There is a popular story about toys in China. A man took a business trip to the United States. In a large shopping mall he bought some gifts for his daughter, lovely toys the like of which he had never encountered in China. When her daughter opened the expensive presents, she cried out: "Dad, these toys are made in China."
The story has many variants, but all of them reflect an indubitable truth -- China-made toys are taking a great market share in global markets. Reports from the International Toy Association say that China has become the world's leading toy manufacturing base, with more than 70 percent of global production taking place in China, over 80 percent of which are sold in foreign market.
Beguiling Statistics
Statistics from the China Toy Association shows that in 2001, China made US$7.58 billion from toy exports, one of the top five national export industries.
Toys won huge amounts of foreign currency for manufacturers, but experts point out that China's toy industry is quite weak and immature, with the domestic market threatened by an "invasion" of foreign toys.
China's toy industry has grown rapidly over the past 20 years thanks to the opening-up and reform policies. Currently, about 7,600 factories of various sizes are producing toys in China, but they are lagging behind international norms by at least 30 years in management skills and research and development.
Toy manufacturers in Guangdong Province struck gold first by processing toys for Hong Kong companies early in 1980s.
The business model for toy manufacture now prevailing in China is one of cheap labor and a low level of technology. And about two thirds of domestic toy manufacturers are following that business model at present.
High Risk
Since both the design and the raw materials are provided, most domestic toy factories simply finish orders, seldom developing new products themselves. Without intellectual property rights, they survive off meagre processing and management charges.
For example, a Barbie doll is sold for about US$10 in overseas markets, but the Chinese processor will only receive US$0.50 of this.
"The toy processing model is highly risky for the Chinese toy industry," said Shi Xiaoguang, president of the China Toy Association. "About 60 to 70 percent of exported toys are produced in Guangdong Province. If they lose overseas orders they could lose their whole market."
Experts point out that Chinese toy industry is just at the beginning and toy factories without vision don't deserve to be called a industry. They just focus on orders, copying western popular toys without ever considering research, design, or ownership of intellectual property rights.
The sufficient protection of intellectual property rights and high investment also restrain toy manufacturers to develop new ones.
"Most toy factories are small or middle-sized, with limited staff and budgets for toy innovation. Besides, developing new products requires a large investment and long-term payback," said Mei Meng, general manager of the Nantong Eurofield Art's Toy Company.
In addition, Chinese toy factories are weak in market survey and product promotion.
By now, the most authoritative certificate to evaluate the manufacturing capability and goods quality of toy producers is the CCPT issued by the State Toy Quality Inspection Committee.
However, only 72 toy manufacturers have received the certificate nationwide, said an official surnamed Liu from the organization.
Market Potential
Ye Xi bought a series of LEGO toys for his 6-year-old son as birthday gift. For this affluent Shanghai professional, the cost of about 2,000 yuan (US$241) counted as a reasonable expense. With their increasing consumption power, young Chinese parents want to invest more in their only children, and toys become a major part of this.
A survey by the World Toy Association shows that the average expenditure on toys among Americans is US$300 per person, while the figure for Chinese is currently only US$5 per person.
According to the 2000 national census, China has a population of 289 million in the age-range from 0-4 years old. This large population consumes over 50 billion yuan (US$6 billion) on a yearly basis, but traditional Chinese toys enjoy a market share of only 8 billion yuan (US$960 million).
"Right now, almost all the local kindergartens are buying our products, and this market is vast in China," said Cherry Wong of the Shanghai Ximen Trading Company, which sells American-brand toys -- Little Tikes.
"Imported toys attract more consumers due to their high quality, good design, and reliable safety standards. In this regard, domestic brands have no advantages."
Ten years ago, when the brand was first introduced to China, it was very hard to sell. Since then sales volume has increased at an astonishing speed. Dong refused to give the exact figure, but she made a quite conservative estimate that "the annual increase is at least 10 percent".
The establishment of business links to the Chinese market is especially attractive since China joined the World Trade Organization (WTO). On December 11, 2001, the market was opened to international competition, with the country's huge scale promising great growth potential.
"Already today, one third of the Shanghai area's 25 million inhabitants regularly consumes branded items from the West," said Holger Morneweg, representative of the Delegation of German Industry & Commerce in Shanghai.
With the official growth rate still set at a dizzying 7.6 percent, the attractiveness of the Chinese market for imports from Western countries constantly increases.
"It's quite urgent that we re-construct the Chinese toy industry," said Shi. "Otherwise, we will not only lose the domestic market, but also the global market in the long term."
(Shanghai Star November 2, 2002)
