Economy

Toy story

Toymaking capital of world is finding times tough

Heading somewhere new

Li Ka-Shing, Asia’s richest man, didn’t get his start in property. Like many tycoons of his era, Li first made his first fortune from making plastic flowers and toys.

Long before Hong Kong became the financial centre it is today, toys were a major export-earner. The territories factories spurred the development of support industries like model makers and mould manufacturers. Hundreds of trading companies linked the Cantonese-speaking firms with the major Western buyers who controlled the leading toy brands.

But as Hong Kong’s toy industry grew, so did the costs of doing business there. By the early 1980s Shenzhen had become a Special Economic Zone just across the border, tariff-free and open to foreign investment. And Dongguan, a neighbouring city in Guangdong province, began to steal Hong Kong’s business. Within a few short years, most of it was gone. Dongguan was now the hub, producing more than half of China’s toy output, or about a third of the global total.

But now it seems like the toy capital is moving once more, as factories depart Dongguan for production further inland or relocate to cheaper Southeast Asian locations. According to media reports, 20% of Dongguan’s smaller toy producers have closed this year.

“When our friends in the toy business got together, we used to say hello by asking ‘how much have you made this year?’ But now, we ask ‘can you survive this year?’ Many manufacturers only aim to break even now, and that’s considered some sort of triumph,” says Ma Fei, general manager of Win Fai Foam Products.

Dongguan’s busy season usually runs from June to October, meeting orders in the months before Christmas. This year, business has been slow. “We haven’t received any new orders since August. Obviously, the demand for toys has been shrinking drastically,” Zhou Zhiming, board chairman of Shengda Clothes told National Business Daily.

It sounds like an anxious time. “We worry about whether we will get any orders and when we do receive them we worry about not having enough workers. After production, we worry about whether the quality is up to par, and whether we will have to offer refunds. And even if there is no problem with the quality we worry about not being able to collect the money,” says Hu Huqiang, the owner of Songzhan Plastic Works, which specialises in Christmas orders.

Of course, a major contributor to Dongguan’s problems is that most of its toymakers are original equipment manufacturers (OEMs) with minimal pricing power and less financial strength to withstand market downturns.

“If you have a brand, your own line and your own product plus creativity, this will make you stronger,” Jean Xueref, the president of Hong Kong Magic, a toy company with operations in Dongguan, told the South China Morning Post.

“We survive now because of the creativity. That’s the best.”

The contraction in manufacturing activities in Dongguan is also forcing the city’s authorities to rethink how to attract new businesses to locate there. Previously, much of the local economy has been based around smaller, low-technology and labour-intensive concerns. But now the city government is hoping to become more like its neighbour Shenzhen, where factories the size of mini-cities are producing products for international brands like Apple and Nintendo. Shenzhen is also home to two of China’s better-known tech firms, ZTE and Huawei.

But transforming so quickly into a more resilient industrial base is easier said than done. Amid a series of new projects and policies promoting Dongguan as a more sophisticated manufacturing hub, the high-tech industrial park Changping Innovation and Technology Centre is still half empty nearly four years after opening, Reuters reports…


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.