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Monday, November 03, 2008

China: Owners Deserting Factories

by Calculated Risk on 11/03/2008 08:30:00 AM

Don Lee at the LA Times reports on a growing trend in China: Some owners deserting factories in China

First, Tao Shoulong burned his company's financial books. He then sold his private golf club memberships and disposed of his Mercedes S-600 sedan.

And then he was gone.

And 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.
Toy makers are among the hardest hit. More than 3,600 such factories have closed -- about half the industry's total, government figures show. Most were small operations, but last month Smart Union Group's three huge factories stopped production, leaving more than 8,700 workers jobless.
Back in March, I spoke with an executive of a U.S. company, and he told me his company was scaling back their Chinese operations because their manufacturing costs in China had increased by 30%. This was due to a combination of the new Chinese labor laws, higher currency exchange, higher material costs and other factors.

Now a global slowdown and the credit crisis has led to a contraction in the Chinese manufacturing sector. China will probably be forced to stimulate their economy - and, as I speculated this weekend, this could lead to higher intermediate and long term interest rates in the U.S.

At least 'decoupling' is officially dead.