Labour disputes are rising and some workers are leaving for the country amid fears a crashing economy could cause political and social unrest

Liu Weiqin swapped rural poverty for life on the dusty fringes of China’s capital eight years ago hoping – like millions of other migrants – for a better future.

On Thursday she will board a bus with her two young children and abandon her adopted home.

“There’s no business,” complained the 36-year-old, who built a thriving junkyard in this dilapidated recycling village only to watch it crumble this year as plummeting scrap prices bankrupted her family.

“My husband will stick around a bit longer to see if there is any more work to be found. I’m taking the kids.”

Weeks of stock market turmoil have focused the world’s attention on the health of the Chinese economy and raised doubts over Beijing’s ability to avert a potentially disastrous economic crisis, both at home and aboard. The financial upheaval has been so severe it has even put a question mark over the future of premier Li Keqiang, who took office less than three years ago.

Following a stock market rout dubbed China’s “Black Monday”, government-controlled media have rejected the increasingly desolate readings of its economy this week.

“The long-term prediction for China’s economy still remains rosy and Beijing has the will and means to avert a financial crisis,” Xinhua, the official news agency, claimed in an editorial. Meanwhile, Li told the state TV channel CCTV that “the overall stability of the Chinese economy has not changed”.

The evidence in places such as Nanqijia – a hardscrabble migrant community of recyclers about 45 minutes’ drive from Tiananmen Square – points in the opposite direction.

“It’s the worst we’ve seen it. It’s even worse than 2008,” said Liu Weiqin, who like most of the village’s residents hails from Xinyang in south-eastern Henan province, one of China’s most deprived corners.

“When things were good we could earn 10,000 yuan [£1,000] a month. But I’ve lost around 200,000 yuan since last year,” added Liu, who was preparing to leave her cramped redbrick shack for a 10-hour coach journey back to her family home with her eight-year-old son, Hao Hao, and five-year-old daughter, Han Han.

Qian Linshan, a local entrepreneur who supplies factories in the provinces of Shandong and Hebei with plastic pellets made from recycled bottles, said his business was also in trouble.

Demand was rapidly fading and his days in the village appeared numbered, Qian said, adding: “I doubt I’ll stay much longer.” Next to him an employee stood wearing a second-hand T-shirt stamped with the message: “Corporate challenge. JP Morgan. Fortune.”

Adam Minter, the author of Junkyard Planet: Travels in the Billion-Dollar Trash Trade, said scrap dealers were often among the first to sense a coming economic storm. Chinese recyclers had been feeling the pain since late 2011 “but you really started to feel things hurting on the streets last summer”, he said. “The raw material demand isn’t there.”

The crisis suggested a bleak economic outlook for China even if the country was not heading for “an economic apocalypse”, Minter said. “What the recycling industry is telling us is that this is going to get deeper and worse before it is going to get better. Everything I know about the industry says this is going to get worse for the Chinese economy.”

The out-of-luck recyclers of Nanqijia are far from the only hint of economic malaise in the world’s number two economy. Right across the country a mounting body of evidence points to a slowdown that many experts believe is far more severe than Beijing admits.

Christopher Balding, a Peking University economist based in the southern city of Shenzhen, said China was witnessing a rise in the number of labour disputes and strikes as well as a significant slowdown in migration to cities because of the lack of opportunities and the high cost of living.

The north-eastern provinces of Liaoning and Heilongjiang – China’s heavy industry heartlands – were now in technical recession.

Even if Beijing’s claim that GDP was growing at about 7% were true, “all the other indicators paint a very worrying picture of the economy”.

Facebook Twitter Pinterest Liu Weqin, 36 (right), a scrap dealer from Henan who is returning to her village because her business has failed, poses for a portrait in her one room home with her son, Hao Hao, 8, (centre) and daughter Han Han, 5 (left) in Nanqijia Village on the outskirts of Beijing. Photograph: Adam Dean

“There are a wealth of other indicators – whether it is corporate profits, volume of imports, whether it is any number of other things – that simply indicate enormous economic pressures,” Balding added.

Anne Stevenson-Yang, the co-founder of J Capital Research, said the Chinese economy was now at “the top of a peak or the sharp end of the knife”.

“Now it is going all downhill. I think that from here on in we see a sharp depreciation of the renminbi, we see an acceleration of credit – but not actually having any effect on the economy – and consequently you probably get inflation domestically and then a burst in unemployment and all sorts of nasty things.”

“The slowdown is really bad. It’s not a slowdown; it is a crash and this is going to accelerate and get worse,” added Stevenson-Yang, the author of China Alone: The Emergence from and Potential Return to Isolation.

“In the best scenario it leads to many years of very slow growth in China. The worst scenario is that the government reacts by lashing out at foreign countries because that is the way to attract unity domestically.”

Already there is some grumbling on the streets of Nanqijia, where dozens of homes lie derelict and once-bustling junkyards are bereft of traders.

Wang Shuxia, a 56-year-old scrap dealer, said not enough was being done to support migrant workers who toiled in the cities but were prevented from educating their children there by draconian residency rules. “We are honest people. We are trying to make a living and they are trying to drive us away. Nothing happens to the people who go around stealing or selling drugs,” she said.

Fraser Howie, the co-author of Red Capitalism, said the human impact of the Chinese slump – which has been gathering pace since late 2011 – was still “relatively muted”. “You don’t see mass unemployment yet. That may come but you don’t necessarily see it now.”

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Nevertheless, China’s stability-obsessed Communist party rulers would be deeply troubled by the prospect of growing unrest.

“Much of the party’s legitimacy comes from the economy and from the Faustian bargain of limited political freedoms and social freedoms against economic prosperity,” said Howie. “Any time there is a slowing economy the government is concerned about it for exactly those reasons – the people lose their jobs, there will not be the wage growth, people will not be able to enjoy the benefits of prosperity.”

Nor was social upheaval the party’s only concern. “The fear has to be … that party stability is on the line if the economy doesn’t work.”

“Intra-party battles are already going on thick and fast. The Chinese Communist party is more worried than almost any outside observer about the stability of the party. Foreigners always say: ‘Oh, yes, it will be fine’. But I think the Chinese communists are far better aware of how they could be toppled or how their party could collapse from the inside relatively quickly.”

“There are lots of reasons to see these as very fragile times, very brittle times. There is an appearance of strength but actually things could crack or break relatively easily. It is hugely difficult.”

The Beijing-run Global Times recognised these concerns on Thursday. “If the Chinese economy crumbles and people are on the edge of starvation, no regime can sustain its rule,” it said in an editorial. “But will periodic economic slowdowns and difficulties in adjustment hurt the legality of China’s political system? That’s a delusion.”

Stevenson-Yang, who has followed Chinese politics for three decades, said the unfolding economic strife now posed a severe challenge to President Xi Jinping, who will make his first state visit to the United States next month.

Facebook Twitter Pinterest Wang Shuxia, 56, from Henan, weighs scrap metal as her husband Zhang Guanlu, 63, stands by in their scrapyard. Photograph: Adam Dean

“It is very hard to have insights into the inner halls of Zhongnanhai [the leadership compound]. But I think from here on in all bets are off.”

With the midday sun beating down on Nanqijia’s ghostly alleys, Guo Baxing, a frail 67-year-old, was one of just a handful of rubbish pickers arriving with fresh material.

These days it was a struggle to make 10 yuan (£1) out of his daily trips to the yard, complained Guo, who was born one year before the Communist party came to power in 1949. “It’s not good. I’m just doing it to keep fit,” he croaked.

Pausing for a break on a patio littered with broken calculators, games consoles and fish tanks, he was at a loss to explain the downturn. “We don’t know why it is so bad,” he said. “I’m not very optimistic about the future.”

Liu, the bankrupt scrap dealer, said abandoning Beijing was her family’s only option. “It’s natural. We came here for work. We lost 200,000 yuan. We can’t afford to live here any more,” she said.

“Maybe one day we’ll return - but I don’t know when.”

Additional reporting by Luna Lin