We need the whole truth about closures

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By You Nuo (China Daily)
Updated: 2008-10-20 07:38

It appears to have come faster than people had thought. When economists are still undecided in measuring the impact of the financial crisis on the real economy, there have been collapses of some major manufacturers in China due allegedly to the declining demand.

Last week's closure of a large toy factory in Dongguan, a city known as one of China's manufacturing outsourcing centers, was not the only case, as it turned out.

The scene of angry young men and women, of the 7,000 workers laid off from the Hong Kong-listed Smart Union, was seen on TV worldwide.

BEP International Holdings Ltd, another toy-maker listed in Hong Kong, was reportedly paying arrears to its 1,500 workers when it closed down, as Xinhua reported on Saturday.

Both companies used to take outsourced orders from major international brands in markets in North America and Western Europe. Domestically, their surprise closures have hurt many Chinese businesses on the upper stream of the supply chain.

China cannot just sit down guessing about how long it will take for orders from its export markets to return.

Economists cannot just act conveniently by telling the society: "Hadn't I told you low-skilled outsourcing jobs for the US can't be reliable? See?"

In the Smart Union case, as the township government promised to pay from its own account the wages the company had so far denied to the 7,000 workers, 24 million yuan in total, we know what the social cost would be for the local officials to leave the workers taking to the street.

This is only what a local government can do, for one or two factories. Even for the city government of Dongguan, or any other booming city in China, how many jobless workers can they help on a case-by-case basis? Considering their small size and limited resources, their fiscal burden for doing so may be tantamount to the US bailout plan for its ailing banks.

While there are reports that in the first seven months of the year, more than 3,600 toy makers already went out of business in China thanks to factors such as rising wages and material costs.

But wait a minute. These reports also reflect something like a trend, the closures of toy factories, and that the trend had started long before the Wall Street started to panic. How much those factory closures were really linked with things in the US, contrary to what is generally reported or believed, is actually quite vague, and not readily supported by the data from across the Pacific.

As information leaked out of Dongguan reveals, especially from the suppliers to the Hong Kong toy-makers, there had been signs of their failing business for quite some time. They reported about continuous internal strifes that affected business policies and shop-floor management. If that is the case, it should not be attributed only to the US crisis. It would be a case of management failure, perhaps one in which some company leaders stole the revenue that should have been shared by workers, shareholders, and suppliers.

For people who control the company board, stealing its profit by pointing fingers to the Wall Street makes them appear like victims.

What the Dongguan government should do, with the support from the government of Guangdong province and even the central government, is to call for Hong Kong's financial regulators to make an investigation into the failing companies. And, their factories in the Chinese mainland should be put under administration, and be auctioned to trustworthy and capable managers.

If it is found that some did steal company profit from the Chinese mainland for investing in new companies elsewhere, to seek cheaper labor and lower taxes, they should be brought to trial.

E-mail: younuo@chinadaily.com.cn

(China Daily 10/20/2008 page4)