Many of the signs for China's toy industry don't look good: Thousands of factories have closed in the past 18 months, by some measures toy exports slowed dramatically in 2008 as overseas demand fell, and large toy makers in South China have had worker demonstrations over pay and sudden plant closings.
It's not clear what 2009 holds. Hong Kong, the world's second-largest toy exporter, estimates that exports for all its industries will drop 6 percent in 2009, the first decline since 2001 and a harsh reversal from 2008's 5.5 percent increase in exports.
Toy industry executives at the recent Hong Kong Toys & Games Fair seemed split, with some suggesting 2009 will get worse before it gets better. Others say the toy industry will fare better than other industrial sectors because of growth in emerging markets, continued demand for toys and plant consolidations that leave those still standing in a better position.
Lawrence Chan, chairman of the Hong Kong Toys Council, said there are indications that orders are slowing.
``I would expect more trouble to come in the next few months because spring orders are running very low and people have been extremely conservative,'' said Chan, who is also chairman of Hong Kong-based Wynnewood Corp. Ltd., a toy maker that operates more than 200 injection presses at two mainland Chinese factories. He was interviewed at the Jan. 5-8 toy fair in Hong Kong.
But other local executives said they thought Hong Kong's toy industry, which is the territory's third-largest export sector, would fare better.
C.K. Yeung, executive vice president of the Toy Manufacturers' Association of Hong Kong, predicts that Hong Kong's toy exports will be stable and not see the 6 percent decline projected for all industries in the territory.
Toy demand tends to continue in poor economic times, as people may sacrifice in other areas but want to continue spending on toys for their kids, said Yeung, who is vice chairman of Hong Kong toy maker Blue Box Holdings Ltd.
Statistics also show a mixed picture. The Beijing-based China Toy Association said toy exports from January through November 2008 grew just 2.4 percent from the 2007 period, to US$8 billion, a dramatic slowdown for a country that's seen double-digit growth in past years.
However, Hong Kong's toy exports through November 2008 rose a solid 10.8 percent, to US$12.6 billion, on the strength of European markets and emerging economies like mainland China, and in spite of soft demand in the U.S., according to the Hong Kong Trade Development Council, which organized the toy fair. But those figures may be inflated by high raw-material prices earlier in the year, a high euro and mainland Chinese toys that are exported through Hong Kong's freer ports, HKTDC officials said.
Taiwanese plastic toy maker D.J. Toys Enterprise Corp., in Taichung, said it expects sales to slow considerably in 2009. The company — which operates 20 injection presses and employs 500 people at a plant in Shenzhen, China — said 2008 sales were decent but orders for 2009 have dropped by a third, as customers work off unsold inventory.
To keep its factory up and running, D.J. Toys is looking at cost-saving measures as well as operating with little or no profit, but the firm also is focused heavily on new product development, said sales manager Lin Ling. At the fair, the company unveiled a prototype for a toy made from biodegradable polylactic acid. Buyers like the toy, used for teaching children the names of colors, but have balked at the high price tag, which comes from using ``green'' plastic, Lin said.
``When customers hear the price, they say `good idea, but the timing is not right yet,' '' she said.
Lin said customers have liked D.J.'s other environmental initiatives, such as a line of toy musical instruments that use soy ink and simpler corrugated cardboard packaging, and have been redesigned to make their ABS plastic parts easier to recycle. But those initiatives have not added cost, she said.
In general, larger, more sophisticated Chinese and Hong Kong toy firms seemed to be doing better. Those results mirror a Chinese government policy that encourages consolidation and is willing, so far, to see smaller, less technologically sophisticated firms wither — particularly in South China's Guangdong province.
Guangdong Qunxing Toys Industrial Co. Ltd. said its 2008 sales were up modestly and claims it is maintaining those levels. ``In one sentence, we are all right,'' said Pauline Chen, European sales manager for the Shantou, China-based firm.
The company, which has 2,000 employees and about 110 injection presses, believes that having its own brand of products in Chinese markets helps, as does a diversified export market and in-house product design, Chen said. Its profit margins are being squeezed, but the firm has developed inexpensive new educational toys for children, such as language learning tools that look like laptops, she said.
Some officials say that China's toy industry consolidation is helping the companies that have survived. HKTC's Chan said the number of Chinese toy plants declined from more than 8,000 to roughly 3,200 in the past 18 months. But most plants that folded were smaller, often cheaper and less safe.
As the South China toy industry base has shrunk, Tech Group (Hong Kong) Ltd., a toy-gun maker that outsources manufacturing, has had to give greater focus to its supplier partnerships, said Managing Director Stanley Yu. Hong Kong-based Tech does marketing and design but subcontracts its production, mainly to companies in South China's toy manufacturing zone.
``It is survival of the fittest and [suppliers] can choose their customers,'' Yu said of the supply chain. ``If we squeeze them, they will go to others.''
That issue first arose in 2008 as consolidation, rising costs and toy buyers unwilling to pay more led to manufacturers turning away work, according to Chan. ``This is the first time in many years that manufacturers have refused to accept orders,'' he said. ``That was a rare sight. It was not the manufacturers trying to make a better profit; they just can't afford to make the product.''