Town helps staff as toy firm fails

By Chen Xingjie  |   2008-10-18  |     NEWSPAPER EDITION

A TOWNSHIP government in Guangdong Province has paid 24 million yuan (US$3.51 million) in emergency living allowances to more than 6,500 workers after the world's largest toy maker announced two of its factories in the town were bankrupt.

Employees lined up to receive the allowance on Thursday at the factories in Zhangmutou Town in Dongguan City, a toy-making hub, Nanfang Daily reported yesterday.

The Hong Kong-listed Smart Union Group (Holdings) Ltd announced the bankruptcy of the two factories on Wednesday.

As some workers hadn't been paid for up to two months, the local government said it would work out plans to help them with their wages and future jobs.

Dongguan has been having a bad time since the beginning of the year, specially in the toy-making sector as a result of rising raw materials and labor costs and the global financial crisis.

Xu Hongfei, deputy chief of Zhangmutou township government, blamed the closure of the two factories squarely on the world economic meltdown, Xinhua news agency reported yesterday.

"A serious problem occurred with capital," said Xu, adding that workers from the two factories had not been paid since August.

"We were making toys on Tuesday, and we didn't know the boss had gone into hiding until Wednesday," said Du Haiqun, one factory worker.

Xu said they had been trying to contact the boss of both factories without success.

Xu said the township government had also contacted two other local businesses to help hire some of the workers who became jobless because of the factory closures.

Smart Union is the original equipment manufacturer and supplier for three of the world's five leading toy brands including Mattel and Hasbro. Mattel is famous for its line of Barbie dolls, Hot Wheels and Matchbox cars while Hasbro is well-known for its Transformers toys.

The two factories relied heavily on exports to the United States with 70 percent of all toys sold to the US market.

Analysts said it was the first bankruptcy case on the Chinese mainland due to the global financial turmoil that started in the US.

Rising labor costs, increasing raw-material prices, the appreciation of the yuan, tightened tax-refund policies and surging examination fees for exports were cited as reasons for the bankruptcies.

Smart Union announced a loss of HK$201 million (US$25.91 million) in the first half of the year.

Its shares closed at their lowest price of HK$0.08 on Tuesday before its announcement that the factories were bankrupt. The price was a drop of 95 percent from its peak in July last year.