No fun for toy makers

Surviving in the Chinese toy industry is anything but child's play.

Chinese workers stitch teddy bears, at the PP Bear Toy Company located in the southern Chinese city of Shenzhen.

Pursuit of recovery after global downturn Challenges include problems with quality, higher yuan and growing foreign competition Daniel Bardsley Foreign Correspondent When the global economic downturn hit in late 2008, surviving in the Chinese toy industry became anything but child's play. China's toy sector may have grown that year by 1.8 per cent to US$8.6 billion (Dh31.58bn), as the country's ministry of commerce reported, but this was thanks to brisk sales in the earlier months. By the end of the year, exports had tailed off severely.

Government figures showed that about one third of the approximately 3,000 toy-exporting companies in China's southern manufacturing province of Guangdong went out of business that year. The global slump could not have come at a worse time: the sector was already reeling from safety scandals. Millions of toys had been recalled because of issues such as excessive lead content in paint. On top of that, stricter overseas safety standards meant many producers had to reconfigure production, and the price of many raw materials had increased.

Last year, while the industry began to recover globally, there were signs that China was still struggling. Worldwide toy sales grew nearly 4 per cent last year to $80bn compared with 2008, but China's toy exports, which dominate the world market, dropped about 10 per cent. Manufacturers are hopeful that things might improve by the end of this year. In an interview at the beginning of the year, Wong Tit Shing, the chairman of the Hong Kong Trade Development Council's toys advisory committee, said he believed "the worst is over".

The indications from the first half of this year are that Mr Wong was right. According to figures from the market research company NPD Group, revenues from Europe's five largest toy markets, the UK, France, Germany, Italy and Spain, were up 5 per cent from January to June, although in the world's largest toy market, the US, sales were flat. China's manufacturers are hoping for better sales in the key production period from August to November.

Overall it appears that toy safety standards in China are improving, or can at least be maintained by the watchfulness of buyers, says Klas Elm, a vice president of the International Council of Toy Industries and the managing director of the Swedish Toy Association. "The competence and quality is much better in China, and the standard of production is rising as well," he says. "Pretty much you get what you pay for, and as an importer or buyer from this part of the world, you have to be very thorough and very well skilled to get what you want and to be able to see that you get the right quality."

But there are also signs that quality remains a problem, despite the damaging publicity the Chinese toy industry received in recent years. Less than two months ago, the Consumers Association of Singapore revealed that nearly half of 50 toys, all or most of them thought to be Chinese-made, on which it commissioned tests contained high levels of lead or phthalates, potentially toxic substances that make plastics more flexible and durable. Some contained high levels of both substances, and 10 per cent were found to be a choking hazard because of easily detachable parts.

The industry is nonetheless being urged by the authorities to be more ambitious in the face of international competition. The purchase this year by Guangdong Alpha Animation and Cultureof a major stake in a cartoon company suggests the industry is making greater efforts to secure control of all levels of the value chain. Many challenges remain for China's toy industry, including the appreciation of the yuan against the dollar and increases in labour costs.

But the sector has one immense factor in its favour: a vast and growing home market. Some analysts have estimated domestic toy sales to be an average of just over $19 on each of China's estimated 300 million children. Others put the spending at a mere $7 per child. A comparison with developed markets such as Australia and Japan, where the average annual spending on toys per child has been reported at more than $400, indicates China's domestic toy sales will grow considerably if the economy continues its robust expansion. Even without a recovery in exports, China's toy factories are likely to be kept busy in the coming years.