It was an eventful year. Toys “Made in China” were encountered with numerous obstacles in 2007. What destination would the industry head towards? Jeffery Lam breaks down the export markets for toys and forecast prospect with evidential material.

The world economy sees that oil and commodity price persistently rises and the stress of inflation becomes heavier. The International Monetary Fund recently forecasts: in 2007, the increase rate of world economy is 5.2% and in 2008, this number will be 4.8%, which drops by 0.4 percent. To some degree, this is influenced by the lower down of the anticipation of the American economy increase. Last October, IMF anticipated the growth of American economy is 1.9% in both 2007 and 2008. Although compared with the anticipation in May, the numbers are lowered by 0.4 and 0.9 percent respectively, it is still in the increasing scope. Secondary loan stands about 20% of the American loan’s total amount and it is estimated at about 180 billion USD to 200 billion USD. This would lead to a chaos to the American finance to some extent but could be controlled according to the financial power of American government. And its influence to the world economy may be limited. And the economical basis of EU and Japan is relatively good and beneficial to resisting the strike of the financial market. This year the world trade will still maintain a high-level increase. All the big anticipation organizations unanimously presume that the average increase range of the world trade this year will be higher than last year. The latest anticipation of the Economic and Trade Cooperation Organization is increasing by 8.1%. For American, who was leading the world economy, economical increase during the first three quarters 2007 is 3.9% which shows that the American economy do not lose its progressing momentum because of the secondary loans crisis, the drop of real estate market and the rise of oil price.

Base on the mentioned situation, I believe that the external economic environment this year is prudent and optimistic on the whole.

Favorable factors for toy export

At present, the advantageous factors of toy export mainly include the following three aspects:

The abroad market still has a relative big demand of toys. Whether the Chinese toy industry can develop or not, the key point is the demand of international important markets. On the former half of 2007 before the recall incident happened, Chinese toy export to America raised in large scale. American Department of Commerce proclaimed that the American import quantum of toys/ sport equipments is 8.909 billion USD in the fist half of 2006 among which the import quantum from China is 6.7 billion USD and makes up 75.2% of the whole; import of the first half of 2007 registers 12.198 billion USD and rises by 36.9%, among which 9.907 billion USD from China, growing by 47%, standing by 81.22% of the whole. It shows that the demand of toys in America is increasing and Chinese toys’ percentage in American import toys becomes bigger and bigger.

The market response in Christmas selling period is rather good. Although someone is worried about that the toy recall event would influence the selling situation on Christmas, in last October, the overseas orders increased and in American market, toys “made in China” were still the main characters. The item director of American Nixon Center told reporter of Xinhua News Agency, “Many American consumers only concern with the quality of toys and don’t specially care about whose fault it is. The toys that exported to American are always in high quality and the consumers all like cheap goods. In my opinion, most of the consumers will not refuse the Chinese toys.”

A report about Christmas market in Germany Radio last December claimed in the headline that “made in China” was “extremely popular” in Germany. The reporter of Reference News who is settled in Paris notes: “According to the Frenchmen’s response to ‘made in China’, the positive impression covered the negative. Some people expressed that if they had to be avoid of toys ‘made in China’, they were all afraid to lose jobs.” Reporter of Reference News who is settled in Moscow sent the news: “Moscow’s annual shopping climax at the end of year comes and recently the reporter has visited a lot of toys stores including Russian’s biggest toy and present chain shop whose name is ‘World of Children’. We discover that ‘made in China’ has become the main force in Russia’s Christmas market and fully recognized by the consumers.”

Innovations in large scale make the standard of the whole industry improve. The recall event has led to a large scale of innovations in toy industry. In last September, the National Quality Supervision Bureau made a network check to all the enterprises who have gained export licenses. Among the 2036 toy export enterprises in Guangdong, 1726 ones were checked and stand 84.8% of the whole. 423 companies have been canceled the export qualification, 341 have been suspended and 692 ones have to been rectified in time limit. After innovation, the fittest survived and the enterprise’s ability of dealing with risk was improved which would be beneficial to reduce quality accident.

In the climax period if recall event in last August, the National Supervision Committee issued Detailed Rules of Implementation of Export Toy Quality License (registered). Later, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) issued Urgent Notice about Strengthening the Inspection and Supervision of the Export Toys and the Work of Quality Admission and solemnly restated the following points:

For the enterprises that managing toy export, the product samples must be all-around and systematically checked according to the national safety standard of toys. If the products are qualified after auditing, they can be produced. The production enterprises must set up quality system and the quality checkup department should do spot evaluation and audit. For the main raw materials that used, recording system should be established. AQSIQ  issued and carried out Management Regulations for the Recall of Children Toys which prescribed that the defective toys after leaving the factory would be recalled. Besides, the local relating departments should also actively take actions. Guangdong Toy Association released Announcement and Notice Items about the Recall Event of OEM Toys Exported to America to all members. The up-mentioned new regulations of government and announcement of industry guaranteed the quality security of the export toys systematically.

Unfavorable factors for toy export

This year, there are also many disadvantages of toy export including the following 5 aspects:

Some abroad consumers’ dread and wariness to toys “made in China” have not disappeared. On September 21st last year, before Mattel apologized to China, there were American councilors claimed that they did not trust toys “made in China”. Many regarded that this had relations with the propagandas of this year’s general election of American President.

Import standard will be upgraded. The officer of CPSC revealed in last November that two acts about toys would be passed by the American Congress this year: the first is the ban about lead content of toys; the second is to change the former voluntary principle to compelling implement about the import toy should be authenticated by the third party. And it is possible to enlarge the punishment degree from the maximum fine 1.26 million USD to 10 million USD. According to the telegraph of Reuters on last December 20th, the American House of Representatives passed the act with 4070 votes of reducing the lead content in toy to nearly zero standard.

The Europeans have made a new advice that, in the future, although Chinese toys passed the inspection of the recognition testing center, the samples must be delivered to the appointed testing labs of EU before exporting. If the result of testing proves them safe and qualified, the toys could be exported in large quantity. If not, these products would be refused and what’s more, the producing enterprises would be listed on the blacklist.

Japan gets involved in the recall case. The Japanese importer Marushin Toys expressed on last December 19th, because of the overload of poisonous substances, the company has been recalling 230,000 units of China produced toys. The website of Japanese Toy Association claimed that this importer did not get necessary admission and put fake contain exceeding lead and other chemical materials.

Peru forbids importing part of Chinese toys. According to the report of Chinese embassy stationed in Peru, Peru’s exporter association claims: “It is estimated that the demand for domestic toys will be still increasing for part of Chinese toys have been forbidden to import.”

Pressure result from RMB upvaluation, the rise of raw materials’ price and increase of labor salary continue to exist. According to the forecast of financial expert, from the mid of 2007 to the end of 2008, RMB will sure increase in value and the increasing scope will reach 10%, which will affect the cost of toy production to increase by 2% --4.5%. Global oil price will still rise, leading to the increase of the plastic price of the toy production’s main raw material. According to the “Labour Contract Law” which is implemented from this 1st January, it is estimated that the salary cost will increase by 1.5%--2%.

Forecast on This Year’s Export Market

Basing on the analysis on the advantageous and disadvantageous elements, I have the following judgment on this year’s toy exporting market:

Total transaction of 2007 Autumn session of Canton Fair increases by 2.9% compared to that of last year, among which the part of toys decreases by 10.7%. It indicates that Guangdong toys export may show negative growth in the first half of 2008.

The toy industry widely presumes that the pressure of managing export in 2008 is huge and the production cost is still lasting growing. The negative impact on some consumers, especially the American consumers of the recall event in 2007 has not completely disappeared. It will have some influence on the toy sales in the first half of this year. But in other places, this kind of negative impact is small. The global trading situation of this year is still very good and the toy markets still have demand. It is believed that Chinese toy export of this year could maintain the last year’s standard and it is hopeful to have an increase of a single number.

In 2007, the Hong Kong toy manufacturers made a research on the production cost changes from 2007 to 2008. The research points: in the year of 2007 and  2008, the labour cost increasing scope will reach the top and be up to 30% to 40%. The rent of land will also increase by 15% to 20%. As the inspection is becoming more and more important, the expense on it will rise by 10% to 15%.

From the all kinds of analysis, toy export on the first half of this year will still in difficulty. But on the second half of this year, everything will be going well regularly. Viewing the whole year’s toy export, it is still in rise but the speed will be slowed.

Four kinds of actively countermeasures

For the toy industry that covered by layer upon layer cloud and mist, what is its striving direction? The present toy quality criteria is not the same in different countries and the people of this industry think that the European and American standards should be unified as soon as possible; China should also promote a high-grade criteria  and unify the domestic, aboard and the overseas quality standards. Only there is a unified criterion, manufactures could keep to it smoothly. However, to unify the European and American standards is not easy: Americans are strongly against EU’s ban on phthalates on PVC toys. Meanwhile, inspection method of lead content is also different in Europe and America.

To do better, the Chinese toy industry should comply with the standard of importing country and enhance production management and supervision of security standard of quality to guarantee the complete compliance with the importing standard.

We will implement the country’s new laws and regulations, rapidly carrying out the new enacted laws and regulations and new-established quality control system.

It is necessary to publicize and promote our established quality control. We should publicize the guaranteed quality of toy “made in China” and make use of the channels between the governments and fairs, toy festivals, large toy stores to develop promotion activities.