Prostitution in China
A police officer talks to a man next to attendants during an inspection to combat crimes involving prostitution, gambling and drugs.Reuters

China's crackdown on prostitution is adding to the worries of the local economy of Dongguan, which is already suffering from the pangs of an economic slowdown in the country, according to a Reuters report.

The city of Dongguan is a manufacturing base in the Pearl River Delta, and is known as China's factory of the world. The city has also been dubbed 'sin city' due to its once-thriving sex trade.

China's measures to curb prostitution in the country are expected to significantly impact the city and its local government, which relies heavily on taxes from the entertainment industry, the city's second engine of growth.

In February, more than 6,000 police officers launched anti-vice raids in the city and arrested about 1,000 people for prostitution and related charges. The arrested people were linked to businesses from hotels, massage parlours and karaoke bars to taxi drivers and retailers.

The raids are expected to result in some 50bn yuan (£4.9bn, $8bn, €5.9bn) in losses for businesses in the city, according to the official Xinhua news agency.

Dongguan was an agricultural backwater town until the late 1980s, and was transformed into one of the world's most important manufacturing hubs in line with the country's economic boom.

However, the recent slowdown of China's economy and higher operating costs have resulted in a number of factory closures in the city. In addition, a number of factories were relocated to cheaper destinations inland or to countries such as Vietnam, Cambodia and Bangladesh.

"Manufacturing is unlikely to recover and the service industry has been hurt, so Dongguan's economy in the first quarter should not look good," Reuters quoted Qun Liao, chief economist at China Citic Bank International, as saying.

"If there's no manufacturing, there's no one to enjoy the services."

Economic Growth

Dongguan had been experiencing annual growth rates of up to 23%, during China's economic boom.

The city's gross domestic product totalled 520bn yuan in 2013, with tax revenues of over 30bn yuan, the news agency reported, citing Lin Jiang, head of Public Finance and Taxation Department of Lingnan College at Sun Yat-sen University in the southern province of Guangdong. The entertainment business contributed an estimated 3.6bn yuan to total tax revenues.

At least 300,000 people are working in Dongguan's sex industry that contributes about a tenth of the city's revenue, according to Chinese media estimates.

Dongguan is targeting a growth rate of 9% in 2014, but that would be difficult given the economic slowdown and crackdown on prostitution.