Jin Zhixun sits alone in a booth stuffed floor to ceiling with plastic Father Christmases climbing walls, playing saxophones and dangling from parachutes. The foreign buyers who used to snap up 50,000 Santas at a time are nowhere to be seen. He cannot remember a worse year, he says.

This has nothing to do with it being a steamy 37C (100F) outside, and about as un-Christmassy as you could imagine. It is because of the Olympic Games.

Mr Jin's problems are shared by the hundreds of booths selling Christmas goods — plastic trees, decorations, tinsel, stockings, inflatable snowmen — that stretch away down labyrinthine corridors in one of the ten vast multi-storeyed halls of the world's biggest small commodities market (the Christmas booths run out where the red lanterns of the Chinese New Year section start).

Each of these booths is a wholesale shopfront for a factory somewhere in the teeming metropolises of eastern China, and in July and August they would normally be packed with Western buyers.

This summer, however, the buyers are scarce because China has cracked down on foreign visitors lest they disrupt the Olympics. Indeed, the West faces a shortage of kitsch this Christmas because the bulk of its decorations and many of the cheap toys exported from China are bought in Yiwu, and unless orders are placed very soon it will be too late. Mr Jin, 31, complained: “Normally there are many foreigners. This year there are very few.”

Among those inspecting the Christmas stock are a New Zealand couple who have slipped in with tourist visas and a Russian lady, Dasha Shaykhutdinova, whose multiple entry visa was issued before the crackdown. Colleagues back home were still waiting in vain for single-entry visas, she said.

“Beijing Welcomes the World” was one of the original Olympic slogans but after the spring's violent protests over Tibet and some unspecified terrorist threats, it appears to have been supplanted by a new one: “Olympics Without Incident.”

The authorities are determined that nothing should disrupt China's great coming-out party — certainly not troublesome foreigners. Since April they have virtually stopped giving multiple-entry visas, or the six-month “investor” visas used by teachers, artists and freelance writers.

They have made it far harder for businessmen and tourists to secure 30-day single-entry visas by demanding letters of invitation, proof of hotel bookings and return tickets. Foreigners already living in China have been subjected to spot checks at home or in the streets. Thousands — especially students — have been forced to leave the country after being denied extensions to their residence or work permits.

The Olympic organisers have even issued a nine-page book of rules warning foreigners against “illegal gatherings, parades and protests”, “shouting or displaying of political or religious slogans at events” and the import of materials “harmful to China's politics, economics, culture and morals”.

The consequences of the crackdown are apparent widely. Hotel occupancy rates in Beijing, Shanghai and other cities have fallen sharply.

In May there were 14 per cent fewer foreign visitors to the capital, and Beijing's hotels are far from full, even during the Games. Business meetings, seminars and conferences have been cancelled. Western quality control and factory inspectors cannot enter the country. Language schools have lost teachers and students.

Foreign chambers of commerce have protested vigorously but to no avail. The Foreign Ministry insists that the restrictions are necessary to keep out “hostile forces”, and are no worse than those of Western countries.

For China's rulers the success of the Olympics is paramount and if that hurts cities such as Yiwu that depend entirely on foreign trade — so be it.

Yiwu, 200 miles (320km) southwest of Shanghai, was a rural village until the 1980s. But thanks to its road and rail links, and its proximity to the ports of Shanghai and Ningbo, it took off after the local authorities set up an open-air market in 1982.

Today Yiwu has a population of more than a million living in endless rows of new apartment blocks, and if China is the factory of the world this city has become its showroom. Here about 60,000 vendors flaunt an estimated 400,000 items in 1,700 categories to buyers from 180 nations. It is reckoned that at least 1,000 container-loads of goods are shipped out daily and about 7,000 foreign businessmen have set up shop in the city.

Half are from the Middle East, including many Iraqis who have fled the violence of their homeland. An empty clothing factory is now a giant mosque. In a district dubbed “Exotic Street” there are Jordanian, Egyptian and Iraqi restaurants, signs in Arabic, women in headscarves and men cooking kebabs or drinking sweet, black tea on the pavements.

The crackdown on foreigners has affected everyone in Yiwu. “It's getting more and more difficult,” complains Hussein Abdulihim, 25, as he watches Arabic television in the largely empty Alazem restaurant, which he opened after a bomb killed 60 people outside his Baghdad restaurant.

Hotels and taxi drivers lament the lack of foreign custom. Export agencies are sending out fewer containers. Language schools have lost foreign students.

It is particularly bad for vendors of Christmas goods such as Mr Jin. By September, when the Olympics are over, it will be almost too late for the factories to fulfil new orders and ship the goods to Western shops in time for the Christmas rush.

Dong Shaochen, 36, whose tinsel factory in Tiajin has cut its workforce by a third, said: “We have 50 per cent fewer customers than last year.”

Li Siyi, who sells remote-controlled cars and helicopters for a factory in Guandong province, added: “Our exports are down about 60 per cent.”

Rois Zhang, 19, sat in a booth stuffed full of ceramic dolls — all with Western features. Her factory, Maiqimoppet, had halved its workforce, she said. Thanks to the Olympics, she added, “there will be fewer Chinese dolls in Western shops this Christmas”.

But here is the curious thing: nobody really minds. The people of Yiwu, like Chinese people everywhere, are immensely proud that their country is staging the Games.

Mr Jin said: “It's the big wish of 1.3billion Chinese to have the Olympics. It's something that happens every thousand years, If the West has fewer Father Christmases this year, it's worth it.”

From arrests to surface-to-air missiles

— Chinese authorities detained 82 suspected terrorists in Xinjiang this year who, they claimed, were planning to attack the Olympics

— Five Uighur separatists were killed in Urumqi as part of an operation to foil an attempt to sabotage the Olympics

— 1,500 members of the Falun Gong spiritual movement have been detained in China in the run-up to the games, the group claimed in April

— Close to 1,000 Tibetans were arrested in Lhasa in March as protests in the city turned violent. Tibetan exiles claimed as many as 100 people were killed

— After the earthquake in Sichuan province in May, the Government tried to stifle criticism by parents whose children had been killed when schools collapsed. Police prevented parents and journalists accessing the schools, and broke up protests

— Both China and Nepal banned climbers from ascending Mount Everest as the Olympic torch was taken to the summit in May. Details of the ascent were kept secret due to fears of sabotage attempts

— Surface-to-air missiles have also been installed around Olympic venues as part of a 100,000-strong counter-terrorism operation, which includes large cash rewards for tip-offs about terrorist plots

Sources: Times archives, agencies

Times Recommends

• 'New York has lost its edge'
• Copenhagen will fail – and quite right too
• More than 17,000 new underwater species found