China toy factories closing as world demand falls

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BEIJING -- For the Chinese factories that churn out Christmas toys and Christmas trees, the holiday season has lost a lot of its cheer this year. For many, the season is becoming bleaker all the time.Normally, the toy makers would be operating around the clock at this time of year, their workers piling up overtime hours to supply the Christmas needs of consumers in North America and Europe, who buy 80 per cent of their toys from China.Instead, as the financial crisis deepens, thousands of Chinese toy and tree producers are facing layoffs, losses, and even bankruptcy."Our Christmas orders have dropped by 30 percent because of the lack of confidence among our American and European customers," said Tong Yuanzhi, general secretary of a toy association in Yiwu, one of the main centers of Chinese toy production. "Toy exports can't bring us any profits today," he said. "Many smaller toy companies have stopped production or switched to the domestic market."More than 3,600 Chinese toy exporters -- representing 53 percent of the entire industry -- have gone out of business this year, according to the state news agency. It's the latest symptom of a slump in China's export manufacturing sector, a key reason China's growth rate has fallen to its slowest pace since the SARS epidemic of 2003.The third-quarter annualized growth rate of 9 percent would seem healthy in most countries, but it is expected to sink further next year -- perhaps below the 8-percent benchmark that is believed necessary to generate enough jobs for China's fast-growing urban population.Rising unemployment could spark political tensions in a country where social stability depends largely on economic growth. Already, thousands of laid-off toy workers in southern China have held street demonstrations this month to protest against toy makers that closed their doors because of poor export sales."The world financial crisis has affected us seriously," said He Heping, general manager of Yiwu Zhongsheng Christmas Crafts Co. Ltd. "We've lost 20 percent of our foreign orders for artificial Christmas trees. We lost almost three million yuan (about $553,000) in profits this year, compared to last year."U.S. clients are asking for cheaper Christmas trees this year, he said. But his company is squeezed between its falling revenue and rising costs, slashing its profit to 10 percent to 15 percent from more than 20 per cent in the past. Its work force has fallen 15 per cent and overtime is sharply down.In the southern city of Shantou, a toy manufacturer spoke on condition of anonymity. "In the past, our employees would be working overtime every night because of the Christmas orders," he said. "But now there's no need for overtime. We're almost at the end of the Christmas season, and some of the orders for next year should have arrived, but we basically haven't received any of them yet."A manager at another toy manufacturer in Shantou, who makes electrical cars, said his foreign orders have dropped by 40 percent this year. "The competition is really severe, and we're feeling very strong pressure," said the export manager of Songyang Plastic Toy Co. Ltd., who gave his surname as Chen.The global financial crisis is not the only reason for the troubles of China's toy industry. Supply costs and worker wages are rising. The Chinese currency is gaining value against the U.S. dollar, boosting the price of Chinese exports. Quality standards are increasing, leading to a rise in production costs. And many Chinese toy manufacturers were forced out of business by a government campaign to improve the quality of Chinese exports after a wave of scandals last year."The price of our products is rising so fast that sometimes we have to talk to our customers about our new prices every few days, and sometimes they won't accept the new price," said Pei Jun, general manager of Changzhou Santa Electronics Co. Ltd., maker of artificial Christmas trees. "We can't produce without profits. Our profits are only 5 percent or 6 percent."Pei said his foreign orders have dropped by 20 percent this year. His factory has been forced to cut its work force by 30 percent to 40 percent."In the past, we never suffered a 20-percent decline in our business," he said. "We thought Christmas should be the most stable expense for Western families."E-mail Geoffrey York of the Toronto Globe and Mail at gyork(at)globeandmail.com(Distributed by Scripps Howard News Service, www.scrippsnews.com.)