China toymakers play domestic market as exports slide

China's toymakers are stepping up their game in quality and branding to satisfy increasing demand from the country for higher-end goods as sluggish overseas demand dents exports.

Industry players at the Hong Kong Toys and Games Fair said slowing exports and shrinking margins, exacerbated by Europe's debt crisis, weak US demand, yuan appreciation and higher costs, have companies in the world's largest toy-making country scrambling to tap domestic demand.

The key to success is branding and creativity.

"If you have a brand and if you have your own line and your own creative product, this will make you stronger...We survive now because of the creativity. That's the best," said Jean Xueref, President of HK Magic Ltd, a toy company with operations in China's southern manufacturing city of Dongguan.

Toy exports from China fell 10 to 20 per cent in 2011, the Toy Manufacturers' Association of Hong Kong said.

"If raw material costs do not go up too much this year and the yuan does not appreciate as much, then the sector will not be hit as hard this year. Especially if the government eases monetary policy - that may help the industry," association president T.C. Cheung said.

Cheung added that a few thousand toy factories had closed in China in 2011, while about 10 per cent of workers in the industry lost their jobs.

China's growth in exports weakened to the lowest rate in more than two years in December, boosting expectations of more policy action from Beijing to support the world's second-largest economy.

Analysts, speaking to Reuters among sleek exhibits of toys ranging from smartphone-controlled toy helicopters to rubber dinosaur figures, say Chinese toymakers must move up the value chain to survive amid higher labour costs and weakening overseas demand.

"Some (toy companies) are just manufacturing and they don't have their own design, they have no marketing forces. These types of companies will be particularly negatively impacted," said Jianguang Shen, chief economist of Mizuho Securities in Greater China.

More than 80 per cent of the toys sold around the world come from China, industry and official data shows.

A series of safety scandals in China in recent years has triggered worries about the made-in-China label. In one high-profile case, US toy company Mattel Inc recalled millions of Chinese-made toys in 2007 due to safety risks from magnets and lead paint.

M&C Toy Centre Ltd, a toymaker with 500 labourers in Dongguan, said it's now marketing toys to Chinese consumers based on new cartoon series aired by state broadcaster CCTV.

"Buyers abroad are now asking for cheaper and cheaper prices," M&C Toy Centre general manager KC Leslie Chin said, adding some were looking for price cuts of more than 6 per cent. He said some of his overseas orders for 2011 plunged about 30 per cent.

With the new-found focus on domestic demand comes a push for better quality to satisfy a growing pool of wealthy Chinese willing to pay more for superior products.

"There are many rich Chinese consumers, and we can build up our brand image," said Allen Chen, marketing manager of JD Components, a toy and sporting goods producer that sells to Taiwan's Giant Manufacturing, the world's largest bicycle maker.

"Giant tells us to focus on China and on higher quality products," Chen said, adding there is great demand in China for higher-quality bicycles for sport activities and recreation.