The industrial sector is expecting more Hong Kong enterprises to close down their operations in the Pearl River Delta (PRD) in face of the financial crisis after a listed company closed down its factories there.

Smart Union Group (Holdings) Ltd, a leading toy manufacturer in Hong Kong, had to close down its two factories in Dongguan Tuesday and suppliers visited its Hong Kong head office yesterday to recall debts, though not successfully.

In the view of the Federation of Hong Kong Industries, operations of Hong Kong-funded enterprises especially small & medium enterprises (SMEs) in the PRD are getting increasingly difficult as the recession trend continues.

Smart Union's factories in Dongguan, Guangdong province employed about 6,500 workers. After it suddenly ceased operation Tuesday night, a huge number of workers took to the street the next morning to demand payment of their defaulted wages.

The Zhangmutou township government posted notices outside the factories, telling the workers that the government had set up a task force to deal with the matter and would also pay the workers out of the government coffer for the time being.

"The factories ceased operation due to cash flow shortages," said Xu Hongfei, deputy governor of the township government. "Some of the workers have not received their payment since August. One of the factories defaulted wages for 1.5 months and the other for 2.5 months."

Smart Union, a listed company in Hong Kong since 1996, is a leading manufacturer for three of the top five US toy brand names. But according to financial analysts, the closure of its mainland factories was due to decreasing overseas orders as a result of the financial tsunami. As shown by its interim business report, the company recorded losses over HK$300 million.

Stock transaction of the company ceased on the Hong Kong stock exchange Wednesday. As reported by Hong Kong's Cable TV, the company's chairman cum executive director Wu Kum-bun yesterday declined to comment on the matter.

Lawmaker Andrew Leung, who represents the industrial sector, said changes in mainland policy and the financial tsunami have made life for Hong Kong enterprises very difficult.

"The labor contract laws, processing trade law, etc. have made operation of Hong Kong businesses, especially the SMEs very difficult," he said. "As the financial tsunami comes so quickly and fiercely, we have no prior experience as to what we should do. But surely if the economic recession continues, more and more enterprises will collapse."

(HK Edition 10/17/2008 page1)