Grim Christmas for Chinese toymakers
A drop in exports is hurting Chinese toy manufacturers, who rely on U.S. demand. Next week, China will help out by subsidizing exporters. Scott Tong looks into the health of the toy industry in China.
A customer selects a doll (China Photos/Getty Images)
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Kai Ryssdal: Tomorrow morning, we're gonna get our first hard numbers for how the economy did in the third quarter. We can all probably guess gross domestic product July through September wasn't all that great. We'll be lucky, really, if there was any growth at all, because there certainly hasn't been in one of the key components of this economy and the global economy, too: American consumer spending. When we don't buy, the rest of the world feels it. Especially in Asia, where so many economies count on being able to sell their exports here. Just in time for the holiday shopping season, Chinese toymakers are suffering.
Marketplace's Scott Tong stopped at a toy expo in Shanghai to check things out.
Scott Tong: [sounds of mechanical toys] Step into Shanghai's international toy industry fair, first impression is sensory overload. Plastic race cars loop the loop and helicopters hover endlessly. Which brings us to the second impression: when will the batteries die? For Chinese toymakers, the power is already draining.
Wu Haining manufactures for export clients like Wal-Mart, KMart and Target.
Wu Haining: This year we've suffered in a very obvious way. Orders from the U.S. and Europe have fallen 70 percent from last year. Toys just aren't a necessity for consumers right now.
Word here is U.S. orders were already weak this year. And then they crated with the global slowdown. For 2008, some 4,000 Chinese toy exporters have gone under, that's half the industry.
Gone are the days when factories could operate mindlessly, like Robby the Robot. Chinese manufacturers simply took an order, loaded the ship and raked in double-digit profits. That's changed in the last year. Soccer moms in the West are now pinching pennies. And the other part of this story is China's is no longer the lowest-cost manufacturer. Labor costs are up, so some customers have abandoned China for cheaper, less-developed shores.
Jeff Sears is a furniture importer from Michigan.
Jeff Sears: It'll always shift to the lowest-cost country, whether that be Indonesia, whether that be Cambodia, Laos, possibly even Africa. It's always going to keep on moving.
Remember last year's recalls of Chinese-made toys with lead paint? Many western brands immediately high-tailed it to Thailand. That way, they could peel off the Made-in-China sticker. David Dayton's a quality consultant with Silk Road International. He says Chinese factory bosses are now desperate. And in general, they're unprepared.
David Dayton: The idea of forecasting is not something that we run into very often with Chinese-owned factories. It very much seems to us, boy they're not looking past this order.
Next week, Beijing will boost subsidies for toy and other exporters. But many think the country's long-term plan is to let them die. Attorney Steve Dickinson is with the firm Harris and Moure.
Steve Dickinson: They really want to phase out, to put it in a nice way, the manufacturing that is very low technology and requires a massive number of low-skilled, low-wage laborers.
[sound of toy car] So it's time for China to redesign the car and craft a new business model. Ye Guoxiang exports wooden toys. He wants to wean himself off foreign buyers, and start selling to Chinese shoppers. They're getting wealthier by the day. Here he is, back at the Shanghai toy fair.
Ye Guoxiang: The China market is a better prospect. Parents here have just one child, and these days they spend on them. It's different than the '70s, when our parents could only afford food and clothes.
This Christmas season, parents in the U.S. won't be buying much, either. Some analysts predict the weakest holiday sales in 17 years. So by the time January rolls around, the global slowdown may cause hundreds, maybe thousands more Chinese factories to close.
In Shanghai, I'm Steve Tong for Marketplace.
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