Public funds have been used to cover the 7 million yuan ($1 million) owed in back pay to employees of the collapsed¹ Dongguan Weixu Shoe Company, a spokesman for the Chang'an town government in Guangdong said yesterday.

The press official, surnamed Chen, told China Daily that a series of measures has been introduced to deal with the aftermath of the closure of the Chang'an-based firm, which is owned by investors² from Taiwan.

"When we learned on Saturday that the boss of the company had fled, we set up a task force to deal with workers' grievances³ and other matters arising from the incident," he said.

"The government has advanced about 7 million yuan to cover the wages of the 2,000-odd workers."

Chen said the government had been in contact with the boss of the firm and set a deadline of Tuesday for his return to discuss possible solutions.

"As he failed to return, the local government will take possession of the factory and auction⁴ off its equipment, as it is entitled to do so under the law," he said.

Luo Hongliang, one of the 2,000 people left jobless by the shoemaker's demise⁵, said yesterday that although he is grateful to the government for paying his wages, he fears for his future.

"The welfare package was good; I got more than 2,000 yuan, which covered my salary and overtime⁶ pay," he said.

"My fear now is that although some other factories are recruiting, I will probably have to take a pay cut.

"I just can't understand how such a big factory could close all of a sudden," he said.

"We've all been talking about what might have happened; some people have said the company had cash flow problems," Luo said.

According to a report in yesterday's Nanfang Metropolis⁷ Daily, the firm had been experiencing financial difficulties following a period of rapid expansion.

The final straw came when one of its partners withdrew 50 million yuan from the firm, it said.

Huang Chunming, secretary-general of the Dongguan leather and footwear association, claimed the boss of the firm had also been accused of defrauding⁸ his suppliers, the report said without elaborating.