Christmas toy makers in China in dire straits

BEIJING - Chinese manufacturers who supply 60 percent of the world’s Christmas toy products are in dire straits as rising labour and material costs as well as the appreciation of the renminbi are forcing them to shut business.

“If the situation does not improve, we’ll definitely quit,” said Cai Qichang, owner of an arts and crafts company in Guangdong province. “The sun is setting on the Christmas product industry (in China) right now,” he said.

Exports of Christmas goods from the province hit $770 million between January and October, up 3.9 percent year-on-year. That’s 48 percent of all Christmas products exported by China during the period, China Daily reported citing official data.

“Orders for our hand-crafted Christmas ornaments, dolls and other works did increase slightly this year,” said Huang Shaokuang of Jiaying Arts and Crafts.

Yet, despite generating almost eight million yuan ($1.2 million) in sales, as of October, the company had made no profit, said Huang, sales manager of the firm in Chenghai district of Shantou, home to over 3,000 toy manufacturers.

Factories across Chenghai have reported similar experiences, with “many actually running at a loss”, said Cai, chairman of the Chenghai Arts and Crafts Association, an alliance of over a 100 small and medium-sized enterprises.

The situation, however, worsened following the sharp rise in labour and raw material costs. For instance, the non-woven fabric, the most common material used in making ornaments and dolls, prices soared from about 8,000 yuan a tonne in January to over 16,000 yuan a tonne in October.

“With raw materials making up at least 40 percent of our gross costs, I dare not purchase any non-woven fabric right now,” said Huang, whose company has been producing yuletide ornaments for 18 years.

Although the price of raw materials is likely to fall, experts predict the manufacturers will have to deal with labour shortages for some time to come.

Factories across the Yangtze river and Pearl river deltas - China’s economic powerhouses - have been short on hands since March this year, the daily said Friday.

“If my production line is running at full capacity, we need at least 800 workers,” said Chen Shaoyan, owner of Zheng Chang Long Carton Factory in Shantou. “This year, I had only 200 workers during the peak time,” said Chen.

He said the situation forced his company to reject several orders from clients, resulting in sales falling 30 percent.

As most Christmas products are assembled by hand, the industry is dependent on human resource. Mechanized operations are economically unfeasible for most manufacturers.

In addition, appreciation of the yuan against the US dollar have dealt a severe blow to the industry.

Huang of Jiaying Arts and Crafts has urged the government to curb currency appreciation as “exporters may lose confidence to continue in this business”.

Chen said the conditions have gradually deteriorated over the last decade. “I have been considering transferring to other industries since the beginning of this year,” he said.

Huang said that his company has already started producing toy helicopters for the domestic market.

However, companies like Hongfeng Arts and Crafts fared well despite the turbulence.

“We completed $15 million worth of orders this year, almost twice as many as in 2009,” said Luo, deputy general manager of Hongfeng.

The secret to Hongfeng’s success has been building a brand recognized by foreign buyers, the daily quoted Luo as saying.

The Orient Crafts in Zhejiang also saw its sales top 100 million yuan in 2010, an increase of 25 percent. “There is no bad industry, just bad performing companies,” said Huang Jili, general manager of the company.