We need the whole truth about closures

BEIJING,Oct.20 -- 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 Chinese media 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 U.S. 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 U.S., 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 U.S. 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.

(Source: China Daily)