China factory closure leaves workers asking: now what?

By John Ruwitch

DONGGUAN, China (Reuters) - Like tens of millions of young Chinese before her, Yu Juan left China's hinterland for factory work near the coast four years ago with the dream of getting rich.

An acquaintance from her hometown of Dazhou in Sichuan province told her about an exporter in Dongguan, an hour-and-a-half north of Hong Kong, that was hiring.

The Hejun Toy Factory was large, Hong Kong-owned and paid well and on time. It also had an imprimatur that Yu and others working there thought was a virtual guarantee of job security: a stock code.

"At that time, we considered this company good because it was listed on a stock exchange," she said.

Last week, however, Hejun's owner, Smart Union Group, closed the factory gates, suspended its shares and said provisional liquidators had been appointed.

Smart Union had tried to beat tough export conditions 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. It also suffered a costly flood this summer.

Some workers saw Smart Union's fate as a sign that things in industry had gone from bad to worse.

Exporters in the once-booming southern province of Guangdong and other industrial hubs have suffered in recent years from rising labor and input costs, a stronger Chinese currency, fewer tax breaks and more stringent testing standards.

Now, credit is constricting as the U.S. crisis spreads. Factories across southern China survive on a precarious diet of loans as they compete for foreign orders with wafer-thin margins.

Yu and about 7,000 other workers were told they would not be paid and as hundreds took to the streets to protest, many wondered: If such a seemingly well-founded company could fail, who was safe in this environment?

"It's scary," said engineer Zeng Yangwen, 26, who had worked at the toy maker for three years. "The companies that folded before were small. This is the first big one to go under."

FINANCIAL TSUNAMI

The Federation of Hong Kong Industries sent survey questionnaires to members last week to try to gauge the scope and depth of the trouble.

"Due to the global financial tsunami, local banks in Hong Kong have tightened their credit facilities to Hong Kong companies. Most SMEs are hard hit and have encountered liquidity problems," it said.

Hong Kong businesses have helped underpin Guangdong's robust economy, which in turn has been a key driver of China's double-digit growth. Less credit and lower orders will almost certainly translate into more factory closures and layoffs.