Hejun Group, one of the world's largest original equipment manufacturers (OEM) of toys, has closed two factories and laid off 6,500 workers, the China Economic Net (www.ce.cn) reported on October 16, 2008.

Hejun, the manufacturer of three of the world's top five toy brands, is one of the biggest Chinese businesses to be hit by the American financial crisis.

The two factories to be closed are in Zhangmutou County, Dongguan, in south China's Guangdong Province. Staff found out about the closure from a notice on an Internet bulletin board: To Hejun factory staff: The Hejun factories closed down due to operational difficulties. The Zhangmutou County government has formed a special working group to help solve the issue of unpaid wages.

On October 14, 2008 workers at the Hejun factories staged a strike to demand back wages that were three months in arrears. They were given their August paycheck the same day but September and October wages remain unpaid.

Contacted by the National Business Daily, the Zhangmutou County government confirmed that the factories had closed.

A toy industry analyst said that though the Hejun Group had advantages in terms of advanced technology and size, its failure to adapt to changed situations, combined with the slow down of the global economy and the global financial crisis had caused it to run into difficulties.

Another expert pointed out, "Most of the products of the Zhangmutou factories were exported to the USA. Their closure is the result of the financial turmoil and the subprime crisis. This is one of the biggest blows to Chinese business so far due to the financial crisis".

Chao Gang, director of the School of International Business Administration at Shanghai University of Finance and Economics, said OEMs have been worst affected by the financial crisis.

Growth in China's toy exports has almost dried up. Exports for the first eight months of 2008 were US$ 5.1 bln, just 1 percent higher than the same period last year. And Dongguan's situation is even worse – its exports for the first half were US$ 550 million, down 1.5 percent compared to last year. China produces 70 percent of the world's toys, Guangdong produces 70 percent of China's toys and Dongguan produces 60 percent of Guangdong's toys

A recent industry report pointed out that the toy industry has been hit by rising raw materials and wage costs, the rise of the yuan, and the increasing difficulty of raising capital. Safety scandals have also increased the cost of carrying out safety inspections. All these factors have contributed to the failure of many Chinese toy businesses.

Hejun Group has been facing financial difficulties for some time, said Professor Chao.

(China.org.cn by Zhang Ming'ai October 17, 2008)