The man in red is about to put China's toy makers well and truly back in the black. And the world's biggest toy exporter does not need to wait for the global markets to pick up, as domestic demand for its products is spurring more than enough confidence. Clifford Coonan writes Santa Claus is coming for Chinese toy makers and, while the jolly man in the big red suit may not be laughing quite as hard as in previous years, the situation is much better than it might have been.
Despite a grim start to the year, when the failure of export markets hit jobs and production in the sector, the festive season is looking decidedly more upbeat for the world's largest producer and exporter of toys. The southern province of Guangdong produces about 70 per cent of China's toys and accounts for half of those made in the world. Orders to the US have fallen by as much as 17 per cent compared with last year but they appear to be slowly increasing again and toy makers have sought out buyers elsewhere, including their domestic market.
With China's economy on course for 8 per cent growth this year and probably the same next year, the question remains whether domestic demand is enough to keep things ticking over in China or whether export markets will recover quickly enough to take over when stimulus spending starts to ebb. Li Zhuoming, the deputy director of the Guangdong Toy Association, says the group's members have seen an improvement in sales since the second quarter of this year.
"The world toy market has been inevitably affected by the world economic crisis, but compared with the beginning of this year we've seen an improvement," Mr Li says. "As to whether this is more than seasonal depends on how sales go at Christmas. If the performance is ideal then the process of recovery will be faster." The start of the year saw widespread closures in Guangdong's toy factories and the worst hit was Dongguan, the centre of the industry, which had more than 4,000 factories and about 2,000 suppliers in the boom period of 2001.
This cooled as production costs began to rise, but Dongguan stayed strong until last year when the crisis began to bite. Smaller players, unable to compete, quit the business but this led to consolidation in the sector and greater efficiencies. Millions of migrant workers were out of jobs but the situation turned quickly. Of the 20 million people made redundant in China early this year, about 14 million had found work by June, government figures show. By the next month, some toy companies even had difficulty filling vacancies.
Part of this was to do with the success of the government's 4 trillion yuan (Dh2.15tn) stimulus plan, which replaced jobs lost in production in the south with those in other parts of the country, often outside manufacturing. After the second quarter, European and US buyers who had held back during the economic crisis had nearly run out of stock and added orders to fill reserves, which meant toy makers were thriving in the second quarter.
"However, as to the overall situation, the world's toy companies are still very cautious to place orders and we still need to wait and see whether the Guangdong toy industry is already out of the economic crisis," Mr Li says. In the first three quarters of the year, industry data show, Chinese toy exports were worth US$5.6 billion (Dh20.55bn), down 11.3 per cent from the same period last year. If electronic games and other products were included, exports of toys were down nearly 22 per cent.
"The difference between the two indicates a trend: during the financial crisis, buyers prefer to purchase relatively low-price traditional toys," Mr Li says. "During Christmas sales this year, the world-famous retailer Wal-Mart said it would launch 100 toy products all less than $10, which also confirms that phenomenon." The downturn also added pressure on China's toy makers to make innovations to production and generate products under their own brands.
"In any event, the world's toy market demand is flexible," Mr Li says. "As long as the products are innovative enough, there is market demand. "Although the economic crisis will affect some people's desire to consume, toys are still the best Christmas gifts and, in general, the prospects for the world's toy industry are still very bright." A useful indicator of how the toy market is faring are the trade fairs.
The autumn fair saw an increase in overseas orders, and 1,300 firms have already applied to exhibit in the Guangzhou spring trade fair. Mr Li believes a lot of the perceived crisis in the industry is based on media hysteria about two events: the 2007 recall of toys for safety reasons by international toy firms in the US such as Mattel; and the collapse of Hong Kong's Smart Union in Dongguan. "Many media reported a wave of bankruptcy in the Guangdong toy industry but that is not the truth," he says. "The toy industry in Guangdong is running normally."
Simon Cheng works in the sales office of Baobei Plush Toys, which has an outlet at the world's biggest wholesale market, with 62,000 stalls, in Yiwu. Li Xuhang, the Yiwu city mayor, has said that if you spent three minutes with each supplier in an average eight-hour day, you would need more than a year to get around the market. "Our business was established 15 or 16 years ago and our customer base is fairly stable, mainly from the Middle East, Europe, the US and South America," Mr Cheng says. "That business has remained stable despite the financial crisis and is set to get better now."
Many of the products sold in Yiwu come from Zhejiang province. Ye Guoxiang, the director of the Muyi Nagel Wooden Toys Factory in Jinhua city, Zhejiang, says Christmas should be good this year. "Christmas will be an opportunity for my company of course but after that foreign customers will stop buying for a while, then they will buy toys again," Mr Ye says. "But I have to wait. I believe the domestic China market has pretty good potential. Since last year's financial crisis, my company began to turn to domestic market. So this year we are doing business both at home and abroad. I'm expecting business to increase by around 10 per cent to 20 per cent.
"This business growth is due to the recovering overseas market and the promising China market, so we will focus on both of these." Tong Yuanzhi, the secretary general of the Yiwu Toy Association and head of Edutainment Toy Company, is tending to concentrate on the home market. "Last year wasn't a good year for us, so we had to turn to the domestic market," Mr Tong says. "Shall I say, the global financial crisis accelerated the speed with which we took to the domestic stage.
"We always wanted to do business at home in China because we think it has great potential but there are also difficulties. But I think the business will be better and better in the future since I am pretty confident in China domestic market." @Email:business@thenational.ae