Owners flee as China factories fail
http://www.baltimoresun.com/news/nation ... 6218.story
By Don Lee | Los Angeles Times
November 9, 2008
SHAOXING, China - First, Tao Shoulong burned his company's financial books. Then he sold his golf memberships and disposed of his Mercedes S-600 sedan.
Then he was gone.
Just like that, China's biggest textile dye operation with four factories, a campus the size of 31 football fields, 4,000 workers and debts of at least $200 million was history.
"We're pretty much dead now," said Mao Youming, 38, one of 300 suppliers stiffed in October by Tao's company, Jianglong Group. Lighting a cigarette in a coffee shop, he spoke calmly about the bleak future for his industrial gas business. Tao owed him $850,000, Mao said, about 60 percent of his annual revenue. "We cannot pay our workers' salaries. We are about to be bankrupt, too."
Government statistics show that 67,000 factories were closed in China in the first half of the year, said Cao Jianhai, an industrial economics researcher at the Chinese Academy of Social Sciences. By year's end, he said, more than 100,000 plants will have closed.
As more factories in China shut down, stories of bosses running away have become familiar, multiplying the damage of China's worst manufacturing decline in at least a decade.
Even before the global financial crisis, factory owners in China were straining under soaring labor and raw-materials costs, an appreciating Chinese currency and tougher legal, tax and environmental requirements. When the credit crunch took hold - prompting Western businesses to slash orders for Chinese goods and bankers to curtail loans to factories - many operations were pushed over the edge.
China's industrial decline is a main factor in the sharp economic slowdown. The nation's gross domestic product grew at an annual rate of 9 percent in the third quarter, the lowest in five years and worse than analysts had forecast. China's GDP expanded 11.9 percent last year. Economists worry that the one big remaining engine of global growth is losing steam rapidly.
Chinese leaders are trying to maintain stable but fast growth to control rising joblessness and the risk of political and social turmoil. Last month, Beijing increased tax rebates for many exported goods and pledged to take other steps to spur development, including prodding banks to boost lending to small companies. But many businesses and analysts are not optimistic.
"Honestly, I think whatever measures government would take at the current stage would not turn around this trend," said Ye Hang, an economics professor at Zhejiang University. "The government can only try its best to put out a fire here and there."
In Zhejiang province, south of Shanghai, Ye counted at least six major bankruptcies, including Jianglong; Feiyue Group, China's biggest sewing-machine maker; and Zhejiang Yixin Pharmaceutical Co., among the largest in its industry.
"Of these six, one [owner] committed suicide, one was detained by police and the remaining four all escaped," he said. "I can imagine that in the future there would be more such cases as a result of the chain reaction."
By the official numbers, Chinese exports remained brisk through September, except for a few categories such as apparel, which fell 3 percent in September from the same month in 2007. But many exporters are not making a profit, and others are seeing orders shrink or are starving for cash.
"Don't even mention the U.S. market," said Zhong Shijun, general manager of Foshan City Golden Furniture Co. "Even our European Union market is dropping seriously in the last two months, because the euro is depreciating."
Migrant workers generally do not qualify for unemployment benefits, and although China's bankruptcy laws give unpaid workers priority, that is of little value if owners run away and there are few corporate assets.
Yang Shenggang, 33, had been at a Shenzhen shoe factory for seven years, working his way up from the assembly line, making $50 a month, to become a supervisor earning six times that. This spring, he said, the Hong Kong owner fell behind in paying wages. One morning in September, the plant closed.
"The boss was just gone," Yang said. "I have to get my five months' salary back. My family needs money to eat and live."
Stanley Lau, deputy chairman of the Federation of Hong Kong Industries, a trade group with 3,000 members, said he does not know how many owners in Hong Kong have run away.
"I think it's wrong," Lau said. But he added that if a factory operator went by the book, it could take two years to close a shop because of regulations and red tape.
Lau's trade group has estimated that 15 percent of the 70,000 mainland factories run from Hong Kong will close this year. He says many more are likely to close after Chinese New Year in February, when millions of migrant laborers will go home for several days.
"Once workers go home, they can close down the factory quietly," Lau said.
Taiwanese operate about 20,000 plants in Guangdong, and some have walked away from their factories, workers and labor groups say. In northern China's Shandong province, dozens of South Korean export company managers have fled, according to reports in the state-run news media.
"If these laid-off migrant workers stay in the city, it might cause social problems in the urban areas," said Cao, the Chinese academy economist. "But if they go back to their hometown, they won't have enough to do to make money."
Thousands of workers face that dilemma in Shaoxing, about 140 miles south of Shanghai. Companies with names such as Rich-tex and Sun-tex dot the city, the capital of China's textile industry.
Few were bigger than Jianglong, which is Chinese for "river dragon." The company posted sales of about $110 million and a profit of $14 million last year, according to its annual report. Its owner, Tao, boasted of the company's sophisticated research-and-development capabilities and a base of global customers that included Wal-Mart.
Government officials said recently that Tao had been caught, but they refused to comment further.
On the day Jianglong was shut down, 2,000 workers jammed the streets outside the factory, blocking traffic and demanding answers. Several hundred police officers scuffled with workers. Later that day, government officials agreed to pay employees.
"I'll go home and farm," said Yang Chaoxian, 43, who had earned about $260 a month working 12 hours a day, seven days a week. "Labor here is too hard," said the Chongqing native, a cigarette tucked behind his ear. "After I leave, I don't ever want to come back."
, according to the report.
Confused?