Workers Protest As Chinese Telecoms Parts Supplier Goes Bankrupt

SHANGHAI -- Thousands of factory workers and suppliers staged protests outside a bankrupt southern Chinese telecoms supplier over the weekend, Chinese media reported. The protests followed the sudden closure last week of the Shenzhen-based Fu Chang Electronic Technology Co. (also known as Fosunny), which supplied major Chinese and international telecoms companies.

The collapse of the company is a further sign of pressures on the Chinese economy, which has seen falling exports -- and the first decline in domestic smartphone sales in six years. Fu Chang, which began operations in 1997, supplied casings and other plastic hardware to Chinese telecoms giants, including China Telecom, China Mobile, Huawei and ZTE, as well as foreign companies such as AT&T, BT, Vodafone and Brother, according to its website.

Some reports said the company told clients it was planning to list on the stock exchange. However, on Thursday it issued a statement saying it was ceasing operations due to liquidity problems resulting from legal and debt issues. China’s National Business Daily website reported that it owed some 460 million yuan (around $72 million) to banks and suppliers. The Beijing News reported that the firm had delayed payments to suppliers for some time, leading to lawsuits, which diminished its ability to borrow from banks -- and had subsequently received fines for delays from some of its major clients. Some reports also said clients owed the company significant sums.

Shanghai-based China Business News published pictures of a line of police in helmets confronting a small group of protesters outside the factory Friday. The Global Times reported that “thousands” of workers and suppliers protested over the weekend -- though it quoted one former member of staff as saying that overdue wages had now been paid and a compensation deal reached with some workers. It said more than 3,800 employees would be affected by the closure, along with an estimated 300 suppliers, some of whom also joined the protest.

One supplier told the Global Times he was owed around $400,000, and his firm was at risk of going out of business if it did not receive payment. He said suppliers were calling on the local government to help them protect their rights. Reports also quoted Huawei, China’s biggest telecoms equipment manufacturer, which has recently launched smartphones under its own brand, as saying it had “immediately changed suppliers to ensure delivery of its products.”

Fu Chang is the third supplier of plastic parts to the telecoms industry to go bankrupt in the past month, the Global Times said. It quoted experts as saying such firms have seen their profit margins squeezed by rising labor costs in southern China, and a slowdown in both international and domestic demand. China’s smartphone sales contracted in the first half of this year, for the first time since 2009, while the country’s overall exports fell more than 8 percent in August, and more than 4 percent in September, compared to last year.

Labor experts told International Business Times recently that factory workers' wages have risen in southern Guangdong province in particular, not least because the new generation of better-educated rural migrant workers -- the mainstay of China’s labor force over recent decades -- is less willing to do mindless production line work. As a result, Guangdong has seen some of its lower value-added companies close, and others move out to cheaper parts of Southeast Asia or inland parts of China.

But Wang Yanhui, head of telecoms industry body Mobile China Alliance, said over the weekend that such closures were also a result of “rationalization in the industry.” He told the Global Times the boom in China’s phone market in recent years had led to a glut of companies entering the sector, and firms that failed to innovate in this increasingly competitive market would lose out.