Game changes for toy export hub of Dongguan
Updated: 2008-11-05 15:13

Gao Yuping, along with many laid-off workers, perused job postings on the walls of a closed toy factory in Dongguan, China's major toy export base.

Not satisfied with the wages offered, Gao and his wife decided to end their stint as migrant workers in this city in China's southern province of Guangdong and go home to Guizhou province.

"We may come back next year if the situation improves," said Gao, 38.

The couple worked for 14 months in a factory of the Smart Union Group in Dongguan, with a monthly income of about 4,000 yuan ($585). However, the Hong Kong-listed toy company abruptly shut down last month, leaving the couple and 6,700 other workers jobless.

China is the world's largest producer and exporter of toys, with Guangdong alone contributing about 70 percent of the overall output.

Dongguan, the province's leading toy base, had more than 4,000 factories and some 2,000 suppliers at the peak in 2001.

But the boom began to cool down about two years ago.

Rising raw material prices and wages and a stronger Chinese currency  raised production costs by 25 percent for most companies, said Li Zhuoming, head of the Guangdong Toy Association.

Large quality recalls by international toy giants, including Mattel Inc, also hurt the industry as Western countries raised standards to ensure safe toy imports.

Huayuan Toy Co Ltd opened in 1987 with nearly 100 workers in one factory. By 2005, the Hong Kong-invested company had four buildings and more than 1,000 employees.

"But since 2006, growth slowed. We received fewer orders and sometimes our clients were not able to pay," said Zhong Guanhua, a factory chief.

The financial meltdown gripping the West made the situation even worse this year. Falling consumption was the fatal blow to Chinese toy makers. Their busy season usually runs from June to October, as big toy companies generally place their Christmas orders months in advance.

"But we haven't received any new orders since August. Obviously, the demand for toys has been shrinking drastically," said Zhou Zhiming, board chairman of Shengda Clothes and Toy Corp.

About 20 percent of the small factories in Dongguan closed this year, he said.

Jiang Haitao, manager of another small toy plant, said orders for Christmas trees had dropped by 30 percent.

"The toy industry is experiencing the most difficult time since the country adopted the reform and opening-up policy in 1978," said Li.

Customs statistics showed that 1,554 toy companies in Guangdong were still exporting as of the end of September, 3,266 fewer than in 2007.

Many small firms had suspended or quit the business due to higher costs and gloomy market prospects, but their exit allowed large competitors to take a bigger market share, said Li.

For years, more than 90 percent of Guangdong's factories were making toys and accessories for foreign buyers, said Shi Xiaoguang, chairman of the China Toy Association.

As they saw many companies losing foreign buyers amid the financial crisis, big toy makers turned to technical innovation for sustainable growth and profits.

Longchang Toy Co Ltd has never worried about sales of their toy robots, which can perform more than 200 actions. Orders kept coming for the high-end product, which is sold for 2,000 yuan each.

Longchang, with more than 8,000 employees, including 300 research staff, invests more than 30 million yuan in technological innovation every year. The company now has more than 300 toy patents, according to manager Liang Lin.

Another choice is to explore new markets.

Each Chinese child spends about 40 yuan a year on toys, but the figures in Asia generally and the world are $13 and $34 respectively, according to Xiao Senlin, general manager of Hayidai Toys Factory.

"The domestic market might be a reliable support to help us survive," he said.

Many others are turning to Russia, the Middle East, eastern Europe and some other new markets, where demand appears strong.

Toy exports to Brazil, India and Russia rose 90 percent, 43 percent and 14 percent, respectively, during the first three quarters of the year from the same period last year.

Dongguan is a mature toy production base that can cope with changing fortunes, said Li. "The industry, which withstood the Asian financial crisis and massive recalls, can survive the hard situation this year."

Effective on November 1, China raised the export tax rebate on toys from 11 percent to 14 percent, which could help exporters.

"So long as there are children, there will be demand for toys, and we will manage to find opportunities for survival," said Xiao.

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