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Facing problems of toying with industry

By Zhang Haizhou (China Daily)
Updated: 2008-11-04 07:35

Half a month after Smart Union went bankrupt, the once-bustling streets around the compound of the largest toy factory in Zhangmutou township have become a playground for children. Vans no longer deliver raw materials or packed toys. Instead, groups of youngsters try to pick up discarded toy parts from behind the locked gates of Smart Union.

Workers walk out of a Smart Union factory in Dongguan, Guangdong province, on October 18, three days after the company declared bankruptcy. [China Daily]

Standing a few steps from the entrance, a laid-off worker of the Hong Kong-listed toy maker stares at his old office. Jiang Huajian, 27, was with Smart Union in Dongguan, Guangdong province, for seven years, working his way up from the lowest rungs to become a floor manager.

"I just came back for a final look at the factory before heading back home to Hubei province I may not come back again," he says.

The toy factory closed suddenly on Oct 15, leaving more than 6,500 workers jobless. They had not received any wages since August, so the local government spent more than 24 million yuan ($3.5 million) to pay them three months' wages.

The reason for the closure of Smart Union, owned by five Hong Kong residents, is a puzzle for many workers. Jiang says his assembly line in the electronic toys department was humming along as usual even a day before the company shut. It was trying to finish a big order for a US buyer.

Many company officials blamed the global financial crisis for the closure, a view shared by others facing similar challenges. "The economic upheaval in the US is already changing and shrinking China's vast manufacturing hub in Guangdong province, long regarded as the world's factory floor," AP said recently.

But Jiang says his Hong Kong bosses used the financial crisis as an excuse to jump ship. "Such a big firm, which has never stopped getting orders, going bankrupt overnight is really weird," he says.

Dongguan produces more than 30 percent of the toys sold worldwide every year, according to Guangzhou-based Nanfang Daily, and Smart Union was one of its biggest companies. The Smart Union group's sales in the first half of this year was nearly $50.3 million, up about 3 percent year-on-year, according to a corporate report published in September. Its total assets fell about 5 percent, though.

The factory has been suffering from "severe internal problems such as mismanagement and failed investments for a long time", Jiang says. It was a far cry from the days when it resting at the top.

Smart Union opened its Zhangmutou factory in 1996, and according to the Southern Metropolis Daily, it enjoyed a five-year "golden period" like many other labor-intensive manufacturing industries.

Before 2000, every toy factory boss used to play mahjong every day and still collect huge amounts of money, the newspaper said in late October. Such firms began facing problems with rising manufacturing costs, and Dongguan started changing from a labor- to technology-intensive center.

Faced with the new challenges, many toy makers began looking for new investment channels. Jiang says his former bosses were using toy factory funds to invest elsewhere. "They (the bosses) would leave some of the sales revenue for staff salaries, and 'take away' the rest."

In 2004, Lai Chiu-tai, the factory's vice-chairman, opened a traditional Chinese medicine company in Hong Kong. He reportedly exports his products to more than 10 countries and regions, including Japan, Malaysia and Singapore.

Two years ago, Lai said in an interview with China Plastic & Rubber Journal that he wished to invest in motor parts production on the mainland. "Hong Kong firms' reputation in credit standing will help Smart Union's success in the domestic market," the journal quoted him as having said.

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