many low-cost producers are already moving to even cheaper places overseas, such as Vietnam, even as they try to develop new markets away from the US and Europe," Chen says.

Alberto Vettoretti, managing partner of the China and Vietnam practice at Shenzhen-based business advisory Dezan Shira and Associates, says many businesses are "feeling the pressure".

"Many are moving away from the more high-end and sophisticated products for Christmas. The West is still very much thinking twice about spending too much," says Vettoretti, who is also vice-chair of the Pearl River Delta board of the European Union Chamber of Commerce in China.

"In terms of manufacturers with the ability to make cheap products, a lot of them are no longer in Guangdong. Many have moved to areas with more competitive costs and prices like Yiwu in Zhejiang.

"Shenzhen's raising of its minimum wages is also going to affect businesses that already cannot get enough suitable workers."

Zhang Yuge, director of the center for public policy at the Shenzhen-based China Development Institute, says that while the authorities have been making a pronounced push for PRD enterprises to upgrade and move away from its low-cost manufacturing model, it will not be easy to do so in the short term.

"Such manufacturing is certainly not sustainable for the long term. But for the moment, our export-oriented businesses still provide jobs for a large number of workers who would otherwise make much less in the countryside," Zhang says.

"The slow Christmas market has also reiterated how precarious it can be for businesses here to depend too much on exports and the impact of global economic problems at the local level here."