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October 20, 2008 02:00 AM

Smart Union latest toy maker hurt by US economic slowdown

Steve Toloken
Assistant Managing Editor
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    The sudden closing of a large South China plastic toy-making factory sent hundreds of workers protesting for back wages and highlighted the difficulties facing China's toy industry.

    Smart Union (Group) Holdings Ltd., a Hong Kong-based contract toy maker, said Oct. 17 that it had filed for liquidation in Hong Kong courts, two days after it suddenly shuttered its factory in Dongguan, China.

    Chinese state media reported that more than 6,000 workers at the massive factory lost their jobs. The state-run China Daily quoted a company human resources official as blaming weak demand in the United States. ``The main reason for the closure is we are too dependent on the U.S. market, which has become sluggish,'' the official said.

    The China Daily said the company makes toys for U.S. firms Mattel Inc. and Walt Disney Co.

    Press reports said hundreds of workers had gathered outside the company's facility in Dongguan.

    Smart Union said on its Web site that the High Court of the Hong Kong Special Administrative Region had appointed two provisional liquidators to take control of the company. It said it would make further announcements as appropriate.

    The company told Hong Kong regulators Sept. 24 it lost HK$201 million (US$25.1 million) in the first six months of 2008, as plastic prices rose 20 percent, labor costs jumped 12 percent, the Chinese currency rose 7 percent and flooding at one facility damaged inventory.

    In addition to those challenges, the firm, which operates on thin margins, also said it had quality-control problems that required it to throw away production and cost it HK$45.4 million (US$5.9 million), which alone was only a little less than its entire profit for the same period in 2007.

    ``During the six months ended 30th June 2008, the planning and production process were not operated smoothly and some of the inventories made were scrapped due to the quality [not meeting] customers' requirement,'' Smart Union said.

    Smart Union joins other hard-hit South China toy makers, but what perhaps sets it apart is that many of the factory closings to date have been concentrated among smaller firms.

    Chinese state media reported earlier this month a little more than half of China's 7,100 toy exporters went out of business in the first seven months of the year, hurt by the rising Chinese yuan and production costs.

    But officials with China's General Administration of Customs said the closings were mainly confined to small companies with an export value of less than US$100,000. It said overall toy exports from China were up only 1.3 percent in the period, to US$5.17 billion, compared with growth of more than 20 percent in 2007.

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