Hong Kong-listed Smart Union closed its factory doors in southern China's export hub of Dongguan this week, leaving its unpaid workers stranded outside the plants and leading to government concerns about protests.

Smart Union announced on its website Friday it had gone into liquidation, giving no word about the fate of its employees.

"Between 6,000 and 7,000 workers from two Smart Union factories are involved," said a local government official in Zhangmutou, an area of Dongguan where the factories are located.

The woman, who declined to be named, said government officials were locked in talks with factory and workers' representatives to resolve the issue, adding local authorities would try to pay the workers next week.

Smart Union owed the workers at least six weeks worth of wages each, Hong Kong's South China Morning Post newspaper reported, citing a company employee.

The workers crowded around the gates earlier this week looking for answers about their jobs and unpaid salaries, prompting the Zhangmutou government to warn them against escalating their action.

"At this time, we hope you will believe in the local government, respect the law and not do anything that would hurt or cause concern to your parents and family," it said in a statement on its website on Thursday.

The reference to the workers' parents reflected the fact that many migrants employed in China's coastal areas are very young.

The local official told AFP the crowds had dispersed by Friday.

Telephone calls to Smart Union's offices in Hong Kong went unanswered on Friday but China's state-run press quoted a company official blaming a drop in sales to the United States amid the global economic turmoil.

"The main reason for the closure is we are too dependent on the US market, which has become sluggish," Xu Xiaofang, a Smart Union human resource worker, told the China Daily newspaper.

Rising labour costs, expensive raw materials and the appreciation of the Chinese currency, the yuan, contributed to the problems, Xu said.

Smart Union had already announced to the exchange a loss of 201 million Hong Kong dollars (25.9 million US dollars) in the first half of the year, according to the firm's accounts posted on its website.

Its shares on the Hong Kong stock exchange were suspended from trading on Wednesday.

The group had sold many of its products to US toy giants Mattel and Disney, the China Daily said.

"After losing money for the first half of the year, its cash flow finally dried up," the paper said.

"The workers... have become the latest victims of the worldwide financial tsunami."

Chinese state press had already reported this week that more than half of the nation's toy exporters had gone broke in 2008, hit by rising production costs, the stronger yuan and tightened safety standards for their products.

A total of 3,631 enterprises that made toys for export, or 52.7 percent of all such companies, had gone out of business in the first seven months of the year, Xinhua news agency reported.

The businesses were mainly smaller producers with an export value of less than 100,000 dollars, it said, citing a report by the General Administration of Customs.

China is the world's largest toy producer and exporter, sending about 17 billion of them to overseas markets in 2007, according to Chinese customs data.

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