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Small world after all for toy-making hub

By Tan Hongkai (China Daily)
Updated: 2008-12-23 07:43

It is 1pm in Chenghai district, Shantou city, Guangdong province.

Behind toymaker Huiye Toys Company's gleaming glass showcases, packed with colorful helicopter and racecar models, Ouyang Chumei and her young colleagues are playing computer games.

Workers dress up baby dolls at a factory of Huawei Toys Crafts Co in Chenghai district, Shantou, Guangdong province, in this file photo. Many toymakers in the district have avoided the original equipment manufacturer sector, to their advantage. [Agencies]

Amid the global financial maelstrom that has hit Chinese toymakers hard during this crucial season of gift-giving in the West, businesses like Ouyang's in this toy-making hub have been relatively unscathed.

"Exports have dropped, but only very slightly," Ouyang said. "We do not sell much to the United States."

About 30 percent of her company's business caters to the domestic market, while 5 percent goes to Europe and the US, and the rest headed for Southeast Asia, Ouyang said.

Located 450km from Guangzhou, capital of Guangdong, and more than 500km from Hong Kong, Shantou may have previously envied its Pearl River Delta cousins for their once-booming original equipment manufacturer (OEM) businesses that depend heavily on overseas clients. But with global economic gloom shrouding the toy industry in Dongguan, another Guangdong toy-making hub, talk of widespread factory closures and retrenched workers heading back has left many Shantou businesses relieved for not casting their lot with the OEM sector.

"So far, we have not received any reports of major factory bankruptcies or closures," said Li Jun, a deputy chief of the local foreign trade and economic cooperation bureau and port administration.

A number of Shantou factories have encountered "temporary difficulties", Li said. Dwindling orders have also prompted a number of toy factories in Chenghai to send their workers home early this winter.

Shantou is one of the three main toy-making bases in Guangdong. Most local toymakers are in Chenghai, where more than 10,000 factories and family-run workshops employ about 120,000 workers. In the first 10 months of the year, official statistics showed toys accounted for 9.9 percent of the city's exports, showing a 33-percent rise year-on-year.

A number of factories in the area have recently reduced or suspended production to minimize losses, said Chen Zhiwei, an official with the Chenghai district information office.

"But do not confuse the normal ups and downs of smaller firms with the direct impact of the financial crisis," Chen said. "Companies go bust for various reasons. It happens all the time. "

Still, the negative economic impact was felt much earlier at Huawei Toys Crafts Co, a 3,000-worker enterprise with a 300-million-yuan ($43.8 million) annual output.

A continuous appreciation of the yuan raised export prices. Repeated scandals involving Chinese products resulted in stiffer environmental, safety and manufacturing standards. Additional tests and certificates required of businesses drove up costs.

"The market is too capricious to be predictable," said Guo Zhuocai, Huawei director and president of the Chenghai Toys Association.

"Prices surged to horrible levels in the middle of the year," Guo said. "Everything became more expensive - labor, petroleum, transportation, raw materials, plastics and steel in particular."

Huawei sells 90 percent of its products, including remote-control toys, electronic dolls and robots, to overseas markets.

While the overall output value of Chenghai's toy industry rose by almost 20 percent this year, profits have almost halved, Guo said.

However, he said the unnerving factory closures in Dogguan will not happen in Chenghai because "we have our own brands".

OEM factories are weak in Guo's and many Shantou entrepreneurs' eyes because they are said to depend heavily on overseas clients. All the big toy-making names in Chenghai, in contrast, have "grown up on their own", Guo said.

"From computer-assisted designing and manual molding, to packaging, you name it, we have it," Guo said.

Lining the streets of Chenghai are dazzling signposts advertising for spare parts like screws and molds. Such convenience for manufacturers has even attracted people from economic powerhouse Shenzhen to start up their businesses here, Guo said.

Guo sees no clear and present danger to his business so far, but, in addition to upgrading the company research lab and equipment, he also decided to venture into the cartoon and animation industry to spread his investments.

To that effect, Guo said he has already signed a contract with state broadcaster China Central Television. He is not alone.

"Eight Chenghai companies have entered the animation market," Guo said.

Similarly, Auldey Toy Industry, another major toymaker concentrating on the domestic market, has reportedly transformed and renamed itself Alpha Animation and Culture Co. Only one of its four affiliated companies makes toys. It has even formed a joint venture with the China Film Group.

Quanyu Arts Toys Co, Chenghai's largest manufacturer of holiday gifts and ornaments, is also looking to a lucrative future in animation.

As always, Quanyu's factory suspends production between mid-October and February.

Orders for the important Halloween buying season fell 15 percent from previous periods, Quanyu deputy general manager Cai Zeliang said. That was just a dent in business, Cai said, because more than 90 percent of Quanyu's products are made for the Christmas period. With US retail giant Walmart as its client, Cai said his company does not have to worry - at least for now.

"Judging from feedback so far, we will be pretty secure even next year," Cai said. Sure enough, in the company's design studios, workers were preparing product samples for next year, and the year after next.

Besides reliable clientele and fine quality, Cai attributes his confidence to Quanyu's capability for innovation.

"We have eight designers, three in Los Angeles and dozens of others doing research and development," Cai said. "Quite a number of our products are sold overseas carrying the Quanyu trademark."

Quanyu has also reportedly forged partnerships with colleges and research institutions to produce high-end electronic toys. The company is planning to pump in 150 million yuan to expand its toy-making capabilities.

"We will also get into the animation industry," Cai said. The company is negotiating with the trademark owner of a popular animated series in China to produce affiliated toys. That is only the first step in their foray in the new field, Cai said.

Yet, Quanyu has no intention of giving up what it has thrived on.

"No matter how bad things get, Westerners will still celebrate Christmas. Just like how we Chinese, rich or poor alike, celebrate the Lunar New Year," Cai said.

Huawei is also sticking to that model.

"Toys are to some extent a necessity," Guo Zhuocai said. "There will be demand anyway. The only question is whether you can come up with the right products."

Quanyu's Cai sees increasing signs of an industry-wide reshuffle, but believes the fittest will still prosper in these times.

"Now we have more orders than we can handle. We have already seen orders transferred from the Pearl River Delta," Guo said. "But to be honest, we are now afraid of coping with the really big ones."

Indeed, there is talk in Chenghai about overseas clients going broke and being unable to fulfill contracts.

"If the crisis persists in the United States and Europe, it is unlikely we will totally escape the bloodbath," Li Jun said. The city's export to North America and Europe is already slowing down.

In November, DHL Shantou, which focuses on express delivery between the city and the US and European countries, saw a one-third drop from October, the Shantou Special Economic Zone Evening News reported.

Not sure as to how much longer the crisis will linger, Li Jun and his colleagues are eyeing new markets like those in the Middle East, Africa, and Southeast Asian countries.

For the moment though, it seems to be business as usual for the area.

Not far from Huiye, workers load cardboard boxes onto a lorry at the end of a quiet hallway in front of Guotai Plastic Arts & Crafts.

Chen Jianhong emerged from behind the piles of boxes, telling porters which goes where.

"Have we been affected by troubles in the US? Not really. Our business is in Southeast Asia," said Chen, 25.