China’s Toy Manufacturers Feel The Aftershock of Recalls

Made in ChinaAs reported by the International Finance News, a Chinese language newspaper under the supervision of People’s Daily, Chinese toymakers in the Yangtze River Delta Region are already suffering from the aftershock of “questionable” toys. There are over 8,000 companies which make toys in China, many of which are located in Jiangsu and Zhejiang provinces and in and around Shanghai. In 2006, these companies had total turnover of 150 billion yuan ($19.5 billion) and employed 3 million workers.

According to the newspaper, China’s toymakers exported $7 billion of toys to global markets in 2006, of which $3.2 billion, or almost one-half, was to the United States. Other major markets include the European Union Community (EUC), Hong Kong and Japan. From January to July, 2007, exports of toys totaled $4.1 billion, a 24 percent increase over last year, of which $1.7 billion were to US customers.

The recent recalls by US toymakers and the “Made In China” crisis is already having an impact on China’s toymakers, however. Many small scale producers have closed, and orders at the larger companies have been sharply reduced. Li Meng, a manager in a Nanjing, Jiangsu Province based import/ export company, commented. “Previously, it was easy to deal with American and EUC companies and we could get orders quickly. Now, it’s very, very difficult.” Mr. Li said that he now has to work much harder with much less success in getting orders. In his opinion, recalled toys have been made according to customer designs and comply with 85 percent of their specifications. The problem is in design, he said, and it is unfair for the European and American media to only aim at China manufacturers.

This view has gotten some support outside China. According to the China Daily, a research paper, soon to be released by two Canadian business professors, shows that about 80 percent of the 550 toy recalls in the US in recent years were because of design faults instead of manufacturing defects.

Mrs. Wang, a representative from a toy company based in Yi Wu in Zhejiang Province, gave her own reasons for defective toys.“ Prices are so low that it would be unusual if there are no quality problems,” she said. “Currently, there are too many toy companies in the Yi Wu area and competition is too fierce. In order to obtain more market share, many companies provide lower prices. The result is that some processes are eliminated and lower quality raw materials are substituted for good,” Mrs. Wang explained. The net impact of this fierce competition is not beneficial,” she reasoned. “First, the company sacrifices its profits. And once this issue occurs, the whole country’s reputation is damaged, leading to even bigger economic losses.”

Another manager from a Shanghai based export company commented on the rising standards expected by overseas customers. ”Recently, the EUC has raised safety and cleanliness standards for toys and also increased testing procedures. The technical criteria is tougher and tougher, and production costs have increased several times.” His advice to China’s toymakers: “Improve quality and diversify markets. If we have problems with the United States and the EUC, focus more on Hong Kong, Japan and Africa,” he counseled.

In an effort to boost near term sales, Li Changjiang, head of the Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), assured American parents that China-made toys are safe and can be given as Christmas gifts. “Before Christmas, we will certainly provide children safer, better and more attractive toys. They will certainly like them,” Li said.

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