Chinese Firms Feel The Brunt Of Toy Recalls

There's trouble in toy land. Some of southern China's toy makers, which turn out most of the world's playthings, are struggling this holiday season after a spate of massive safety-related recalls in the U.S.

Many companies in this city, a major toy-making hub, say they are regrouping as customers from America, Europe and elsewhere have canceled, postponed or trimmed orders.

In response, some are scrambling to tighten standards and step up testing to reassure Western buyers. Others are looking to boost sales to Russia, the Middle East and other less-regulated, developing markets.

'It's very difficult to do business now,' says Deng Xiling, a sales manager at Foshan City Nanhai Jiujiang Calux Plastic Factory, which makes plastic components for toys. 'Customers require such strict testing that it's not profitable.'

Ms. Deng says her company decided to shut down its painted-toy operations after unsafe lead levels were found in paint used by a nearby factory that supplied toys recalled by Mattel Inc. She fears her company could inadvertently receive tainted supplies, as well. The company laid off 30% of its work force and expects sales to fall by 20% to 30% next year.

For the Chinese toy industry, product-safety concerns have piled on top of other challenges. Wage and raw-material costs have been rising sharply in recent years, while the appreciation of the yuan against the dollar since July 2005 has made Chinese goods more expensive in dollar terms.

These combined pressures have forced hundreds of toy makers in Guangdong province, home to Foshan, to close since the summer. And toy executives say there is mounting evidence that the big trading companies that act as middlemen for Western buyers are looking elsewhere -- especially Vietnam, where costs can be lower.

'Generally speaking, 'Made in China' is getting less competitive,' says Gu Wu, president of HK (Shenzhen) Industries Development Co., a maker of radio-controlled toys. 'People are afraid of any problems,' Mr. Gu says. 'It's not only U.S. orders that are falling, but European orders are also coming more slowly.'

Millions of toys made in China have been recalled this year for safety problems, some resulting from design flaws that occurred outside China, some from production problems in China such as unsafe levels of lead in paint. It is hard to measure the business impact in China of the recalls, which so far seem to have had little overall effect on U.S. toy sales. Chinese toy exports are up this year. But big orders are placed far in advance, so any visible shift in trade figures would take time, meaning the statistics may not yet reflect the full damage toll.

Preordered toy exports from Foshan to the U.S. in the first nine months of the year were up 4.2% compared with the same period in 2006 -- a significant slowdown from the 20.1% growth rate posted the year before. Overall, the city's toy exports to all countries were up nearly 26% from January to September. For Guangdong Province, toy-export growth began to slow in June but remains strong. In October, toy exports were up nearly 23% from the same month in 2006.

One thing, however, is already clear: Toy makers' profit margins are likely to shrink and retail toy prices are likely to rise as manufacturers spend more on safety and quality checks.

Stanley Wong, vice chairman of Foshan Dayi Toy Co. -- which makes plastic, electronic and stuffed toys -- says the company is raising its prices by about 10% to cover increased testing ordered by U.S. customers.

Other companies in Foshan say they are raising prices by about 20%. 'In the past, customers bringing in small orders usually had no requirements on testing,' says Chen Zebin, an executive at the Foshan Nanhai Yanbu Yuexing Toy and Garment Factory. 'Now they want testing for every piece.'

Some toy makers complain foreign buyers are proving unwilling to cover the higher costs of ensuring that quality and safety standards are met. 'Customers won't accept price increases,' says Zhu Wenyan, business manager of stuffed-toy maker i.j-Unit Co. in Foshan. 'We are making no profits.'

The factory involved in the first Mattel recall in August of Fisher-Price toys possibly containing lead paint -- Foshan Lee Der Toy Co. -- has shut down entirely. The plant office is secured with a yellow bicycle lock. Boxes of Fisher-Price toys for toddlers can be seen stacked in the warehouse. The factory's owner killed himself after the recall, and the company laid off hundreds of workers. Their concrete dormitory on the factory grounds now stands empty.

Many other factories, however, say they are weathering the storm. Mattel's largest Chinese supplier, Zhongmei Toy Co., also in Foshan, says it has seen no decline in business since the recalls. A red banner draped across its headquarters says new workers are needed.

Mattel's handling of a series of recalls of Chinese-made toys, which began in August, has caused consternation among many Chinese toy executives, who feel that the U.S. company, the world's largest toy seller, unfairly tarnished the reputation of Chinese suppliers.

Executives from Mattel, who have said some of the recalled toys had design flaws, apologized to Chinese government officials and the public in September. But criticism of Mattel remains heated among industry executives in Guangdong.

Officials at a toy factory that supplies Mattel appear guarded. Men in yellow Mattel windbreakers and others with Mattel identification badges tried to prevent a Wall Street Journal reporter and researcher from talking to factory workers on the street in Foshan. One man wearing his Mattel ID on a lanyard woven with the slogan 'Lean Supply Chain' said 'the workers belong to the factory owners' and aren't allowed to talk.

Two officials of the local Public Security Bureau, who said they had been summoned by the toy company, then detained the reporter and researcher for about an hour in an office at the factory before releasing them after foreign-affairs officials called provincial authorities.

A Mattel spokesman in the U.S. wrote in an email, 'It's not our policy to prevent reporters from speaking with employees on public property.'

Relations between buyers and suppliers are becoming more contentious, Chinese executives say, as both sides seek to protect themselves from potential safety problems. Foreign companies are trying to insist that factories accept legal responsibility for flaws, while Chinese manufacturers are looking to outside experts to certify that customers' designs are safe.

'Many companies are under a lot of pressure to survive,' says Mr. Gu, of HK (Shenzhen) Industries, which makes relatively high-end remote-control toys. 'In the past, a lot of companies didn't really know what was expected' in foreign markets, he says. 'Everyone is trying to learn. It just takes time.'

今年玩具业似乎是流年不利。在美国发生多起因玩具安全质量问题引发的召回事件后，在圣诞节销售旺季的前夕，位于中国广东这个全球最大玩具生产基地的一些生产厂家正在艰难度日。

在玩具制造业中心城市之一的佛山市，有不少公司表示，由于欧美和其他市场的客户推迟、削减乃至完全取消订单，他们不得不调整业务。

有些公司以提高产品标准和加强检测等办法来安抚西方客户。也有公司考虑加大在俄罗斯、中东及其他监管相对宽松的新兴市场加大销售。

生产玩具塑料零件的佛山市南海九江嘉乐仕塑料厂(Foshan City Nanhai Jiujiang Calux Plastic Factory)销售经理邓喜玲称，现在生意非常难做。客户要求的产品检测是如此严格，公司已无利可图。

邓喜玲表示，附近有一家玩具厂供应给美泰公司(Mattel Inc.)后被召回的产品被发现涂料含铅量超标，那之后，公司决定停止涂漆玩具的业务。她自己也担心公司会一时疏忽而用上含铅量超标的原料。该公司已解雇了三成员工，并预计来年的销售将减少20%至30%。

产品安全问题对于本就四面楚歌的中国玩具业可谓雪上加霜。近年来，中国玩具业的劳动力及原材料成本大幅上升，而人民币兑美元汇率自2005年7月以来不断升值，也导致中国产品的美元售价越来越高。

今年夏季以来，广东省已有数百家玩具厂因为承受不住压力而倒闭。玩具业人士透露，有诸多迹象显示，向西方客户销售玩具的大型贸易公司正在寻找其他供应来源，尤其是越南等成本更低的国家。

生产遥控玩具的深圳市华坤实业发展有限公司(HK (Shenzhen) Industries Development Co.)总经理谷武表示，总体而言，“中国制造”的竞争力正在减弱。在草木皆兵的环境下，不但美国客户的订单在减少，连欧洲的订单也在下滑。

今年有数百万件中国产玩具因为安全问题而在美国被召回，有些是因为与中国方面无关的设计缺陷，有些则是因为涂料含铅量超标之类属于中国生产厂家的问题。目前还难以估计这些召回事件对中国玩具业的影响，从表面上看，这些事件到目前为止对美国玩具总体销售情况的影响并不大。虽然今年中国的玩具出口还在增长，但大宗订单往往会预先很长时间就敲定，因此贸易数据要在一段时间后才会出现明显的变化，这就意味着目前掌握的统计数据可能还不能全面反映出此类事件的破坏力。

今年前九个月，佛山玩具厂商向美国出口的订单产品较上年同期增长4.2%，增幅远逊于上年同期的20.1%，但他们对所有国家的玩具出口总量仍较上年同期增长近26%。至于整个广东省，虽然玩具出口从6月份开始放缓，但仍很强劲，其中10月份的玩具出口较上年同期增长近23%。

不过有一点是可以确定的，那就是玩具厂商利润率会下滑，而玩具的零售价会上涨，原因是制造商在安全检测方面要花更多的钱。

佛山市达亿玩具有限公司(Foshan Dayi Toy Co.)副董事长Stanley Wong表示，因按照美国客户要求增加了检测，公司生产成本因此提高，为此公司将产品售价提高了约10%。达亿玩具是一家生产塑料、电子及填充玩具的公司。

佛山其他一些玩具厂则表示要涨价20%左右。佛山市南海盐步粤兴玩具制衣厂(Foshan Nanhai Yanbu Yuexing Toy and Garment Factory)管理人员陈泽斌（音）称，过去订单少的客户一般都不要求检测，但现在他们要求每件产品都要检。

一些玩具厂商对于外国客户要求提高产品安全质量标准却又不愿意为此买单的态度感到不满。生产填充玩具的佛山市南海区沛颐玩具店(i.j-Unit Co.)业务经理祝文妍表示，客户们是不会接受涨价的，因此公司变得无利可图。

美泰今年8月份因涂料可能含铅而首次召回的Fisher-Price品牌玩具是由佛山利达玩具有限公司(Foshan Lee Der Toy Co)生产的。如今这家公司已经倒闭，办公室大门紧锁，仓库里还能看到成箱的Fisher-Price幼儿玩具。在美泰宣布召回后不久，这家工厂的老板自杀身亡，数百名工人失业，厂区内的职工宿舍如今人去楼空。

不过，还有许多玩具厂表示他们能挺过难关。美泰公司在中国最大的玩具供应商佛山中美玩具厂(Zhongmei Toy Co.)表示，自召回风波爆发以来，它们的业务并未下滑。该公司总部仍张贴着招收新工人的红色横幅。

美泰公司对8月份以来一系列中国产玩具召回事件的处理让中国玩具业的许多人士非常惊愕，他们认为，身为全球最大玩具销售商的美泰玷污了中国玩具业的声誉。

虽然美泰方面9月份已承认一部分召回是由设计缺陷所致，并向中国政府和公众道歉。但在玩具业集中的广东，对美泰的不满情绪仍很强烈。

《华尔街日报》的记者发现，在一家为美泰生产玩具的工厂，管理人员显得很警觉。当记者及其助理在佛山街头采访工厂工人时，被身着带有美泰商标的黄色风衣和其他佩带美泰标牌的人员出面阻拦。一位脖子上挂着美泰工卡的男子向记者表示，工人属于工厂，不允许随便与外人说话。

后来，记者及其助理被两名声称接到玩具公司报警的当地公安人员在工厂的一间办公室里扣押了大约1个小时，直到外事部门的人向省里请示后才被释放。

而美泰公司美国发言人在一份电子邮件中称，公司的制度并不禁止员工在公共场所接受记者采访。

中国方面的管理人员称，现在采购方与供应方之间的关系变得越来越紧张了，双方都想保护自己免受潜在安全问题的牵连。一方面，外国客户坚持要求厂方要为产品缺陷负法律责任，另一方面，中国制造商则要求助外部门专家来确认其客户的设计是否安全。

华坤实业的总经理谷武表示，许多公司承受着巨大的生存压力。过去，不少公司并没有真正了解外国市场的要求。现在所有人都在学习，但这个过程是需要时间的。

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