12/28/2005, 00.00
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Bumpy road ahead for China's toy industry

In the world three toys in four are made in China, but sales have been in a slump in the last two years as costs rise. Experts say the future is in high-end market niches.

Beijing (AsiaNews/Agencies) – China manufactures about 75 per cent of all toys in the world and exports primarily to the industrialised world. The toys are for the most part low-cost and demand has been dropping in the last two years with costs rising.

Between 2003 and 2004, toy makers have saw their orders fall as a result of the public health crisis of SARS.

In August and September 2005, hurricanes Katrina and Rita heavily damaged the US economy damping consumer enthusiasm at the time when Christmas orders are usually placed.

Meanwhile, prices jumped because of higher wages and higher costs for some of the major raw materials such as plastics due to more expensive crude oil.

To remain competitive, Chinese toy manufacturers have traditionally focused on high volume of sales to offset low profit margins, especially in foreign markets.

"It is an open secret that the industry's profit margin is only razor thin and our business environment continues to get tougher," said C.K. Yeung, president of Blue Box Toys and vice chairman of the Hong Kong Toys Council. 

"Our wage alone went up around 20 per cent in two years," he said, adding that material costs at the same time rose by about 20 to 30 per cent. 

Many toy makers are waiting to see Christmas sales figures.

"Some of the Hong Kong toy makers (with factories in Guangdong) did see larger sales for the 2005 Christmas than 2004 with an average growth rate, as I estimate, of 10 per cent or above," Yeung said.

China has more than 8,000 toy making companies employing more than 3 million workers whose annual output is worth 50 billion yuan (US$ 6.02 billion) in foreign exchange.

About 6,000 companies are located in Guangdong province; 85 per cent of their total toy shipments overseas goes to the EU, the United States and Hong Kong.

Last year, the province's toy industry realised a gross industrial output worth 91 billion yuan (US$ 10.96 billion).

More than four thousand toy factories are found in the city of Dongguan. In the city of Shenzhen, some 600,000 men and women work in the industry.

Between January and November of this year, Guangdong's toy exports totalled US$ 4.25 billion, up 2.5 per cent over the previous year; too little for an industry with a very low profit margin.

Difficulties notwithstanding, the toy industry is still attracting new companies but "making toys is a business that is easy to come into but hard to stay (in)," according to Yeung Toys. 

Some experts say toy manufacturers may have to upgrade their low-tech factories into ones capable of producing more highly value-added toys and seek out new markets like those of Poland and Hungary whose entry into the European Union is likely to lead to greater Christmas spending.

Ye Yao, chairman of the China Council for the Promotion of International Trade Guangdong Branch, urged the province's toy makers to pay special attention to product quality and foreign toy safety standards and regulations, which are crucial in the competitive toy industry. (PB)

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