China toy story shows buzz has left the business

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 US 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.