50% of toy firms 'gone in 2 years

[shan]

Workers laid off from the Smart Union toy factory in Dongguan, Guangdong province, scan the jobs section of a newspaper on Saturday outside their former workplace.


DONGGUAN: As many as half of all toy manufacturers in the Pearl River Delta could go out of business within the next two years, an industry expert said Monday, following the closure of the Smart Union toy factory here last week.

Speaking in an interview with Guangzhou Daily, Wang Zhiguang, vice-chairman of the Dongguan Toy Industry Association, said: "Of the 3,800-odd toy firms in Dongguan, no more than 2,000 are likely to survive the next couple of years."

His pessimistic forecast is based on analysis of the rising cost of raw materials, soaring overheads, the global market slowdown and deprecation of the US dollar, he said.

Companies with good financials and their own brands will find it easier to survive, while others, such as those dependent on OEM (original equipment manufacturing), are more likely to fail, he said.

According to figures from the association, since 2006, the total cost of producing toys has risen by about 60 percent, while contract prices have gone up by an average of just 10 percent.

Also, according to the local customs bureau, Dongguan firms exported $550 million worth of toys in the first half of this year, down 1.5 percent on last year, and the first drop for three years.

The boss of one toy factory in Dongguan, who asked not to be identified, told China Daily Monday: "I daren't say too much (about the demise of Smart Union).

"But what I can tell you is that we're having a very hard time.

"Maybe someday in the future, my own factory will also go under," he said.

"There have already been some negative impacts for toy makers like us, such as the tighter capital chain. We're also a lot more cautious in the way we deal with raw materials suppliers and other business partners."

Xiao Yong, the owner of a Dongguan firm that sells Christmas trees and gifts, is equally worried about what the coming winter might have in store.

"One of the main problems is that many toymakers in Dongguan rely too much on orders from the US and Europe. The financial crises there have led directly to a reduction in orders," he said.

The number of orders his firm has received for this Christmas is about half what it reported last year, he said.

"Also, after the EU and the US changed the market thresholds for China-made toys, and because of the recall incidents of 2007, our testing fees have gone up by about 25 percent," Xiao said.

In an interview with Nanfang Daily Monday, Xiao Senlin, chairman of Hayidai Toys Co Ltd, said: "Concentrating more on the domestic market and developing our own brands instead of doing OEM could be a way to shield us from the worst of the global financial crisis.

"But this is a very challenging time, and we have to face it," he said.

[The Smoking Man]

"Also, after the EU and the US changed the market thresholds for China-made toys, and because of the recall incidents of 2007, our testing fees have gone up by about 25 percent," Xiao said.

So no matter what your president says about who is responsible for 'testing' products that originate in China, the Chinese disregard for international standards has turned around and bitten your industry on the ass, hasn't it?

The latest milk incident has done nothing for the reputation of Chinese industries either. Most of the world is probably viewing all this as the tip of the iceberg.

Sure a lot of it has to do with the dollar crash but how many Chinese have faith in your food chain and toy industry after what they have seen hit the papers? How long before your domestic markets are destroyed too?

China needs to take a more proactive approach by creating industry watchdogs NOW before deaths of children prompts them to do so in a 'firefighting' situation.

[shan]

There is always hope when the market is down .
Retool and make higher quality toys or even high-tech toys.
Tighten the quality controls while at it.
New babies are born every day.
They need toys at every level of their growth, up to microscopes and robotics...
by the way , the workers are innocent

[The Smoking Man]

There is always hope when the market is down .
Retool and make higher quality toys or even high-tech toys.
Tighten the quality controls while at it.
New babies are born every day.
They need toys at every level of their growth, up to microscopes and robotics...
by the way , the workers are innocent

Re-tool all you want. Trust must be earned. People don't trust China ... even the people who live here.

[The Smoking Man]

Wal-Mart Imposes New Standards on Suppliers in China

By Stephanie Wong and Robert Fenner
Enlarge Image/Details

Oct. 22 (Bloomberg) -- Wal-Mart Stores Inc., the world's biggest retailer, said it has imposed new environmental and ethical standards on its 20,000 suppliers in China and will replace those who don't comply.

Factories will have to meet higher targets for reductions in energy use, carbon dioxide emissions, packaging and water usage, the Bentonville, Arkansas-based retailer said in a statement today. Suppliers must adhere to labor laws and ensure workers are paid overtime, Wal-Mart said.

``I firmly believe that a company that cheats on overtime and on the age of its labor, that dumps its scraps and chemicals in our rivers, that does not pay its taxes or honor its contracts will ultimately cheat on the quality of its products,'' Chief Executive Officer Lee Scott said in a conference in Beijing. ``We will not tolerate that at Wal-Mart.''

The standard helps assure Wal-Mart customers that the $9 billion of Chinese toys, clothing and appliances it's expecting to buy this year from the world's largest exporter of consumer products conform to global quality standards. Public confidence in made-in-China brands has taken a beating in the past two years, after reports of adulterated milk, tainted seafood and toxic toys.

Mattel Inc. recalled more than 21 million Chinese-made toys last year because of excessive lead content. At least four infants had died in China after drinking milk that's been adulterated by melamine, while Chinese dumplings sickened people in Japan.

`Making Things Better'

``To be effective, these programs need an aspirational element of making things better and an enforcement element of punishing failure,'' said Howard Harris, who lectures in corporate ethics at the University of South Australia in Adelaide. ``Customers are not going to buy any product, regardless of how cheap it is, if there is a nasty impact on the other end.''

Wal-Mart has created a new supplier agreement that will require factories to certify compliance with local laws and regulations on air emissions, wastewater discharges, and its management of toxic substances and hazardous waste disposal.

The agreement will be phased in beginning with suppliers in China in January 2009, and will expand to suppliers around the world by 2011, said Mike Duke, Wal-Mart's vice chairman in charge of its international division.

Standards Agreement

``The confidence of overseas consumers in Chinese products is important to China's economic growth,'' said Anthony Hazzard, regional adviser in Food Safety for the World Health Organization, speaking at the release of a United Nation's paper on food safety in China. ``Producers have to take responsibility.''

Wal-Mart has signed an agreement with China's Ministry of Science and Technology to help suppliers meet the standards, and will provide training and help for setting up ``responsible practices,'' Duke told a meeting of 1,000 suppliers in Beijing today. It will also work with Chinese farmers to ensure the use of ``best practices.''

The retailer, which has 20,000 suppliers and subcontractors in China, gets 95 percent of the goods sold in its Chinese stores from local suppliers. Wal-Mart will build 80 percent of its 2008 global retail space in China, Mexico and Canada, as it aims to get a third of growth from outside the U.S. to offset declining American consumer sales. The retailer last year opened 30 outlets in China to tap consumer growth in an economy that expanded 11.4 percent in 2007.

Wal-Mart is aiming for its top 200 factories to achieve a 20 percent gain in energy efficiency by 2012 and ``drive returns on defect merchandise virtually out of existence.''

By next year, all direct suppliers of store-branded and unbranded goods will have to identify the name and location of every factory used to make a product Wal-Mart sells.

Dumping Errant Suppliers

``If, after a period of time, a factory fails to improve, Wal-Mart will move our business to suppliers who do comply and who do improve,'' Duke said.

Speaking at a press conference, Scott said suppliers can lower costs by reducing waste.

``Waste costs money, all those things can raise costs ultimately,'' he said. ``There's nothing we are doing that will force a bunch of small firms to go out of business -- You have to work with them to make it a positive experience.''

Chinese manufacturers are already struggling with rising costs and the yuan's strength against the dollar. Half of the country's toy exporters went out of business in the first seven months of 2008 while appliance maker BEP International Holdings Ltd. said on Oct. 17 it shut its Shenzhen manufacturing unit after failing to obtain financing.

The retailer will also apply new standards to its China operations, with a 30 percent target in energy reduction for existing outlets by 2010, Wal-Mart will also develop a new store format that uses 40 percent less energy than current outlets.

Initiatives include selling energy efficient products, reducing plastic bag consumption and cutting packaging.

[shan]

Re-tool all you want. Trust must be earned. People don't trust China ... even the people who live here.

I am the opposite , I trust Chinese milk more than ever since EVERY BATCH of milk goes through extremely strict testing,examination and supervision after the big milk scandal, The toys will be the same

tell me what i should worry about ?

[The Smoking Man]

Your water ...

Your eggs...

Your vegetables ...

Your Air ...

Your Meat ...

Your fish ...

The glaze on your pots ...

Your Beer and wine ...

Are any of the above going through the tough standards that your milk now goes through?

No!

The only way things get checked is if someone dies.

And this is the second incident with Milk and infants ... Remember the 13 who died two years ago??? Who says they are checking harder this time? The certainly didn't after the incident two years ago.

[The Smoking Man]

China, an Engine of Growth, Faces a Global Slump
By JIM YARDLEY and KEITH BRADSHER

BEIJING — For three decades, China has fueled its remarkable economic rise by becoming the world’s workshop and unleashing a flood of low-priced exports. But faced with a possible global recession and weakening demand for Chinese exports, the question now is whether the ruling Communist Party can prevent the financial crisis from derailing the country’s economic miracle.

This question is pressing not just for China but also for the rest of the world. American officials and many economists say continued Chinese growth is vital to the global economy as the United States and Europe face severe downturns.

Yet to navigate the crisis, many analysts say, China will need to recalibrate its economic model, stoke domestic investment with heavy government spending and promote policies to increase consumer demand in a nation known for high savings rates.

The global crisis is also arising at a politically resonant moment for China. This month is the 30th anniversary of the reform policies that first ignited its market-oriented growth, a milestone that has raised inevitable questions about the next steps China must take to become a fully modern economic and political power.

At the geopolitical level, China would seem well positioned to expand its influence. It sits on $1.9 trillion in foreign exchange reserves, accumulated from giant trade surpluses and heavy foreign investment in China, and it could acquire discounted stakes in Western banks and industrial companies.

But for now, most analysts say China’s top priority is protecting its own economy. Chinese leaders say the domestic financial system is largely insulated from the global crisis — China’s banks remain domestically focused and have relatively small exposure to toxic securities sold by American and European banks. But economic growth has fallen to the lowest level in five years, unemployment is a growing concern, and scores of factories are closing in the country’s export region. Domestic stock exchanges have lost 65 percent of their value, and real estate sales have plummeted.

China still seems likely to avoid an outright recession, but a significantly slower growth would pose a political challenge for the Communist Party, which derives much of its legitimacy from delivering jobs and increasing wealth. Conventional wisdom holds that China’s output must grow at a minimum of 8 percent for the economy to produce enough jobs to absorb increases in the working-age population, and many economists expect growth to drop below that level next year.

Just last week, thousands of unemployed workers protested outside closed toy factories in Guangdong Province, the country’s export hub. Slightly more than half the country’s toy exporters shut down in the first seven months of this year, mostly small companies that struggled to cope with new safety standards as well as weakening Western demand, according to China’s customs agency.

If the growth rate “goes below 8 percent in 2009, I think they will be quite concerned,” said Kenneth Lieberthal, a China specialist currently at the Brookings Institution in Washington. “They are always concerned about job creation.”

Already, Chinese leaders are preparing a response that could resemble the government spending spree from 1998 to 2000 that is credited with helping China avoid the worst of the Asian financial crisis that broke out in 1997. Former Prime Minister Zhu Rongji poured billions of dollars into flood control, road building and new airport projects to stimulate economic output. Much of that infrastructure is now considered essential to China’s competitive advantage as a manufacturing exporter.

Today, improvements are needed in railroads and the electrical power grid. But China’s most conspicuous needs are the softer side of a modern economy — a health care network, lower tuition and fees for schools and universities and improvement in the rudimentary social safety net, economists say.

Such steps are seen as crucial if China is to give consumers — especially working-class urban residents and the 800 million people still classified as peasants — the confidence to spend rather than increase their savings.

“China’s infrastructure is excellent — compare it to India,” said Xu Xiaonian, an economics professor at the China Europe International Business School in Shanghai. “It’s getting harder for the government to find ways to spend money productively. It’s stimulus for the sake of stimulus.”

David H. McCormick, the under secretary for international affairs at the Treasury Department, said in a telephone interview that Chinese officials understood that the sheer size of their economy, combined with weakening demand overseas, meant that increasing demand for goods and services within China would be in China’s own interest. “They can’t count on exports being such a driver of their economy going forward,” he said.

To date, the most significant new measure is the land reform announced last Sunday. Full details of the program are still unclear, but the plan allows farmers for the first time to lease or transfer their land-use rights, a landmark step in what is still nominally a socialist country. Economists say they believe that the measure will improve the rural economy, though few predict sudden benefits. To raise rural incomes more rapidly, the top Chinese economic planning agency on Monday raised the minimum purchase price of wheat by up to 15 percent beginning next year.

Transforming the countryside and creating a nation of consumers is likely to prove at least as arduous as turning China into a manufacturing giant. In recent years, President Hu Jintao and Prime Minister Wen Jiabao have eliminated the ancient agricultural tax and increased spending on rural initiatives. Yet the rural-urban income gap has continued to worsen. Today, China still has more than 500 million people living on less than $2 a day; nationwide per capita income is only about $2,000. The social safety net remains so inadequate that most peasants save their spare earnings to protect against a medical crisis or as a thin cushion for old age.

Andy Rothman, a longtime analyst at CLSA Asia-Pacific Markets, an investment bank, said that the government had been promoting domestic consumption for years but that by necessity it was a gradual process and not one that could provide a quick fix to a global slowdown.

“This isn’t something you want to move ahead at light speed,” Mr. Rothman said. “China trying to step into the breach by handing out credit cards to 800 million peasants would be a disaster just a few years down the road.”

From a geopolitical standpoint, China would seem to have an opportunity to fill a void created by an ailing West, especially given the country’s huge foreign exchange holdings. President Asif Ali Zardari of Pakistan visited Beijing this month in search of a financial edge to help his country stave off bankruptcy — an overture that could become more common as China is perceived as sitting on a money pot.

More pertinent to the United States is whether China will re-examine its strategy of financing American debt. Chinese experts say that the American and Chinese economies are so intertwined that Chinese leaders will not make any abrupt changes in their policy of directing the bulk of China’s foreign currency reserves to dollar-denominated assets. The United States Treasury secretary, Henry M. Paulson Jr., and other senior American officials have been in almost daily contact with their Chinese counterparts.

“China, with the responsibility of a big country, will not make trouble for international financial markets,” said Hu Angang, a Chinese economist who is the director of the Center for China Studies at Tsinghua University. “The Chinese government is very rational and flexible, and very clearly recognizes any policy does not just influence domestic markets but also global markets.”

Some Chinese experts are suggesting that China could use more of its foreign reserves to purchase stocks in Western companies and even as leverage to gain positions on corporate boards. Doing so, these experts say, would allow China to develop expertise and gain more experience in global business.

But others say that China was stung when a state-owned Chinese petrochemical company tried and failed to purchase Unocal, an American oil company, and that it would be cautious in making any moves deemed politically risky. Domestic pressures also exist; public criticism has erupted after some investments by the country’s sovereign wealth fund lost money.

No one is yet certain when the global financial system will stabilize, but the crisis has convinced many economic analysts that the system itself will be re-examined. The financial crisis is “a ground-shaking event, but people are going to stick to the same system,” said Wang Tao, chief of the China economic research unit for UBS Securities. “But they are going to think about how to reform the system, and China will probably have a stronger voice than before.”

In recent years, some Chinese experts have written analyses about the inevitability of an American decline and how China must prepare to manage it. But in the face of the current crisis, most Chinese analysts say China is nowhere near ready yet to stand as a superpower.

“China doesn’t want to be viewed as a replacement for the States,” said one Chinese scholar who requested anonymity so that he could discuss the mind-set of government officials. “We are still a developing country. We have more foreign reserves than other countries, but we also have more problems.”

[shan]

The guardian

China today raised export tax rebates on toys, textiles and more than 3,000 other products as it attempts to mitigate the impact of the global slowdown.

The boost for struggling manufacturers came as a toy industry expert warned that almost half of the businesses he works with could close down in the next two years. Textile firms, particularly in the Pearl River delta, have also been suffering for months.

Stephen Green, head of China research at Standard Chartered, told Bloomberg that export growth could tumble from 22% in the first nine months of this year to "zero or even negative growth" in 2009.

China's announcement on Monday that GDP growth had fallen to 9% in the third quarter - highly enviable to most countries, but the slowest rate in five years - sent a shiver through observers who hoped the country's rapid expansion would compensate for falling demand elsewhere.

The head of the country's economic planning agency pledged that it could maintain that rate as he visited Australia today.

"Of course, due to the upturn of economic turbulence outside China there is some slowdown to our growth rate, but I think the growth rate of China's economy will still be at 9%," Zhang Ping, the chairman of the national development and reform commission, told reporters.

He cited strong domestic demand, adding that only 1.2% of China's growth last year came from exports.

But other economists predict that GDP growth could fall to 7% or 8% next year.

The tax changes will be welcome relief for exporters who have felt increasingly hard-pressed by soaring production costs and the rapidly appreciating renminbi as well as the bleak global economic outlook.

In a statement, the Ministry of Finance said the rebate for toys would be raised from 11% to 14% as of November 1. The rebate on clothing and textiles would rise from 13% to 14%, following an earlier hike.

In all, 3,486 types of products - about one-quarter of exports - will be covered.

The government is also expected to support loans to small and medium-size businesses.

Speaking before the changes were announced, Wang Zhiguang, vice-chairman of the Dongguan Toy Industry Association, told Guangzhou Daily: "Of the 3,800-odd toy firms in Dongguan, no more than 2,000 are likely to survive the next couple of years."

Industry in Dongguan, a huge manufacturing city in south China's Pearl River delta, includes around 7,000 garment plants and 3,000 footwear factories.
Mass manufacturers in the region have been particularly badly hit because local authorities have been attempting to shift its economy towards higher-value goods and services.

The toy association says that since 2006, production costs have risen 60% while contract prices have increased by just 10%. The local customs bureau says toy exports actually fell in the first half of this year - down 1.5%
to $550m.

Xiao Yong, whose firm sells Christmas trees and gifts, told China Daily that orders were at half last year's level.

"Many toymakers in Dongguan rely too much on orders from the US and Europe. The financial crises there have led directly to a reduction in orders," he said.

"Also, after the EU and the US changed the market thresholds for China-made toys, and because of the recall incidents of 2007, our testing fees have gone up by about 25%."

One business federation in Hong Kong has predicted that 2.5m jobs for Hong Kong-owned companies alone may be axed in the Pearl River delta in the next three months.

But the government's focus has clearly shifted from curbing rocketing consumer price inflation - now at a 15-month low of 4.6% - to maintaining steady growth. Analysts had expected GDP growth to fall from 10.4% in the first half to 9.7%. The 9% rate is the lowest since 2003, the year of the Sars outbreak.

State media reports have outlined the government's plans to spend its way out of the problem, a strategy it employed following the Asian financial crisis in 1997, although the export to GDP ratio was then far lower.

It will boost the construction of basic infrastructure, such as roads and public housing, and rebuild the large swathe of Sichuan devastated by May's earthquake. Longstanding plans for healthcare reform should also help.

The NDRC said yesterday it would raise the minimum purchasing price for wheat by as much as 15.3% from next year, in a bid to lift rural incomes as well as increase grain output. China's rapid economic growth has disguised growing income inequality between urban and rural areas.

The threshold for personal income tax, now set at 4,800 yuan (about £414) may also be raised and measures to support the languishing property sector are likely.

Shen Minggao, chief economist of the highly respected business magazine Caijing, said encouraging domestic consumption through fiscal stimulus could increase GDP growth by over 1.5 percentage points.

[Polly]

What is the big fuss?  I don't remember HK or Japan or S Korea of Taiwan making headline after headline in the esteemed Herald or Times when we painstakingly restructured ourselves from labour intensive plastic flower assembling to toys assembling to sewing garment and textile to service and then to service and finance.

I think it is called the labour of restructuring.  The important point is whether they can transform and transcend themselves.

[The Smoking Man]

Well, none of them had to deal with the US going through a crash except for Japan and their involvement was indeed the subject of headlines in the 1980's.

The yen went from an exchange rate of 200:1 to 100:1 practically overnight and Japan began picking up US$ Tbills etc. to bolster the US economy. THEY knew that they needed the US market.

The headlines are for the US readers who are looking at the worldwide implications of their crash.

It's been 90 years since something like this had been seen before and that was all pre-globalization.

Is this a Chinese thing where you don't like the people to be given facts???

Hey let's censor the news and maybe the facts will go away. (And we can start slipping melanine back into milk)

[shan]

The worsening global economic situation makes it difficult for China to predict its growth for next year, a senior official said on Friday.

"How fast China's economy will grow next year is uncertain," Liu He, deputy director of the Office of the Central Leading Group on Finance and Economy Work, told China Daily.

"To a large extent, the rate will be decided by the external situation," Liu said during a discussion with Swedish Prime Minister Fredrik Reinfeldt and other economists in Beijing.

This year, GDP is estimated to grow at 9.4 or 9.5 percent, down from 10.6 percent last year, he said. However, the impact of the current financial turbulence "on our economy is much less than on the rest of the world", he said.

Nicholas Stern, a former UK government advisor, also told China Daily it will take at least one or two years for the world to recover from the recession, which is now spreading from the US and the UK to the rest of the world.

"We don't know how long the recession will last, but it is unlikely to be short," he said.

Liu said China can use the downturn as an opportunity to restructure its economy, which has relied heavily on government investment, foreign trade and low-cost technology over the past years.

"When the economy is experiencing fast growth, companies are unwilling to upgrade their technologies," Liu said.

"The slowdown gives such firms the opportunity to enhance their competitive edge through better technologies."

[shan]

chinadaily

The State Council has approved 2 trillion yuan ($292 billion) for the construction of a series of railway projects, to help boost economic growth amid the worldwide financial crisis.

Increasing investment in fixed assets has remained a catalyst of China's economic development. By 2010, the total length of China's railway will reach 90,000 km, according to the Ministry of Railways.

About 1.2 trillion yuan has already been allocated, he said.

Zheng Xinli, a senior government policy advisor, said: "In 1997, we dealt with the Asian financial crisis by stimulating domestic economic growth by investing in the construction of highways. This time the money will go on improving the rail network."

The National Development and Reform Commission is developing plans to improve the country's railway systems, he said.

[The Smoking Man]

Is this guy an idiot???

When the market takes a downturn and sales drop, this is the LEAST likely time for a company to re-tool.

Why spend your liquid assets on fixed assets during a slump when you don't know how long it will last or if it will even recover?

Companies spend when capacities are reached and expansion allows them to invest in machinery that is more efficient or duplicates of what you have already.

Really ... when do YOU think of buying a new car? Do you do it when you have just lost your job or when you have a need to travel for work?

[Polly]

A slump is the best time for a strong company with capital to expand and wipe out/acquire its competitors. 

It is also a good time to launch new business because all sorts of overhead costs come down. Rent of shops at the best possible location comes down by half and is negotiable.  Salary is lower because of unemployment. 

A few of novel eateries were launched during the economic doldrum in HK between 2002-2004 and have been very successful.

For a country with capital, it is also a time to spend on resources and asset acquisition and building infrastructure so as to create jobs and pump liquidity into the economy. 

Because the economy has its cycle and what is being built will come in handy when the economy bounces back again.

Of course it all comes down to capital and the Chinese government has capital.

If there is no capital, expansion or investment is out of the question and one can only only tighten the belt and hope for the best.