In southern China 7,000 workers have been laid off after two major toy factories making brands for western markets were closed down.  China's export manufacturers, and toy makers in particular, have been hit hard by the global financial crisis.  Daniel Schearf reports from Beijing.

Hundreds of workers gather outside a large toy factory in Zhang Mu Tou of Guangdong province, of southern China,  17 Oct 2008

Hundreds of now unemployed workers gathered outside government offices Friday in Dongguan city in China's southern Guangdong Province.

The workers were seeking compensation for two months of unpaid wages after the toy factories they worked for on Wednesday suddenly closed.

The company that owns the factories, Hong Kong listed Smart Union Group makes toys for U.S. brands Mattel and Disney, and is one of thousands of export manufacturers that have suffered heavily from the global financial crisis.

Last week the mayor of Dongguan, Li Yuquan, told a group of visiting foreign journalists more than 400 factories in the city had closed down in the first half of this year and that unemployment was a growing concern.

He says this year it is estimated that foreign businesses' profitability will be a lot less than last year and that there are also more businesses that are losing money.  He says it is estimated that next year the number of factories closing down will possibly be a little higher.

Guangdong is China's export manufacturing hub and has seen export growth drop by 13.5 percent as western buyers have little cash to spare.

About half of Chinese companies making toys for export in Guangdong, some 3,600, have been forced to shut down this year.

Aside from the global downturn, other factors are the rising cost of labor, raw materials, and increased safety standards, as well as a stronger Chinese currency.

Smart Union earlier announced a $26 million loss from weak demand and rising costs.

It is not clear if the company will pay the back wages owed to workers.  

China's state media reports the factory bosses have been missing for several days and the local government on Friday began paying workers out of a fund of more than $3 million.