It was the best of times; it was the worst of times.  A week ago, it all seemed to be going jolly well for Barbie.  There were photo shoots; advertising campaigns; book launches; magazines; a critically-acclaimed “1000 Barbie” seven-city tour of China had just begun; and, to cap it all, there was even talk of plans to open a larger-than-life Barbie World in Shanghai.  But even the busiest doll in the world couldn’t have failed to notice this morning’s headline in the Shanghai Daily: “World’s largest toy-maker goes bankrupt.” 

Smart Union, which made toys for Mattel (Barbie’s “label”) and Disney, among many others, closed its two factories in the southern city of Dongguan yesterday.  The closure, which affects 6,000 workers directly, is not only bad news for the local economy; it is also bound to further reduce China-wide consumer confidence.  What’s more, it sends out a clear signal to the world that China is also suffering from the fall-out caused by the catastrophic failure of so many large cogs in the world’s banking mechanism. 

Talking of depressed consumer confidence and people reining in spending on non-essentials, the main reason for the company collapse is the downturn in demand from the US market.  A whopping 70 per cent of its toys were exported there.  This, combined with the appreciation of the yuan (making exports more expensive) and the rise in staff costs – caused by the state’s more-generous social security protection – made it impossible for the company to survive.  State media reports that Smart Union had been struggling to pay its workers for the past two months, and that it had reported a trading loss of US$25.9M during the first half of this year.

 On Tuesday, China Central Television (CCTV) ran a story (the English-language video of this will be added below in a few hours) about the Chinese toy industry’s problems.  It reports that, compared with a year ago, more than 50 per cent of companies have had to close and that: “The victims are largely small companies unable to adjust to changing conditions both at home and abroad”.  It’s clear now that the problem is far bigger than that.

Du Haiqun, a worker at one of the two huge factories that has closed in Dongguan, told the state media that one day (this week) he was making toys and the next day he was out of a job and the factory boss had gone into hiding.  The mood in the city is indeed grim, and not just among the workers of the factories that have closed.  Seven out of ten of the world’s toys are produced in China; and four in every ten toys produced in China are produced in Dongguan city.  That’s a big number of toy-makers who are worrying about their future.  Not to mention an even greater number of parents in China and abroad that will have to pay more for their children’s toys this Christmas.