WHEN Liu Jie walked into the toy factory where he worked, he found the body of his boss, Cheung Shu-hung, hanging from the rafters.

Mr Cheung was one of hundreds of Chinese entrepreneurs trying to get rich from Western children's love affair with plastic.

His firm, Lee Der, churned out dolls by the shipload for Mattel — the toy giant behind Barbie, Polly Pocket and the Fisher-Price label.

But when Mattel said a million of Mr Cheung's Sesame Street figures had too much lead in their paint and demanded compensation, the bottom fell out of his business.

Although Mattel did not stop the contract, the Chinese authorities wanted to show they could be as tough as the Americans, Europeans and British when it came to safety standards and withdrew Mr Cheung's export licence.

According to his workers, Mr Cheung sold off enough machinery to give his workers their back pay, and then hanged himself.

This week Mr Liu, an assembly line manager, left the factory for the last time, following 4000 others who have lost their jobs in the past week.

Both Lee Der and Mr Cheung were virtually unknown outside the grimy industrial city of Foshan, in Guangdong province on the Chinese mainland north of Hong Kong — and certainly to the parents who bought Mattel products for their children.

Seventy per cent of the world's toys are made in Guangdong. Nearly all are made by outsourcing companies on a scale and at a price no other country can match.

The workers' pay and conditions give some idea of how goods can be made so cheaply. In a Lee Der dormitory block, workers lived up to 14 to a room in rickety bunk beds. One was decorated with Sesame Street packaging.

Mr Cheung was a "good boss, with a good relationship with his workers", said an electrician. "He gave us a day off each week." Shop-floor salaries for the six-day week of 10-hour days were between 900 yuan ($A148) and 1350 yuan a month, he said — well above the local minimum wage.

The electrician said the real culprit was a factory down the road: Mr Cheung bought his paint from another Foshan company, Dongxing New Energy, which workers said was owned by his best friend, Liang Jiacheng.

But Mr Liang in turn bought his raw materials from a third firm, Zhongxin, based in a nearby city, Dongguan.

Zhongxin is accused of diluting paint powder with cheaper, lower-quality ingredients containing lead. Seven of its managers are now reported to be on the run.

The ever-growing chain of contractors and subcontractors behind China's industrial boom is now causing concern for many Western firms, including Mattel.

The Chinese Government says its manufacturers are being vilified because Europe and the US do not like their trade deficits with China. It has exchanged angry threats of retaliation with American and European politicians.

But Chinese officials sometimes admit their inspectors have difficulty keeping up with the speed and scale of change.

One problem is persuading them how seriously Western companies take safety issues. While no Western children are reported to have been harmed, in China itself, not only are the workers making the toys repeatedly exposed to lead, but pollution and the lack of clean water mean many children daily ingest high levels of heavy metals.

This is little consolation to Mattel, which in the face of US lawsuits has announced measures to ensure every batch of paint is tested, and then every batch of toys tested again.

It is also little consolation to Lee Der's former workers. They may find new jobs: in Guangdong companies close and open all the time, and China is actually suffering a shortage of skilled and semi-skilled labour. The empty Lee Der factories are plastered with recruitment notices. But the conditions they find may be worse than those at Lee Der.

http://www.theage.com.au/news/world/human-story-behind-chinas-toxic-toy-scandal/2007/08/22/1187462350590.html