China has long been one of the world's biggest exporters of toys. Shanghai exported the largest proportion of toys sent abroad, which won the city fame in the industry.

That was the glorious past. Shanghai's toy business is now in trouble.

Statistics show Shanghai exported US$238 million worth of toys between January and May this year, a decrease of 15 per cent over the corresponding period the previous year.

The deputy director of Shanghai No. 7 Toy Factory, surnamed Ye, attributes the decline to the slowdown in the world economy.

"Though our toys win favour from many US and European companies, the slowdown of the US economy has greatly affected consumption of toys there," he said.

Some insiders said, however, that Guangdong's toy exports were still increasing in the same period.

They believe that behind the declines are weaknesses in the city's toy export industry, including low profit margins, a lack of brand names, insufficient research and development, and lack of awareness of international quality standards.

Low profit margins are no longer the problem of inefficiency resulting from redundant personnel, according to Yang Shuijin, director of the Shanghai Toy Association.

Since the reforms of the early 1990's in Shanghai's toy industry, more than 40 State-owned enterprises' factories have been transformed into four big ones. Thousands of workers switched jobs.

"I do not agree with the saying that the toy industry here is still labour-intensive," Yang said. "Work efficiency in existing factories, after the reshuffle, is very high. The low profit margins are because of low added value."

Yang explained that the lack of a famous brand name or of original designs is the reason for the low added value.

Many toy export companies here are only processing firms - they do not design toys but mass-produce them according to samples provided by overseas buyers. The patent rights of toys remain firmly in the hands of foreign companies.

Without the patent right, local manufacturers cannot build up their brand names in the international market, so the price remains low.

The low profit margins have a negative effect on research and design budgets.

Without successful new toys of its own, the factory cannot forge brand names.

Yang said that even though the toy association has held several design competitions for local designers, successful transitions from design to manufactured product are extremely rare.

"In spite of efforts of local designers, factories dare not spend more to turn good design into products and promote them. They think the pre-investment is too high," Yang said.

Apart from the lack of research and development investment, toy manufacturers' ignorance of international quality standards is also a defect that leads to lower export volume.

Statistics showe that 40 per cent of toys do not reach the quality standards in random inspections carried out during the first quarter by the State Bureau of Quality and Technical Supervision.

The inspection was conducted simultaneously in six big cities including Shanghai.

Miao Junwen, deputy director of the Shanghai Import & Export Toy Inspection Centre of China, said the overall low quality of Chinese toys is due to outdated national quality standards, which do not encourage the manufacturer to improve quality.

He said: "The current standard was made up in 1986, lagging far behind international standards."

Miao added that the US has revised its toy quality standards several times. The latest edition came out in 1996, and the European Union completed its toy quality standard in 1998. China has not made any revision in 15 years.

"After WTO accession, non-tariff barriers, such as lower quality, will be a major means for foreign firms to force reductions in our products' prices. If toy manufacturers still refuse to live up to international standards, they lose even more money," Miao said.

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