Textile and toy manufacturers are facing difficult times due to a rising yuan and shortages of funds and orders. Picture: A trade fair in Dongguan. (File Photo/Xinhua)
A wave of bankruptcies with a severity not seen since the 2008 financial crisis is sweeping through the manufacturing industry in the Chinese provinces of Guangdong and Zhejiang.
Industry sources predicted that the tide, triggered by the appreciation of the renminbi, scarcity of credit and a decrease in overseas orders, would shut down 10% of textile companies in Dongguan, the manufacturing stronghold of Guangdong Province, and 20% of the manufacturing businesses in Zhejiang Province.
The China Economic Weekly in Beijing reported that Dongguan Soyea Toys Co Ltd, the world's second largest contract toy manufacturer with annual revenue of over US$30m, closed down unannounced on April 1 after its South Korean owner went into hiding.
Many of Soyea Toys' creditors rushed to the company, demanding repayment.
In mid-June, well-known textile manufacturer Dinkind Knitting Fashion Co Ltd abruptly went bankrupt. The company employed more than 2,000 workers in Dongguan.
Chen Yaohua, president of the Dongguan Textile and Garments Trade Association, said the second half of the year is usually a boom season for the textile and toy industries, but added that business will not recover unless credit is eased and labor and commodity prices are reined in.
The China Economic Weekly quoted business leaders in Zhejiang as predicting that nearly 20% of small- and medium-sized enterprises in the eastern province would close down within the next three years, for the same reasons that Mr Chen listed.
Hsieh Ching-yuan, president of the Dongguan Taiwan Business Association, shared the pessimistic outlook with respect to Taiwanese businesses in Dongguan, predicting that over 10% of the members of his association would close their businesses before October, citing a shortage of labor, electricity, materials and orders, and also difficulty in obtaining loans.
Local government statistics showed that Dongguan's exports grew 17.3% in the first five months of this year, compared to the same period last year, higher than the 8.9% recorded after the 2008 financial crisis. Still, most Taiwanese businesses are facing a business environment that is more stringent than that of 2008, Hsieh said.
He added that Taiwanese businesses were complaining that they were unable to obtain loans from local banks, even after offering land and factories as security. Those fortunate enough to get loans had to pay interest of up to 9%.
The loan troubles come as the Chinese government has been increasing interest rates in an effort to cool the country's economic growth.
Hsieh accused Taiwan's Ministry of Economic Affairs of offering little help in resolving the problems faced by Taiwanese businesses.