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Ardent Listener
Administrator
USA
4841 Posts |
 Posted - 10/19/2008 : 19:52:00
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Factory closure in China a sign of deeper pain
Associated Press
Writer William Foreman, Associated Press Writer Sun Oct 19, 12:18 pm ET
AP Chinese police officers stand guard as hundreds of workers gather outside a government building after
DONGGUAN, China Unemployed worker Wang Wenming was angry at his boss for shutting down a massive Chinese factory this week that made toys for Mattel Inc., Hasbro Inc. and other American companies.
But the assembly line worker was also furious at the United States.
"This financial crisis in America is going to kill us. It's already taking food out of our mouths," the 42-year-old laborer said Friday as he stood outside the shuttered Smart Union Group (Holdings) Ltd. factory in the southern city of Dongguan.
The company, which has struggled as global growth has slowed in recent months, employed 7,000 people in mainland China and Hong Kong. It wasn't immediately clear how many have lost their jobs.
Economic upheaval in the U.S. is already changing and shrinking China's vast manufacturing hub in the southern province of Guangdong, long regarded as the world's factory floor. However, factory closures won't just be a China problem shoppers will feel the effect in malls and stores in the U.S. and Europe.
"When these companies go bust, the outcome is higher prices," said Andy Xie, an independent economist in Shanghai. "Labor costs have gone up 70 to 100 percent in the last three or four years. But these guys have not been able to raise their prices because Toys "R" Us, Home Depot and Wal-Mart are saying no price increase. How is that possible?"
For years, there were too many factories competing to win bids from foreign buyers demanding prices that were often unrealistically low. The winners were American and European consumers, who enjoyed rock-bottom prices.
But many factories were scrimping on materials and stiffing their suppliers just to survive, Xie said. The financial crisis will be the final culling factor that forces many wobbly factories to go belly up and end an unsustainable situation, he added.
Already, China's toy industry is hurting. The official Xinhua News Agency reported this week that 3,631 toy exporters 52.7 percent of the industry's enterprises went out of business in 2008. The causes: higher production costs, wage increases for workers and the rising value of the yuan, the report said.
Nor is Christmas likely to make much difference. Big toy giants generally put in their Christmas orders months in advance so toys can be shipped to them in time.
Even before the financial crisis, China's exports were dropping because of the slowdown in America and Europe. For the first time in three years, the growth rate for Chinese exports in the first quarter of 2008 declined, according to customs figures.
Chan Cheung-yau, chairman of toy and games subcommittee under the Chinese Manufacturers' Association of Hong Kong, agreed that the outlook was gloomy for toy makers. He predicted that thousands more factories would close in China next year.
"The tightening credit market has made it more difficult for manufacturers to raise funds," he said. "It has created a huge cash flow problem."
Workers at the Smart Union toy factory said that for several months the plant was less busy and paychecks were arriving late.
"The management said the problem was that our American customers weren't paying for the goods they ordered so the company couldn't pay us," said worker Shao Xiaoping, who was still wearing his blue company shirt with a red patch above the pocket that said "Smart."
He was among 100 workers who on Friday gathered outside the gates of the factory, a sprawling five-story complex covered in white and blue tiles discolored by dust and smog. About 2,000 other laborers protested outside the local government's offices, demanding that the Hong Kong-based company pay their wages, severance and other benefits. The building was guarded by a line of 50 riot police with shields and clubs.
The workers said the Hong Kong-based owner of the factory didn't warn them before the plant closed Wednesday.
"I've been working here for eight years. I have no idea whether I'll ever get paid. The government says we will, but I'm not optimistic," said a man in a white sleeveless undershirt who would only give his surname, Zhang. Most workers wouldn't completely identify themselves for fear speaking to the press would cost them their wages.
A sign posted by the local government on the factory gates said workers could be detained for 10 to 15 days for stirring up unrest, unlawful gathering, protesting and ignoring orders from security officials.
Calls to Smart Union's offices in Hong Kong went unanswered. On Friday, the company said in a filing to the Hong Kong Stock Exchange that it informed Hong Kong's High Court that is has stopped operating and was seeking buyers.
Last year, the company, listed on Hong Kong's stock market, said in a financial report its core customers included Mattel, Hasbro and Spin Master Ltd. The company's stock was suspended from trading Wednesday.
In another report this year, the company reported a pretax loss of US$25.9 million (HK$201 million) in the first six months.
Higher manufacturing costs including a 20-percent rise in the cost of plastic took a big bite out of profits, along with the 7 percent appreciation of the yuan, it said. The company was also hammered when Mattel and other toy giants recalled millions of Chinese-made toys last year because of safety concerns, the company said.
Although Smart Union wasn't directly involved in those recalls, "the product recall incident badly affected the toy industry," it said.
Most of China's toy factories are in Guangdong province the main laboratory for the bold economic forms China began 30 years ago when it began shifting away from communism. The province was a good place to start dabbling with capitalism because it shares a border with Hong Kong, the main gateway into China for foreign investors.
Companies from Hong Kong, Taiwan, America and Europe flooded into the province to set up low-cost factories that made everything from sneakers and bras to laptops and iPods. The booming region close to Hong Kong became known as the Pearl River Delta.
Most of the factory closures are happening in the Pearl River Delta, and the changes didn't seem to bother one of the province's highest-ranking economic officials, Vice Governor Wan Qingliang.
In a briefing with foreign reporters this month, Wan said the global economic crisis wouldn't deter the provincial government from pressing on with a sweeping plan to restructure the Pearl River Delta's manufacturing base. He said the government wanted low-end factories to move farther into China's interior so that they could be replaced with more high-tech, advanced industries.
"We have a policy to empty the cage for the new birds," he said. "The ultimate target is to build the Pearl River Delta into the core region of modern manufacturing."
If the strategy works, China might eventually come out of the toy crisis stronger.
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Associated Press writer Dikky Sinn contributed to this report from Hong Kong.
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deleted
41 Posts |
Posted - 10/21/2008 : 16:24:49
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| This is one of the reasons I don't think China will pull the rug out from under the dollar (yet). With unemployment as high as it is already, TPTB in the Party are desperate to create and keep as many jobs as they possibly can in the country, especially in the south and the interior. At this point, though, I'm not sure how much they can do about it with how much international exposure there is. |
I'm not gone, I'm just lurking. |
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jadedragon
Administrator
Canada
3788 Posts |
Posted - 10/21/2008 : 23:37:32
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For years domestic and international companies have been shifting production from the areas around Hong Kong and Eastern areas into the interior and Western areas to take advantage of cheaper labor. Some Chinese production is also shifting to places like Vietnam and even Africa where China is investing heavily now. This is part of the normal evolution of the world, and less factory jobs will be needed at the more industrialized areas of China move toward a more service oriented economy.
Traveling in China we developed an expression to explain all kinds of weird sights "everyone needs a job!" 4 workers collecting coins in a single toll booth, two waitresses and a helper assigned to our table for two, 10 greeters at the resturant door, and so on. like iron said, the government is pretty modivated to keep everyone working and out of trouble. |
The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man. George Bernard Shaw.
Why Copper Bullion ~~~ Interview with Silver Bullion Producer Market Harmony
Passive Income blog |
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n/a
deleted
41 Posts |
Posted - 10/22/2008 : 08:20:37
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Another less often discussed reason for the government's interest in spreading out the manufacturing base is the fact that they're terrified of the growing wealth concentrating in the southeast. With the base of political power in the north and the base of wealth in the south, plus the much stronger influence of Hong Kong there, there's an unspoken fear within the Party that the country could split irreconcilably, possibly even literally (though personally I doubt that). There's already a huge divide linguistically, so they've been paranoid for a while about this.
(Legacypac- where in China were you?) |
I'm not gone, I'm just lurking. |
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jadedragon
Administrator
Canada
3788 Posts |
Posted - 10/23/2008 : 00:36:45
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| I'm in Canada iron - but we have an office in Beijing's Tsinghua Science Park, and an R&D facility in Dalian inside our partner's headquarters campus. We are just a small company in China today, but one of our companies has licensed its propriatary technology to one of China's leading industrial equipment manufacturers. I've been in China about 6 times, totalling around 60 days on the ground so far. To date I've visited 10 provinces to visit potential suppliers, partners and customers. I also work closely we a bunch of Chinese staff posted here in Canada. So I know a little, but not a lot for sure. It is a facinating place... and I'd say that North American's better start teaching thier kids Chinese. That's the plan for my baby. |
The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man. George Bernard Shaw.
Why Copper Bullion ~~~ Interview with Silver Bullion Producer Market Harmony
Passive Income blog |
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Crash
Penny Pincher Member
USA
155 Posts |
 Posted - 10/23/2008 : 06:51:18
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quote:
Traveling in China we developed an expression to explain all kinds of weird sights "everyone needs a job!" 4 workers collecting coins in a single toll booth, two waitresses and a helper assigned to our table for two, 10 greeters at the resturant door, and so on. like iron said, the government is pretty modivated to keep everyone working and out of trouble.
This is true & it was strange for me as well. When I was in Shanghai, in a Carrafoure's department store, there were 2 workers for every aisle. |
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swusc
Penny Hoarding Member
USA
553 Posts |
Posted - 10/23/2008 : 15:40:17
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Didn't the Communist party take over due to bad economic conditions? I think they did. If so, you better believe they know another bad economic condition could be the end of them.
That is why we have such a trade deficit with China. They are willing to sell the stuff below cost to maintain jobs. They are doing this by keeping the exchange rate lower than it natural would be. They are basically subsidizing foreign companies to buy their goods. They will do that until they don't need to or can't do it anymore.
-SWUSC |
`Everybody is ignorant. Only on different subjects.' Will Rogers
"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the "hidden" confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard." Alan Greenspan, 1966. |
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deleted
41 Posts |
Posted - 10/26/2008 : 11:15:19
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quote:
Originally posted by swusc
Didn't the Communist party take over due to bad economic conditions? I think they did. If so, you better believe they know another bad economic condition could be the end of them.
I could get really pedantic and bring up the May Fourth Movement as the original inroad that communism made into China, but I'm lazy. But yeah, they're worried about the strengthening yuan dampening their efforts to attract as many plastic-crap manufacturing jobs as they possibly can. Who knows how long it can keep going? What are we at now, half a trillion dollars in US debt owned by the People's Bank? |
I'm not gone, I'm just lurking. |
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Factory Closure in China a sign of deeper pain
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