By M H Ahssan
India's toy industry has received with mixed emotions a six-month government ban on Chinese toy imports which can only add to the woes of the toy industry in China. The ban is also a hiccup in the US$50 billion trade relations between India and its largest trade partner.
China's embattled toy industry was already struggling to sustain its status as the world's biggest maker and exporter of toys. The January 23 ban, announced by India's Directorate General of Foreign trade, came just a day after the Chinese Ministry of Commerce posted statistics revealing that nearly 1,000 Chinese toy exporting companies in its Guangdong province had closed in 2008.
Guangdong province alone manufactures about 70% of the nation's toy products, with annual profits averaging $6 billion. Serious damage to Guangdong, considered the country's richest province, inevitably hurts the Chinese economy as a whole.
According to customs statistics from Guangzhou, 922 toy exporters in Guangdong went bust in 2008, leaving 2,167 left from the 3,089 toy exporters which were operating in late 2007. In happier times in 2001, Dongguan, the toy manufacturing center in Guangdong know as the world's "toy capital", had over 4,000 toy factories and nearly 2,000 suppliers.
Significantly, the toy ban came a day after India expressed objections to Pakistan "outsourcing" its foreign policy to China, with Pakistan Foreign Minister Shah Mahmood Qureshi on January 22 giving China a "blank check" to negotiate with India in resolving the crisis in relations sparked by the November 26, 2008, terrorist strike in Mumbai. The toy ban could be a rebuke to Chinese interference in its relations with Pakistan, currently the greatest challenge facing the Congress party-led government in Delhi.
China's troubled toy industry, a critical component of the export-based economy, provides jobs to an estimated 20 million migrant workers in Guangdong. According to the latest available statistics from the Beijing-based China Toy Association, India's import volumes in 2006 put it in the top 10 list of global destinations for Chinese toy exports.
The Chinese government has admitted that "large quality recalls by international toy giants, including Mattel Inc, hurt the industry as Western countries raised standards to ensure toy safety". Another factor was, "rising prices for raw material and labor, along with a stronger Chinese currency, which raised production costs by 25% for most companies".
In July 2008, Cheung Shu-hung, the head of a Chinese company, hanged himself in his warehouse after Mattel recalled a million lead-tainted toys that his company produced. (See Death of the 'toy king'
Asia Times Online, August 18, 2007.)
In November 2008, a protest by about 500 toy factory workers turned violent, with the crowd smashing police cars after they were sacked from the Kaida Toy Corp Ltd in Zhongtang Township, Guangdong province.
Analysts have pointed out various fundamental problems in China's toy-export industry. Most producers do not have their own brands, and usually they are original equipment manufacturers (OEMs), who make products that are then sold abroad under a foreign company's label. (See Playtime is over for China's toy industry, Asia Times Online, June 21, 2006.)
The livelihoods of many wholesalers and retailers in India's $510 million toy industry depend on cheaper Chinese toy imports, but Indian toy manufacturers could be rejoicing - business is expected to shoot up by 30% as a result of the ban, which covers musical instruments, electric trains, puzzles, wheeled toys, dolls, stuffed toys, toy guns, wooden and metal toys.
Retailers are not happy. "The ban on Chinese toys is a mistake," Narain Das, owner of Toy Kingdom store in New Delhi, told Asia Times Online. "It came about as a result of pressure from domestic manufacturers after toy imports from China last year crossed rupee 1,000 crores [$204 million]." Das said his customers had no complaints with Chinese toys.
Surprisingly, no specific reason was given for the ban, particularly given that trade with China is expected to grow to $100 billion by 2012, nearly one-fifth of India's overall annual $525 billion trade with the world, according to Department of Commerce estimates released in April, 2008.
"We welcome the decision. It is good for the industry," said Raj Kumar, president of the 13-year-old Toy Association of India (TAI), an apex body representing 600 Toy industry members. He was quoted by the Press Trust of India as saying that the industry was "pleasantly surprised" by the Commerce Ministry decision.
However, Raj Kumar was less sure of the ban's benefits when Asia Times Online contacted him in his New Delhi office, with his newfound caution suggesting that pressure from the toy retailer's lobby was forcing the TAI to reconsider its earlier joy.
"We don't know the reason for the ban and our trade association is having various meetings to decide on the issue," Raj Kumar said. "We cannot say right now whether we are happy or unhappy about the ban on Chinese toy imports."
Kumar's earlier "pleasant surprise" may have been because the ban appears to be more aimed at protecting the unorganized Indian domestic toy sector, rather than the health hazard fears which prompted the US import ban on Chinese-made toys.
The Toy Association of India estimates that 90% of India's toy industry is in the unorganized sector, despite the presence of global majors such as the $5 billion Mattel and $3 billion Funskool.
"The major difference between the Indian toy industry and Chinese is while the major portion of the Indian toy industry caters for the Indian market, the Chinese toy industry is basically contract manufacturing," K John Baby, the chief executive officer of Funskool told Asia Times Online. He predicted a 15% to 20% annual growth rate for India's domestic toy industry, much of it in the unorganized sector.
A Commerce Ministry statement last April also said, "Sports and toys are mainly produced by our unorganized labor intensive sector." The Commerce Ministry announced tax sops as well as declaring the sports and toy industry a priority sector under its Market Development Assistance and Market Access Initiative schemes. The ban comes ahead of an upcoming announcement by the Department of Telecom on a possible ban on Chinese-made mobile phones.
Despite their mixed emotions over the ban, India's toy industry could well have to put its differences aside and focus on the future, as the newspaper The Economic Times reported on January 26 that government officials had confirmed that the six-month ban was "likely" to become permanent.
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