China status as the world’s top outsourcing destination is now at risk with foreign companies now starting to close their factories and lay off workers in the wake of the global financial upheaval.

All signs are showing similar trend with the custom reports indicating that China’s export statistics have declined to a record low.

More than 7,000 workers in Southern China lost their jobs last week after two major factories producing toys for the western market terminated their operation.

Prior to the termination, the workers’ salary has not been paid for months and now they are launching a massive protest outside of the government offices demanding actions. Until today, it wasn’t clear whether the company would be paying the back wages with top bosses reported missing in action, leaving many of the unfortunate workers in tears.

For the past 6 months, more than 400 companies have closed down their business in China, and the latest lay offs added woe to the worsening crisis. The number of business terminating operation is expected to increase further, until next year.

No longer cheap.

Cost of labour and raw materials have been skyrocketing and it came to a point where investors consider that it is no longer cheap to do business in China today. For instance, the cheapest teddy bear sold at IKEA in Shanghai is apparently not manufactured in China but instead, Indonesia. In addition to that, the China authority has unprecedentedly increased the safety procedures, imposed higher taxes and exercised stricter environmental standard which has drawn the companies to find other alternatives such as Indonesia and Vietnam.

China was one named by AT Kearney as the world’s number one top outsourcing destination in 2007, followed by India and Malaysia.