Economic crisis reverberating in China's toy factories

DONGGUAN, China - Growing up in the Chinese countryside with only an elementary school education, Yang Yanjun had never heard of Christmas until she landed a job painting pink-cheeked cherubs to decorate trees.

But Christmas proved to be a miraculous holiday that would utterly transform her life. Over a decade, she worked in factories producing ornaments and toys that foreign children were told came from Santa's workshops. She earned up to $200 a month, unimaginable riches that allowed her to build a house for her family back home.

Now the Christmas miracle has gone bust.

The financial meltdown that has thrown so many American families into crisis might be even worse on this side of the world. The precipitous drop in consumer demand has translated into a wave of factory closings that have spit millions of Chinese workers out into the ranks of the unemployed. The fallout is most obvious in Dongguan, a southern Chinese city that despite its palm trees and sultry climate may be the real-life North Pole.

Until recently, Dongguan had 3,800 toy factories, producing a staggering 30 percent of the world's toys. A trade group here estimates that 1,800 of them have closed or will close in the coming months.

The 37-year-old Yang lost her job making hairpieces for Barbie dolls in October, when Smart Union Toys abruptly closed down. It had been a major supplier to Mattel and Disney, and with 7,000 workers was one of the largest employers in town. Now there are only a handful of security guards who watch over a courtyard strewn with empty toy boxes and soggy dolls, a scene looking like the morning after a Christmas party gone awry.

Most of the workers, migrants like Yang who came from central China, have gone home. Houses are empty, shops shuttered. The neighborhood looks like a ghost town. But Yang has stayed on looking for work, desperate for money to repair the house she built near the central Chinese city of Chongqing.

Every morning and every afternoon she goes out, walking past the padlocked gates hoping to find a factory still in business and perhaps hiring.

Notices are taped to some of the gates, but with too many people chasing too few jobs, employers are picky. The notices specify young workers with high school educations and computer skills. Some require heights over 5 feet 7 inches for men and 5 feet 1 inch for women. Height is one of a number of obsessions here.

"In the past, you didn't need skills to get hired," Yang said. "The factories just needed workers, and they would take anybody."

China has not released official figures on job losses, but the influential magazine Caijing quoted an unnamed Labor Ministry official saying that 10 million migrant workers had lost jobs from the beginning of the year until the end of November. Nearly 5 million of those had already returned to their hometowns.

Dongguan's residents, most of whom came from elsewhere to reap the rewards of the manufacturing boom, liken their situation to victims of a tsunami that has spread around the globe.

"First, you had banking problems in the United States, then factories closed, and now we have lost our jobs," said Han Guoren, 24, a laid-off toy factory worker. "It is an economic tsunami that has now hit us."

The entire Pearl River Delta, a manufacturing hub that extends from Hong Kong to Shenzhen and Guangzhou, is suffering. But toys are particularly vulnerable. Even before the recession, the industry was reeling from product recalls. Toys are almost entirely an export industry, with 90 percent of the product shipped overseas. Profit margins are tight and consumers fickle.

"Nobody is doing well at the moment, but toys are really hurting," said Christopher Devereux, a British business consultant whose company, China Savvy, is based in Guangzhou. He says that many of the toy manufacturers, faced with rising costs and mounting losses, decided to simply pull out and close.

"This is a city of not only migrant workers, but migrant entrepreneurs," Devereux said. "They literally disappear into the night."

If anything, industry insiders predict next year will be worse. The orders for this Christmas season came in months before the impending financial debacle was obvious.

"Toys are a happiness business," said Leung Chungming, managing director of Lung Cheong International Holdings, a Hong Kong toy company with a large factory in Dongguan. "If there is no good news, if the market situation is tough, people don't want to buy a $99 toy for their child."

The Chinese government has promised to take measures to spur consumer spending with the hope that its own people will pick up the slack. But Chinese consumers are unlikely to bail out the beleaguered toy industry.

Although many Chinese have come to love Christmas, decorating trees and windows, piping the ubiquitous Christmas carols into elevators and stores, one thing they don't do is shop. The big consumer holiday here is the lunar New Year, and parents buy clothing and shoes for their children, not toys.

"All these toys we make are for the foreign children," said 40-year-old Long Sunjun, who runs a small shop near the closed Smart Union toy factory. She says that even the children of the toy factory workers seldom were given toys other than squirt guns or balls. "Chinese kids can make their own toys. Besides, they should be studying, not playing with toys."