"For the paint on each product, we do three tests - a test on the raw materials, another on the finished product and then the client will conduct their own test," Yang says, adding that costs for training, equipment upgrades, sourcing new materials and multiple testing have added 10% to 15% to her operating costs.
Government statistics support Yang's claims. In the first half of 2011, toy exports rose by 31.5% year-over-year, mostly driven by demand in Asia and Latin America. But their export value rose only 11.54%.
U.S. prices
Even though the Chinese government has been responsive to the new U.S. safety requirements, they also see it as an overreaction and a technical trade barrier in response to pressure to create more jobs in America. "Each time after we upgrade and improve our safety standards and meet their requirements, the U.S. and EU raise the bar again. The cost keeps going up and seriously harms China's toy export business," said Fang Xiang, deputy director of China's Standardization Administration during an interview with China National Radio. "I don't think these trade barriers will save any American jobs. Instead, they'll hurt American consumers."
Although the U.S. rules impact toymakers globally, more than 80% of the toys sold around the world come from China. At present, there are 20,000 toy manufacturers in China, employing more than four million people.
Benjamin Cavender, associate principal at the Shanghai-based China Market Research Group believes this will lead to consolidation in China in the coming year. "Big professional companies with deeper pockets will start to buy up other companies as they falter," he says.
The pricing pressures will eventually pinch the profits of U.S. retailers and toymakers. "In the past, we kept our prices low because any increase would mean losing the customers," Yang says. "But now, we really can't afford it. We have to raise prices or turn down our orders."
As a consequence, U.S. brands that are sourcing from manufacturers in China will have to reduce their own margins in order to maintain production. While this will likely lead to some manufacturing returning to the U.S., Cavender emphasizes that "in all likelihood the bulk of manufacturing is still going to come out of China or other Asian countries."
So far, Americans consumers have benefited from the low prices of Chinese toys. According to the Toy Industry Association, the average price of toys has remained relative steady over the past few years, at around $8. But few believe this will last. Whether the new regulations are necessary safeguards to protect children or an overreaction, American consumers will eventually have to bear the cost.
