Half of China’s toy factories close after exports slump

Nearly half of China’s toy factories closed last year as the financial crisis tightened its grip.

The country started the year with 8,610 factories producing and exporting 70 per cent of all the world’s toys. By the end of 2008, only 4,388 remained – a decline of 49 per cent, figures from the customs office showed. The blow has been particularly hard-felt in the southern province of Guangdong, which borders Hong Kong, and which is responsible for producing the majority of the toys made in China.

The plight of China’s toy industry has been exacerbated by a recent decision by India to impose a six-month ban on imports on the grounds of health and safety. That drew an angry response yesterday from Beijing, which warned Delhi that the action could harm ties between the neighbours.

The Ministry of Commerce said: “China hopes that in a period during which the world economy faces grim challenges, India takes cautious and prudent trade remedy measures, otherwise bilateral trade relations could be seriously impacted.”

China has already said that it plans to ask the World Trade Organisation’s dispute settlement body to study whether the Indian ban violated WTO rules.

The clash highlights a rise in protectionist sentiment around the world, prompted by the economic slowdown. However, China said that it had no plans for a “Buy China” drive.

Among those sectors that make up the Chinese industrial juggernaut, one of the worst hit has been the light industry that churns out everything from zips to lighters and socks to toys. The decline in the toy sector has come just as a government policy to encourage consolidation and to allow smaller, less technologically advanced firms to wither had begun to gain ground in southern Guangdong. Combined with a sudden slump in overseas orders, the impact has been swift.

While toy exports managed to grow marginally in 2008, up by 1.8 per cent to $8.6 billion (£5.8 billion), the figures hid a dramatic deterioration towards the end of the year. In November, exports slumped by 8.6 per cent from a year earlier, while December saw a drop of 7.6 per cent.

Even some large factories ran into difficulties. Among the biggest closures was that of Smart Union, a Hong Kong-listed maker of toys for companies such as Mattel and Disney in the United States. It closed last October with the loss of 7,000 jobs.

However, toy industry experts have said that the closure of some factories could help others to survive the downturn, with the biggest and most sophisticated likely to benefit. Most of those that closed were smaller, cheaper plants producing toys to lower safety standards.

China’s toy producers were already reeling after recalls around the world of some of its output over the past 18 months severely tarnished the industry’s reputation. Rising labour and land costs had been adding to overheads.

A report from China’s Customs office was gloomy: “Toys are not a life necessity, so people’s demand for that kind of product declined in the face of a grim economic situation.”

February 10, 2009
Jane Macartney in Beijing

Source: The Times