By Royston Chan
DONGGUAN, China (Reuters) - Hundreds of workers rallied at a government office in south China on Friday to demand unpaid wages from a shuttered toy maker as the global economic crisis worsened the outlook for an industry already hurt by falling exports.
Factories in the once booming southern Chinese province of Guangdong have suffered over the past year and a half from tight curbs on loans, rising labour costs and China's stronger currency, which makes their products more expensive.
On Friday, Hong Kong-listed Smart Union Group, one of the area's largest toymakers, said provisional liquidators had been appointed, as hundreds of solemn, unpaid workers gathered at the gates of its silent factory across the border.
Its possible demise sounds a warning for factories across southern China which survive on a precarious diet of loans as they compete for foreign orders with wafer-thin margins.
"Finally I think the end is near," economist Andy Xie said. "You have Chinese businesses disappearing... They've been keeping this house of cards going for a long time with bank support."
Smart Union had tried to beat the downturn in toy exports by committing more as smaller factories closed, local media said. It over-extended even as demand worsened, thanks to the global credit crisis which could drag rich consuming countries in the west into recession.
"The main reason for the closure is that we are too dependent on the U.S. market, which has become sluggish," the China Daily quoted Smart Union human resources staffer Xu Xiaofeng as saying.
Smart Union, a supplier to Mattel, had not paid its 6,500 employees in the export-oriented southern city of Dongguan for two months, the China Daily reported.
About 1,000 workers gathered at the factory in Zhangmutou, before moving on to local government offices which were guarded by about 100 police.
"I feel very agitated. We need money to pay for our housing and food," said worker Huang Luohui, 33, who is owed two months' wages.
NOT TECHNICALLY IN LIQUIDATION
Provisional liquidator John Lees said the company was not "technically" in liquidation.
"If you just liquidate the factory, you destroy completely the value," he said, adding that the company had to be got moving and the situation "stabilised."
Riot police with batons and shields also guarded the factory gates, where a notice read "because business is bad, we are unable to give you your salaries."
By the afternoon, a new notice, this time from the local government, went up. It promised workers would be paid for August at least by the end of the day, and pledged the remainder later.
Smart Union was an aggressive toy maker that counted some of the biggest U.S. brands among its clients. It went public in September 2006, but hit hard times as raw materials prices rose while summer flooding caused millions of dollars in damage.
In late September, it reported a loss of more than HK$200 million (15 million pounds) for the first six months of the year. Its debt totalled over HK$500 million at the end of June, exceeding its assets.
Its shares closed at HK$0.099 a share on Wednesday and did not trade on Thursday. They have lost 94 percent of their value since the beginning of the year.
Smart Union could not be reached for comment on Friday.
Dongguan earlier this month set up a 1 billion yuan (84.6 million pound) rescue fund for small and medium sized businesses hurt by the global economic crisis.
But still, the outlook is bleak. The number of Chinese firms exporting toys overseas halved in the first seven months of 2008, compared to the year before, the General Administration of Customs said on Monday.
The number of visitors to the Canton Fair, the top trade fair which is a barometer for China's foreign trade, was down sharply this week, indicating stiffer competition for export factories in months to come.
($1=6.830 Yuan)
(Additional reporting by Alison Leung in Hong Kong and Beijing newsroom; Writing by Lucy Hornby; Editing by Nick Macfie)
