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Mainland Toy Sector Continues to Defy Overall Downturn in Exports

With bigger toy fairs, increased demand in the domestic and developed markets, the mainland toy industry is notably outperforming many of China's other manufacturing sectors, although this is set to trigger an influx of new entrants.

Photo: The new wave: The toy market is now more competitive than ever before.
The new wave: The toy market is now more competitive than ever before.
Photo: The new wave: The toy market is now more competitive than ever before.
The new wave: The toy market is now more competitive than ever before.

In the first half of 2015, China's import and export trade suffered its greatest decline for five years. While many of its traditional industries were hard hit, the mainland's toy sector actually recorded unexpected double-digit growth. This trend has been reflected elsewhere, with the toy markets in the US and Japan also having enjoyed record growth over the last 10 years, while the UK is also showing signs of a revival.

Optimism in the mainland market has been heightened, of course, by the decision to allow all married couples to have two children, a development announced at this year's 5th Plenary Session of the 18th CPC Central Committee. Given this promising outlook, the Guangzhou and Shanghai toy fairs have been upgraded in scale, while the January 2016 Hong Kong event is also expected to see an increase in exhibitor numbers. In order to better understand the developments that are currently reshaping the industry, the HKTDC's Guangzhou Office recently interviewed several members of the Guangdong Toy Association and Guangzhou Toy and Gift Industry Association with regard to their perspectives on the sector.

Revived Overseas Demand

According to the latest official statistics, the value of China's imports and exports dropped 6.9% year-on-year in the first half of 2015, falling to Rmb11.5 trillion. Overall, exports grew 0.9% to Rmb6.6 trillion, while imports dropped 15.5% to Rmb4.9 trillion. With many traditional industries in China facing setbacks, the toy industry was notable for posting a 12.84% gain in import and export value, recorded at US$6.626 billion in the first half of 2015.

Overall, the US remains China's largest toy export market, accounting for US$1.924 billion of the total export value, growing 11.33% year-on-year. Significantly, China's toy exports to Korea, the Philippines and the United Arab Emirates also jumped year-on-year – by 65%, 65% and 55% respectively. By contrast, toy exports to Hong Kong and Japan have decreased.

According to Chen Huangman, Secretary-General of the Guangdong Toy Association, Guangdong is now China's largest toy manufacturing and export base, accounting for more than 65% of the mainland's total toy exports, with Zhejiang and Jiangsu the next two largest production centres. Together, these top three toy manufacturing provinces accounted for 88% of China's total export value in the sector for the first half of 2015. In terms of import destinations, Shanghai takes the lion share, absorbing more than 50% of the country's total toy imports over the last year, with Guangdong following close behind. Together, the two account for 91.97% of China's total toy imports.

In 2013 and 2014, Hong Kong's toy exports dropped 19% and 18% respectively, rebounding by 2% in the first half of 2015. During the same period, Hong Kong's toy exports to the EU and US rose 7% and 27% respectively. According to Toy Industry, a mainland trade publication, the three major toy markets – the US, Europe and Japan – are all showing positive signs this year.

In fact, NPD, a New York headquartered global information company, sees 2015 as the best year for the US toy industry for a decade. In the first six months of 2015, the UK also registered a 4% growth, with sales increasing by £31 million. Meanwhile, figures from the Japan Toy Association show that the country's toy market sales hit 736.7 billion yen in the year from April 2014 to March 2015. This represented a 9% year-on-year growth and marked the highest rate of increase of the last decade.

Bigger Toy Shows

Photo: Toy fairs: Bigger by the year.
Toy fairs: Bigger by the year.
Photo: Toy fairs: Bigger by the year.
Toy fairs: Bigger by the year.

According to Chen, the toy and infant-child industries have remained relatively steady sectors, despite the downturns faced by the wider economy. The major toy fairs in the region – Guangzhou, Shanghai and Hong Kong – are all expanding in scale, underscoring the industry's growth potential.

Two-child: Delivering for the Toy Industry

Chen also said he was optimistic about the industry's future, particularly with regard to China's new policy of allowing married couples to have two children. On the less positive side, however, he believes the increasing numbers of players in the market will see the sector remain hugely competitive.

According to China Customs statistics, an 8.17% year-on-year increase in the number of toy exporters – taking the total to 4,963 – was officially recorded from January to May this year. Meanwhile, more and more toy wholesale markets have emerged across the country. A least five toy and baby product wholesale markets, for instance, are now operating in the Shandong province. This has led to buyers from across the mainland having less of a focus on the toy wholesale market in Guangzhou's Yide Road, once the busiest such market in China.

The growth of the toy industry in eastern Guangdong has also caused concern for a number of Hong Kong industry players. Among the handful of publicly listed toy companies in Guangdong, four are from Shantou – Guangdong Alpha Animation & Culture, Xinghui Auto Model, Qunxing Toys and Huawei Technology, while nearby Jieyang city is home to Goldlok Toys Holdings (Guangdong).

While China's toy brands are aiming to become more global, a number are actually losing sales. According to industry figures, Japan's toy market has fared well over the last financial year, enjoying a 9% year-on-year growth. By contrast, China's toy exports to Japan have suffered a consistent decline, with a year-on-year drop of 13.8% in the first half of 2015. This suggests that a number of Japanese buyers are now switching their sourcing from China to other countries.

Unmanned Drones Flying High

Photo: Taking off this year: Drone sales.
Taking off this year: Drone sales.
Photo: Taking off this year: Drone sales.
Taking off this year: Drone sales.

More optimistic, though, is Wang Tie, Secretary-General of the Guangzhou Toy Association, who maintains that toy orders started picking up in August of this year. Despite this, he says, a shortage of production manpower continues to undermine manufacturers' ability to take orders. According to Wang, the best-selling products, at present, are unmanned drones, spin-off products from animated movies (notably Minions), electronic games, as well as sleek, stylish and creative toys that help enhance a player's manual dexterity. Sales of traditional wooden toys, static toys and purely decorative items, however, are expected to continue to decline.

Toy Industry is predicting that remote-controlled drones will be a particular bright spot in the toy market this year, with the spectacular sight of such toys hovering above stands now common in many toy fairs. According to Bladez Toyz, a UK manufacturer of large-scale remote-control toys, market demand for unmanned drones has surged 450% over the past two years. In another success story, Parrot SA, a French remote drone company, launched its Bebop model last January, and has since seen an eight-fold year-on-year jump in its drone sales in the UK alone.

Table: 2015 Toy Shows in Mainland China and Hong Kong
Table: 2015 Toy Shows in Mainland China and Hong Kong

Edison Lian, Guangzhou Office

Content provided by Picture: HKTDC Research
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