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Sub-contract factories fall victim to US crisis

By Tu Lei (chinadaily.com.cn)
Updated: 2008-10-16 17:33

Two sub-contract manufacturing factories under one global toy maker in South China's Guangdong Province have collapsed, in the first bankruptcy case for the substantial economy in China, according to today's National Business Daily,

The two factories, located in Zhangmutou Town of Dongguan City, were toymakers for Smart Union Group (Holding) Ltd, one of the world's largest manufacturing and trading companies in toys and recreational products on an original equipment manufacturer basis. All the products were being sold to the United States.

Factories failed to pay salaries in September and October for their 6,500 staff, and local officials in Zhangmutou have confirmed the factories have gone bankrupt.

Experts familiar with the toy industry said this is the first China case affected by the American financial and subprime mortgage crisis.

"It has not been easy for them to last till now," said Chao Gangling, from Shanghai University of Finance & Economics. Chao said sub-contract manufacturers have been hurt most due to the financial crisis.

Zeng Gang, an expert from Chinese Academy of Social Sciences, said the real economy will inevitably shrink when facing difficulties in raising funds and cost increases, which may lead to other negative results, adding the possibility of the financial crisis developing to an all-around economic crisis is increasing, according to today's the Beijing News.

The rising yuan, along with escalating production costs, has driven half of China's toy exporters out of the market in the first seven months of this year, the General Administration of Customs said in a report Monday.

Customs figures show from January to August the country exported 35.29 billion yuan ($5.17 billion) worth of toys, up 1.3 percent from the same time in 2007. However, the growth rate was actually 21.80 percent slower than that of last year.

In the first half of this year, Dongguan City, with 60 percent of the toy market in Guangdong Province, saw exports of $550 million, down 1.5 percent year on year, or the first drop for years.

China produces 70 percent of global toys, with Guangdong grabbing 70 percent of the market.

Chao said it is the biggest enterprise hit by the crisis as far as he knows. It lost HK$200 million ($25.79 million) in the first half of this year.

Yesterday, the Hong Kong-listed toymaker declared its shares trading suspended, pending the release of an announcement in relation to price sensitive information.