SHANTOU/SHENZHEN, China (AFP) — Company boss Kuma Gu is busier than usual these days rushing his factory's last batch of radio-controlled toys onto the production line to ensure they are ready for Christmas delivery.
He also has to make sure all the products his export company ships overseas are thoroughly inspected during this most frantic period of the year.
Gu cannot afford to let his product quality slip -- his foreign clients are nervous about safety standards as recalls of China-made products continue worldwide.
Although a majority of Gu's clients are from Europe with a minority from the US, where the focus has been on toys with excessive lead paint and loose parts, the recalls and subsequent fears about Chinese products have damaged the industry's reputation.
"Since the toy recalls, a lot of our customers in Europe have been very nervous. Some of them have reduced their orders and we have some cancellations," said Gu, president of HK (Shenzhen) Industries Development Co.
"A lot of them are seriously considering whether to put in new orders," Gu said, adding that business has dropped 30 percent since the large-scale recalls began in June, compared to the same time last year.
The recent recalls of millions of toys, mostly from US giant Mattel, have inflamed global fears for the safety of "Made in China" products with US lawmakers up in arms over how the toxic toys could end up on the US market.
The crisis was further exacerbated following the suicide in August of the head of a Chinese supplier, Lee Der Industrial Co which made nearly one million of the "Sesame Street" and other toys that were recalled in August because they were found to contain dangerous levels of lead paint.
Although the US toy giant Mattel admitted its design flaws were to blame, the scares prompted the Chinese government to introduce new safety systems to ward off a series of scandals about unsafe Chinese exports that include seafood, tyres, toothpaste, clothing, pet food, drugs and baby cots on a long list.
Gu said buyers had tightened checks on products and demanded guarantees that his company would bear 100 percent of any costs incurred from problematic toys.
He considers his company, based in the southern Chinese manufacturing metropolis of Shenzhen, to be better off than some that have seen all orders dry up.
Ronald Ng, sales manager for baby and children's products at Global Sources, a company that links foreign buyers with Chinese suppliers, said there were many Chinese manufacturers that do not follow the safety requirements.
"You would be shocked to see some of the factories in China," said Ng, who was a toy buyer for an international entertainment company for six years.
"They might do very beautiful samples but the actual products look horrible. They don't know much about safety standards," he said, adding some of his clients are now turning to him for advice on product quality control.
A September survey by Global Sources found 62 percent of the 200 suppliers polled are planning to increase spending on quality control, while a third said they will not.
HK (Shenzhen) Industries, whose products are sold at the US chains Toys 'R' Us and JC Penny, makes high-end toys such as motorboats, helicopters and cars for world-renowned brands such as Ferrari, Mercedes-Benz and BMW's Mini Cooper.
The 11-year-old company owns and invests in dozens of factories in China, the world's top toy exporter with annual production by the 20,000 factories around the country worth more than 20 billion dollars -- 75 percent of global output.
At one of the 20 factories that Gu has invested in in Shantou, in Guangdong province, where 80 percent of the manufacturers are toy makers, rows of workers were soldering electronic components on a pile of circuit boards, giving off a smell of sulphur.
In rooms packed with boxes of plastic parts, electronic components and bundles of wires, they carefully placed the circuit boards on the base of the miniature models of shiny red Ferrari racing cars, clicked on the chassis and tiny wheels before packaging them into boxes along with a remote control.
The six-storey building was emblazoned with signs with the letters "RoHS," standing for Restriction of Hazardous Substances, showing that the EU safety standard was applied for the toys produced there.
Gu said his company adhered to legal safety regulations, used environmentally-friendly materials, and obtained verification from internationally recognised inspection companies, such as SGS of Switzerland.
But he said many foreign buyers were unclear about the safety standards of their own countries. He also complained that buyers often offered low prices for high-standard products, thus squeezing his profit margins.
"They understand China too well. They always know your offer isn't their last offer. Because if you don't do it for that price, others will," he said.
Global Sources chairman Merle Hinrichs believes the low prices have encouraged manufacturers to maximise their savings by cutting corners and blamed the massive recalls on importers who failed to do adequate quality control checks.
"Manufacturers will try to make as much money as they can. If importers allow them to cut corners, to use the wrong paint, ingredients and component parts, manufacturers are going to save their money and do so," he said.
Although some suppliers will lose money over the recalls, Hinrichs said he believed this would ultimately be beneficial for both sides as it would improve safety standards and manufacturing quality.
But even if Gu can ride out this storm, he anticipates tough times ahead as his business is threatened by the cost increases, rising inflation and the strengthening value of the yuan against the US dollar.
Government measures to reduce China's dependence on exports and encourage local manufacturers to focus on domestic markets by cutting subsidies -- which have included funding overseas marketing efforts -- have also hit the company.
"A lot of factories have closed because of this. It's so sad," he sighed. "I don't know what to do. We're still surviving but I'm not sure what will happen next year," he added.
Copyright © 2009 AFP. All rights reserved. More »
