China going into a DEPRESSION TOO?

Financially troubled plants are being abandoned by the boss, leaving behind unpaid workers and debts.
By Don Lee
November 3, 2008

Reporting from Shaoxing, 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.

"We're pretty much dead now," said Mao Youming, one of 300 suppliers stiffed last month by Tao's company, Jianglong Group. Lighting a cigarette in a coffee shop here, the 38-year-old spoke calmly about the bleak future of his industrial gas business. Tao owed him $850,000, Mao said, about 60% of his annual revenue. "We cannot pay our workers' salaries. We are about to be bankrupt too."

Government statistics show that 67,000 factories of various sizes were shuttered in China in the first half of the year, said Cao Jianhai, an industrial economics researcher at the Chinese Academy of Social Sciences. By year's end, he said, more than 100,000 plants will have closed.

As more factories in China shut down, stories of bosses running away have become familiar, multiplying the damage of China's worst manufacturing decline in at least a decade.

Even before the global financial crisis, factory owners in China were straining under soaring labor and raw-material costs, an appreciating Chinese currency and tougher legal, tax and environmental requirements. When the credit crunch took hold -- prompting Western businesses to slash orders for Chinese goods and bankers to curtail loans to factories -- many operations were pushed over the edge.

Heading for a DEPRESSION says Peter Schiff

Peter D. Schiff president of Euro-Pacific Capital, a Connecticut-based brokerage urged his clients to get their money out of U.S. stock and bond markets and look for safer investments outside of America or put their nest eggs into silver and gold. Here he is interviewed by the Financial Post:

Financial Post: How bad is the economic downturn going to get?

PS: As of right now, we are headed for a depression, meaning a protracted period of economic contraction with elevated levels of bankruptcies and unemployment. It's not going to be a recession the way we've come to know them. Whatever we call it, we're still going to be in it at the end of [U.S. presidential contender Barack] Obama's term. He's going to be known as a depression-era president. Unfortunately, [things he's proposing to do] could make it worse and drag it out. The economy will be the issue when he goes for reelection...We have to restructure the economy in a different way. That's going to involve a lot of pain. We haven't seen the full extent of the doom and gloom in real economy. It's showing up on Wall Street first because they funded all of the extravagance...But the bigger picture is the party is over. We're going to have to get used to a different lifestyle. We're going to have to start saving money again.

FP: When might the U.S. stock market bottom out?

PS: The U.S. stock market is still fairly expensive, especially if you factor in what future earnings are going to be. I think [the Dow] still has a long way to go down. Is it 7,500, 6,000, 5,000? I don't know, but I don't think we're there yet. Adjusted for inflation, I think in five years the Dow is going to be below where it is today.

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