The Real China Toy Story - Oct 10, 2007 Part 1.

In 2006, China, the third largest exporter after Germany and the US, exported US$969 billion  worth of product with over 50% of it made according to the requirements and standards of foreign orders. Of this, more than US$7 billion worth was toys. The total included 300,000 batches of toys sold to the United States. The American consumer, amid the tremendous furor over recalls, needs to be reminded that, in reality, US product quality watchdogs filed only 29 recall cases involving toys made in China in 2006.

Lead paint has been banned on toys made in the US since 1978 and in the wake of the recalls of millions of playthings decorated with paint containing the toxic metal, China signed an agreement in September 2007 to prohibit the use of lead paint on toys exported to the United States. The widespread media attention relating to the recall of over 21 million toys by the world’s largest toy manufacturer, Mattel, was strangely missing when it became apparent that most of the items were defective because of design, not manufacturing, flaws. Thomas Debrowski, Mattel's executive vice president for worldwide operations apologized on September 21 for damaging China's reputation after the company's recent massive recalls. “Mattel takes full responsibility for these recalls and apologizes personally to you, the Chinese people and all of our customers," he said.

A Mattel statement suggested that 17.4 million toys had been recalled because of loose magnets - a design flaw - and those recalled because of impermissible levels of lead numbered 2.2 million. A research paper recently released by two Canadian business professors also showed that about 80 percent of the 550 toy recalls in the United States in recent years were because of design faults and not manufacturing defects.

Mattel also admitted that it had recalled more potentially lead-tainted Chinese toys than was justified and that follow-up inspections confirmed that some of the recalled toys complied with the US standards.

A spokesman for the Chinese government revealed that more than 300 toy exporters have been banned from operating in a recent crackdown on unsafe toys. Four Chinese vendors suspected of supplying lead tainted paint to a Mattel contract toy factory are being held in criminal custody.

The Chinese government has also taken the following action:

For Quality control :

1. They accelerated the pace of setting up a foreign trade credit system.
2. They established a blacklist of export enterprises, meting out punishment to those enterprises violating laws or regulations.
3. Together with the Customs, Foreign Exchange, Quality Supervision and Inspection, and Revenue authority, they set up a "foreign trade dealer’s offenses information exchange system," keeping track of misbehaving dealers with the goal of removing them from the market .
4. They set up a special column of "foreign trade orders" on their official website, posting the laws and regulations concerning foreign trade and the typical cases of violation. It increased the transparency of government ministry operation and also deterred potential offenses.

In August 2007 China's quality watchdog introduced the nation's landmark recall systems for unsafe food products and toys amid efforts to improve product safety. The regulations state clearly that producers must take the prior and major responsibilities for preventing and eliminating unsafe food and toys. The regulations require manufacturers to stop production and sales, notify vendors and customers, and report to the quality control authorities when product defects are found. The producers are subject to fines of up to triple the product value and vendors to fines from 1,000 to 50,000 yuan for failure to do as required, said Liu Zhaobin, chief of the AQSIQ's department of policy and regulation.

Manufacturers are also ordered to take all necessary timely measures, including replacing or refunding to mitigate the effects brought about by unsafe food and toys.

The producers should also launch timely investigations into and evaluation of the defects and, when necessary, the quality watchdogs at and above the provincial levels should supervise. Toy firms should stop production and sales and recall products when defects are found in their toys even if they meet the nation's quality safety laws, regulations, and compulsory standards.

 American consumers must acknowledge some of the blame for these problems. We expect high wages, ever increasing stock market returns, no environmental impact in our back yard and the cheapest possible prices. We partly achieve this off the backs of foreign labor and contract manufacturing. US manufacturers and importers who supply the mass market are under considerable pressure to continually reduce costs and prices even before inflation and increasing domestic labor and transport costs erode their profits. This naturally leads to their demand for ever lower prices from their suppliers. The suppliers must compete in a global market with already very thin profit margins. It is quite common for the big box stores or other customers to demand that the supplier reduce prices after a first order or the buyer will go elsewhere. This is in full knowledge that the supplier has little choice if they are to stay in business and try to recoup the capital investment and other expenses related to supplying these large vendors.  I have heard this first hand from several Chinese manufacturers who now will not even consider manufacturing for some of the largest US corporations. The real surprise is that there are not more problems.

We hear more and more calls for boycotting products from China but before we all get worked up, let’s review some data. In 2006 the US exported a little over US$55.2 B to China which is growing yearly and imported US$287.77 B. We imported more from Canada. Our total world exports in 2006 equaled 1,037,142,973 in thousands of dollars. (see gov. trade stats ) and our import totals were considerably higher. However with the declining value of the dollar against world currencies, our exports are rising. August 2007 export totals climbed 12.8% over August 2006. There are also considerable increases in revenue from foreign tourists and the money generated for stockholders from US companies operating abroad. ( See ref. and the FT900 report ). The only realistic means of balancing the China trade surplus and calming the rhetoric is for its currency to increase in value against the dollar. The Chinese domestic market is growing rapidly and this will allow it to absorb more of its own production, making it easier for their government to revalue their currency without leading to a domestic economic disaster.

The fact that countries are now more dependent on each other than ever before is raising global living standards and contributing to a reduction in conventional wars. An example would be that China has not invaded Taiwan, although it certainly has the means and desire and continues to rattle its sabers.  However, should China do so, it would probably lead to its economic collapse if countries like the US imposed import sanctions or defaulted on the over 400 billion dollars in government bonds held by China. We are ALL now dependent on the global economy for better or worse. So let's make an effort to get along.

Don Green
www.dreamgreen.org