One of China's largest plastic home décor manufacturers filed for bankruptcy last week, according to a provincial court. The company, Stars Arts and Craft Co. Ltd. of Xiamen, Fujian province, owes about 500 million yuan in debt but only has 200 million yuan worth of assets.

About 20 percent of the debt is to construction contractors, who built a luxurious, palace-like factory complex for the company. The 120,000-square-meter complex was put into use in July 2008, and Stars stopped paying factory workers in September. As the owner was confirmed to have fled to the United States, a local court took over the factory in October and shut down production.

Other creditors include suppliers, banks and private lenders. But the employees -- mostly migrant workers -- have so far been paid off by the local government.

It's undeniable that the global financial crisis hit Stars hard, but the irrational investment and unhealthy cash flow accelerated the company's collapse.

China's largest injection press maker, Ningbo Haitian Group Ltd., had the perfect opportunity to let go of more than 200 workers whose contracts just expired. Especially since, as a result of the global recession, Haitian's output plummeted 70 percent in November and December. It would have been a good time to reduce headcount, seeing as a whopping 70 percent of the firm's 3,500 employees didn't even have any work to do.

"Not renewing the contracts could have saved the company millions of yuan," General Manager Zhang Jianming told Zhejiang Daily, "but it's so hard to find a new job right now that these workers may face real life hardship."

So Haitian went ahead and renewed the contracts. Each employee has work to do for at least one week every month, and the rest of the time is paid time off.

The workers expressed their gratitude for no pink slips by volunteering pay cuts, and product development and sales staffers worked long hours and on the weekend. Now, it looks like the efforts are paying off. The company said it secured 10 million yuan in domestic orders the first week of the New Year.

Nothing wins Chinese employees' hearts and loyalty more than job security, especially right before the Chinese lunar New Year holiday. How long will Haitian be willing and able to afford employees working one week every month? Will sales turn around after the lunar New Year, as the company forecasts? We will keep a close eye on it.

Economists are debating whether China will be able to lead the world economy out of the downturn. For individual companies that have already invested in China, the question is whether to stick around or go somewhere cheaper. Two Shanghai-based American consultants just gave Vietnam a close look.

Surprisingly, Vietnam is not as cheap as we think. Francis Bassolino, Shanghai-based partner of Alaris Consulting pointed out in an article that the productivity gap between Chinese and Vietnamese workers is so large that Vietnam's unit labor costs do not fall far below China's, despite the significant wage differential. In other words, don't just look at how much you pay; focus on how much you get for what you pay.

Steve Ganster -- senior vice president, Asia, for Tompkins Associates -- found similar trends. According to a media report, Ganster analyzed the costs of sourcing in China and Vietnam and concluded that with the exception of value-added tax savings, there is no appreciable benefit to switch from China to Vietnam.

Meantime, Vietnam's infrastructure is incomparable to China's. Bassolino made a very convincing comparison: Shanghai alone supports more than five times the shipping volume of all of Vietnam's seaports combined.

Of course, Vietnam also lacks the tremendous domestic market potential China offers, a bigger prize that intrigues all foreign companies.

"At least another decade will pass before Southeast Asia can become a viable, large-scale alternative to China," Bassolino stated. Ganster echoed, saying "China is unparalleled in its economic scale and size for both exports and domestic demand. None of the countries we've looked at will be able to match China's will and ability to continue to make offshoring an attractive sourcing option."

I don't want to promote a China-exclusive business attitude. Good margin justifies investment in any corner of the world. But it seems that China remains a top choice for foreign investors.

Most importantly, I'd like to highlight a point both Bassolino and Ganster mentioned. There's plenty of room to improve margin in China. Bassolino put it this way: "Profit-optimizing strategies have not run dry -- far from it ... the majority of foreign manufacturers neglect to fully apply international best practices such as integrated planning systems, inventory optimization processes and lean techniques."

The flaws and drawbacks of China's legal and business systems didn't stop Chinese factories from plugging into the global manufacturing network, but they are hurdles keeping Chinese companies from expanding globally.

That's the most important point from the following videotaped conference speech [in English] by Long Yongtu, the former chief trade negotiator who brokered China's accession to the World Trade Organization in 2001.
If you have trouble getting the audio, it may be because you are using the FireFox browser. Please switch to Internet Explorer. The McKinsey Quarterly provided the embedded video.

Long wasn't reluctant at all to point out that China lacks a stable, transparent, predictable legal system. On the unlevel playing field, foreign-invested companies and state-owned companies have long enjoyed better treatment than China's small and midsize local companies, which have difficulties getting land, tax breaks, etc.

It's also my personal observation that many Chinese companies thrive by taking advantage of the people-based -- versus rule-based -- system. Good for them. But these domestically successful companies are so used to the Chinese system that they are not prepared when investing abroad. Part of the blame goes to the deep roots of Chinese culture. Neither rule by law nor transparency is a tradition in China.

On the other hand, Long's stance on the openness of Chinese's economy is firm. He said business transactions shouldn't be politicized. He mentioned as an example Coca-Cola's attempt to acquire Chinese juice maker Huiyuan, which is still going through anti-monoply hearings in Beijing. Well, he forgot that quite a few Chinese conglomerates have failed to acquire overseas companies because of political resistance from the host countries.

Beijing announced last week that by the end of 2008, nearly 170 million automobiles had been registered in China. And in 2008 Chinese consumers bought 2.26 million imported cars, alone -- a 13 percent jump from 2007.

But the slowdown in the global auto market is biting Chinese auto makers and suppliers. "Capacity utilization is easily down to 10-20 percent in many auto part factories," according to Chen Wenkai, president of B2B publisher and trade show organizer Gasgoo.

On the toy front, at this week's Hong Kong Toy Fair -- the world' second largest toy show, a trade group official said that the number of toy makers in China dropped from 8,300 to 3,200 as a result of the global downturn, and 80-90 percent of the closed companies involved Hong Kong investment.

Dongguan city in Southern China -- one of the world's largest toy manufacturing bases -- said exports dropped 12 percent in November 2008 on a year-to-year basis. Guangdong province as a whole saw its toy exports for November tank 36 percent from the month prior, or 5 percent over a year ago.

(Sources: China's Ministry of Public Security, Ministry of Commerce, China Securities News, the Consumer Daily)

It was almost predictable that the trend of using recycled plastics in electronics like laptops was going to spread wider. Now, Motorola Inc. has unveiled the world's first mobile phone made of recycled plastic bottles -- the carbon neutral Moto W233 Renew.

I like the idea of using recycled plastics -- as our industry has been doing all along -- but I'm not sure why marketing executives are so obsessed with plastic bottles. I guess the concept of "recycled plastic bottles" sells better to consumers than other types of recycled plastics? In other words, recycled plastic bottles are "sexier" than recycled plastic bags, film, pipes, auto parts, etc.?

It reminds me of a public relations campaign during the Beijing Olympics, which touted "T-shirts made from plastic bottles." Come on. How long has recycled polyester been used in apparel already? What's so sensational about it?

Speaking of plastic bottles, another important piece of news is that Coca-Cola will start the world's largest bottle-to-bottle recycling plant in Spartanburg County, South Carolina, next Wednesday, the Spartanburg Herald Journal reported. It's a wonderful thing to produce food-grade PET from used bottles and make new bottles with the material. Absolutely the best use of discarded bottles. I very much look forward to the January 15 satellite media tour of the facility.

Finally, is it more eco-friendly to stick to your old cell phone or to replace it with the eco-friendly W233, which doesn't even offer much functional features that your old phone doesn't have?

If you haven't visited Plastics News' multimedia section, now is the time! Here are a few China-related clips that might be of interest to you:

1. Lenovo designers collaborate across the world
Get a flavor of how Beijing-based Lenovo Group Ltd., one of the world's largest computer manufacturers, overcomes cultural, language and time-zone challenges between its three design centers in China, Japan and the United States. You'll understand why the word "common" can cause tension between Chinese and American designers.

2. 'Fit is critical' in headwear

Mr. Roger Ball is a China expert, and his specialty? In addition to being an assistant professor at the Hong Kong Polytechnic University's School of Design, he is the founder of online database SizeChina.com, which is based on measurements and scans of 2,000 Chinese craniums.

3. Turning trash into treasure
Believe it or not, the growth of metal recycling is helping sustainable plastics. Mike Biddle, founder of MBA Polymers Inc., talks about the process of recovering plastics -- not from bottles and films, but from more complex durable goods such as computers, electronics, appliances and cars. MBA Polymers has a factory in Guangzhou.

Congratulations on becoming the 44th president of the United States, which is already changing this nation's history. But there is a lot more you can do to impact the direction America is headed, one of the most significant tasks being rescuing the ailing economy.

As I compare the economic policies and plans laid out by Beijing and Washington, it appears to me that China is sticking to concrete and tangible value-creation. Its US$586 billion stimulus package is aimed to boost infrastructure, industrial innovation, transportation, post-disaster construction, as well as environmental protection. In addition, the Chinese government, on all levels, is doing everything it can to preserve and support businesses -- big and small; state-owned, public and private. Such measures include higher export subsidies, lower business taxes, streamlined regulative procedures, more accessible loans, etc. Moreover, Beijing has also made very specific plans to promote manufacturing industries such as automotive, petrochemical and industrial equipment.

Here in America, like every other tax payer, I'm seeing cash being injected - over and over again - into financial institutions, which still keep their coffers locked and refuse to lend money to troubled mortgage holders and business owners. Yes, the Big Three in Detroit eventually received U.S. Treasury loans, but what about the rest of the manufacturing sector? What has been offered to support plastics molders and suppliers across the country? While we bemoan the accelerating loss of jobs, we still hear that businesses may even need to pay more taxes in order to keep the government and the financial industry running. Then, how are they expected to compete with overseas counterparts and keep jobs in the U.S.?

Dear President Obama, I'm a loyal observer of and advocate for global manufacturing. I look forward to more details about your plans to create jobs and turn around the U.S. economy - and, of course, real actions.

The end is where we start from, isn't it? Sometimes, we are just too used to the current life, we need someone else to put an end to it before motivation arises for a new -- and better -- life.

A layoff can do just that. Millions of jobless Chinese migrant workers are bidding farewell to the coastal industrial bases and returning home to their villages, their lives about to unfold new chapters.

Take a look at Longnan county in Jiangxi province. During the past two decades, laborers left their rice paddies and went to work at modern factories in nearby Guangdong province. But as businesses transfer from Guangdong to less expensive inland regions, Longnan has seen a boost of local manufacturing and therefore a demand for more workers.

"Around mid-2008, the county was short 13,000 workers," local employment authorities told Guangzhou Daily. "So we've been trying to recruit people back to Longnan. We still have 5,000 jobs to fill and will organize a job fair right after the Chinese New Year. Hopefully many returnees can stay here."

Certainly, factories in Longnan don't pay as much as those in Guangdong. But not having to be away from home definitely makes up for the discrepancy in wages, emotionally and financially -- living at home slams living expenses.

For Xiao Liangbo and his wife Rong Suqing, post-migrant-worker life is pretty good. After working for a plastics factory in Panyu, Guangdong province, for 15 years, Xiao decided to go back home and open his own factory. In 2004, he partnered with a few other returnees and started producing plastic hangers and clips. Their factory now employs more than 80 and the products are exclusively exported to Japan and America. "Not bad at all! Our orders have piled up to April already," Rong said.

The Year of the Ox is right around the corner, starting Monday, January 26. The first week of the lunar New Year is a public holiday in China, and some employers are even more generous and let workers stay home till after the 15th day.

To be away from home and family during the holiday -- also called the Spring Festival -- can be tough for Chinese people, as it's a time for family. So let me take this opportunity to send my holiday greetings to all our readers and friends, and especially those of Chinese/Asian descent.

A sense of optimism is spreading among local Chinese and even Western expatriates in China, hoping that the Year of the Ox will end the turmoil of 2008's naughty Year of the Rat and bring strength, prosperity -- and a bull market!

Check out this popular video clip featuring a gold ox from tudou.com, the Chinese equivalent of YouTube. [Please use Internet Explorer instead of FireFox.]

In my December 8 column "China now victim of own success", I made it clear that compounder Kingfa was bound to take a hit financially, for reasons including massive investment in real estate.

The moment of truth has arrived. Kingfa, China's largest domestic plastic resin compounder, issued a performance forecast on January 23, predicting a 30-70 percent drop of profits in fiscal 2008. Kingfa's net profit hit 396.5 million yuan (US$60 million) in 2007.

The Guangzhou-based company had been on a clean, upward growth trend since it went public in 2004.

Kingfa blamed the domestic and global economic downturn and the sharp fall of resin prices in the fourth quarter of 2008. It admitted that the company's real estate business has lead to a "comparatively large loss," as the price of its land reserve took a dive. Slow demand from the consumer market in the fourth quarter also affected the company's "main resin business."

Kingfa's compounding business is mainly serving the appliance and automotive markets, both of which are in a slump.

Analysts said the company predicted such a wide range (the 30-70 percent mentioned above) because of difficulty appraising the company's land reserve.

In the worst-case scenario -- if the company's upcoming annual report confirms a 70 percent decline -- Kingfa's 2008 net profit would end up at 119 million yuan (US$17 million).

A 21 percent profit increase in the hectic year of 2008 probably looks like a dream out of reach for companies like Whirlpool Corp., Electrolux AB, General Electric Co.'s appliance division and LG Electronics, as the home appliances market in North America continues the two-year-long downward trend.

The latest data from the Association of Home Appliance Manufacturers in Washington shows that total shipments of all major appliances in the first 11 months of 2008 were down 8.7 percent, to 62.8 million units.

For China's largest appliance maker Haier, however, the 21 percent increase in profit is a dream coming true. While the company has made a solid effort to crack overseas markets -- including investment in production facilities in America, the Chinese home market -- the Chinese rural market, to be exact -- is sailing Haier through the global economic storm.

The real boost comes from Beijing's subsidy for rural consumers to purchase home appliances. China's central government generously offers to 180 million rural households a 13 percent rebate on purchases of televisions, refrigerators, washers, mobile phones, air conditioners, water heaters, computers, motorcycles, etc.

In the first phase of the rebate program (from December 2007 through October 2008), Haier sold 1.2 million units of home appliances/electronics (there is no product-specific breakdown data available), accounting for 42 percent of the products sold through the program. The second phase started on December 1, 2008.

With its huge success in selling to rural residents, Haier announced earlier this month that it had overtaken Whirlpool and LG Electronics as the world leader in refrigerator sales.