Even as news of the sudden closure of the Hong Kong-listed Dongguan-based toy manufacturer Smart Union, a key supplier to Mattel and Disney, continue to hog international headlines, framed against the backdrop of the ongoing financial crisis that has spread from the United States to the rest of the world, Xinhua says it has the “whole truth” on those closures, and makes the case that many other toy factories had been closing since the start of the year and the most recent closures have little to do with economic troubles in the U.S.:
While there are reports that in the first seven months of the year, more than 3,600 toy makers already went out of business in China thanks to factors such as rising wages and material costs.
But wait a minute. These reports also reflect something like a trend, the closures of toy factories, and that the trend had started long before the Wall Street started to panic. How much those factory closures were really linked with things in the U.S., contrary to what is generally reported or believed, is actually quite vague, and not readily supported by the data from across the Pacific.
More eye-opening is Xinhua’s suggestion that the company’s closure has more to do with corrupt senior executives siphoning off profits than anything else, and what we can expect to happen:
As information leaked out of Dongguan reveals, especially from the suppliers to the Hong Kong toy-makers, there had been signs of their failing business for quite some time. They reported about continuous internal strifes that affected business policies and shop-floor management. If that is the case, it should not be attributed only to the U.S. crisis. It would be a case of management failure, perhaps one in which some company leaders stole the revenue that should have been shared by workers, shareholders, and suppliers.
For people who control the company board, stealing its profit by pointing fingers to the Wall Street makes them appear like victims.
What the Dongguan government should do, with the support from the government of Guangdong province and even the central government, is to call for Hong Kong’s financial regulators to make an investigation into the failing companies. And, their factories in the Chinese mainland should be put under administration, and be auctioned to trustworthy and capable managers.
If it is found that some did steal company profit from the Chinese mainland for investing in new companies elsewhere, to seek cheaper labor and lower taxes, they should be brought to trial.
Expect heads to be brought to the chopping board soon. The Dongguan government is now coughing RMB24 million out of its own pocket to quell simmering unrest by paying the 7,000 laid off workers their wages, and we all know there is no such thing as a free lunch.