China's toy exporters face grim reality

The upcoming Spring Festival may not ease the pain for toy exporters in China's southern coastal areas who have felt the pinch due to rising costs, yuan appreciation and tougher regulations from western importers.

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

Zhongshan is the province's leading export hub with 118 companies. Its exports account for over one tenth of the province's total.

However, the boom has cooled down.

The trade hub of Zhongshan has seen a two-consecutive-year drop in toy exports worth 64.2 million U.S. dollars, down 6.6 percent year on year.Volume shrank by 2.7 percent to 48,514 batches, said Xie Lin, official with Zhongshan Entry-Exit Inspection and Quarantine Bureau.

The minimum wage in Zhongshan climbed to 1,100 yuan in 2011 from 920 yuan the year before. The increase in wages has led to rising production costs by at least 10 percent for most companies, according to industry insider Chen Mei.

Extra costs cannot simply be passed onto customers as clients from the United States and Europe expect cheap prices when buying from China. Only a few customers will accept a 2 percent price rise when costs increase by over 5 percent.

Manufacturers said they have to keep accepting orders even when there is barely any profit because they cannot afford to lose customers and workers.

Large quality recalls by international toy giants have also hurt the industry as western customers raised standards to ensure safe toy imports.

Exports to European countries and the United States take up a lion share for the city of Zhongshan. The worth of exports to the U.S reached 206.35 U.S dollars in 2012. This accounted for one third of its overall export trade, according to official statistics.

However, both heavy buyers' recently revised import standards have simultaneously posed threats to the sector, casting a gloomy outlook on the industry, said Zheng Xiaoming, professor with Guangdong University of Technology.

Europe has issued what has been deemed as the "toughest regulation" so far. The new regulation forbids the use of 55 allergenic fragrances and limits the use of 11 others.

Many Chinese manufacturers believe that the implementation of the new directive will push up their costs by at least 20 percent, squeezing their almost paper-thin profit margins, according to a survey.

Wu Chunjing, chief of Zhongshan Entry-Exit Quarantine and Inspection Bureau, has called upon companies to seek ways to offset profit-eroding factors instead of being passive victims of price increases.

To step up technological innovations to push up quality standards in accordance with the international regulations is the only way out of the plight, according to Wu.

He also suggested manufacturers develop innovative products with high-added value, so they can make a profit despite rising costs.

The domestic market is another option.

Each Chinese child spends about 40 yuan (6.28 U.S dollars) a year on toys but the figures in Asia generally and the world is 13 U.S. dollars and 34 U.S. dollars respectively, providing a bulk of market opportunities.

"Exploring the domestic market with E-commerce channels and more business settled in Renminbi can provide a shield during this winter,"according to Wu Shuo, Zhongshan inspection and quarantine bureau spokesman.

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