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Cablegate: Hong Kong Toy Manufacturers Respond to U.S.

VZCZCXRO8984
RR RUEHCN RUEHGH
DE RUEHHK #2217/01 2360927
ZNR UUUUU ZZH
R 240927Z AUG 07
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 2712
RUEHBJ/AMEMBASSY BEIJING 1325
RUEHGZ/AMCONSUL GUANGZHOU 0821
RUEHCN/AMCONSUL CHENGDU 1170
RUEHGH/AMCONSUL SHANGHAI
RUEHSH/AMCONSUL SHENYANG 3621
RUEHIN/AIT TAIPEI 4645
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 03 HONG KONG 002217

SIPDIS

SENSITIVE
SIPDIS

STATE PASS TO USTR CHINA OFFICE/TIM WINELAND
STATE PASS CONSUMER PRODUCTS SAFETY COMMISSION LAURIE
HOPKINS/INTL PROGRAMS

E.O. 12958: N/A
TAGS: ECON ETRD PREL CH HK
SUBJECT: HONG KONG TOY MANUFACTURERS RESPOND TO U.S.
TOY RECALLS WITH GREATER VIGILANCE

REF: A) GUANGZHOU 887, B) GUANGZHOU 911 C) BEIJING
5502

1. (SBU) Summary: Leaders of the Hong Kong Toys
Council and The Toy Manufacturers' Association of Hong
Kong told Econoffs that the U.S. recalls of China-
produced toys in August served as a wake-up call for
Hong Kong toy companies to immediately review their
entire supply and production systems. Cognizant that
their production facilities are located almost
entirely in mainland China, Hong Kong toy companies
are sensitive to customer concerns and media reports
regarding China's product safety record. These toy
association leaders affirmed their commitment to "full
compliance" with international toy manufacturing
standards. They are urging their members to "double-
triple" check each of their manufacturing steps, and
to add quality inspection manpower and more stringent
control systems to cover all aspects of their
operations, particularly subcontracting. The toy
executives also emphasized that Hong Kong toy
companies producing in the mainland comply with
mainland China's inspection and regulatory
requirements. They told Econoffs that in response to
the August recalls the mainland authorities hastily
enacted a shipping stoppage on toys bound for export,
but lifted the stoppage after production facility
inspections were increased and additional laboratory
testing facilities came on line. End Summary.

Recalls and the Hong Kong
--------------------------

2. (SBU) In early August the U.S. Consumer Product
Safety Commission and Mattel initiated several
voluntary recalls of toys produced in mainland China
by Hong Kong-invested factories. Toys were recalled
due to two problems: 1) lead paint hazards 2) small
magnets that could be detached and swallowed causing
internal injuries. In a meeting with Econoffs on
August 22, Hong Kong toy executives were quick to
point out a distinction between the two types of
recalls. The recall due to lead paint raises concerns
about each aspect of the mainland China
supply/production chain including supply sources,
subcontractors, production methods, testing and
certification. The magnet recall resulted from design
flaws in a number of toys that had been in production
for several years. According to toy executives, the
volume and nature of these recalls, particularly in
such rapid succession, caused "total chaos" at
mainland China toy factories. The executives
classified the impact of the back-to-back recalls as a
"wake-up call" to immediately review the entire supply
and production system. Cognizant that their
production facilities are located almost entirely in
mainland China, Hong Kong toy companies are sensitive
to customer concerns and media reports regarding
China's product safety record.

3. (SBU) The Hong Kong toy association leaders reaffirmed
their companies' commitments to full compliance with
international toy manufacturing standards. In
response to the recalls, they claimed that Hong Kong
toy companies are taking immediate and aggressive
steps to ensure safety and compliance of their toy
production facilities. The associations are urging
their members to "double-triple" check each of their
manufacturing steps, and to add quality inspection
manpower and more stringent control systems to cover
all aspects of their operations, particularly
subcontracting. The toy companies are re-testing and
certifying raw materials, equipment and products, in
an effort to guarantee safety.

4. (SBU) The executives stated that they have been in
the toy business a long time and understand the
serious nature of manufacturing toys for children.

HONG KONG 00002217 002 OF 003


They pointed out that producing high quality toys that
meet international quality and safety standards is a
compex process that is often underestimated. In themainland they also confront additional challenges uch
as dealing with questionable subcontractors,
fraudulent supplies certifications (as in the case of
lead paint) and corruption. They stated tha Hong
Kong-invested toy companies are acting to inimize the
chances that shoddy production and spply practices
will adversely impact the quality f their toys.
These executives also emphasized teir compliance with
mainland China's inspection nd regulatory
requirements.
PRC Stops Shipments
--------------------

5. (SBU) The toy executives said that the mainland
Authorities' initial response to the August recalls
was to enact a shipping stoppage on all mainland toys
produced for export and increase laboratory tests and
inspections for all toys. Furthermore, the mainland
authorities ordered that toys be certified according
to mainland China's standards, rather than using Hong
Kong and UK international standards (which was
standard practice prior to the August recalls). The
toy executives said that the mainland authorities'
actions effectively stopped toy shipments from
mainland toy factories for more than a week causing
total chaos during the toy manufacturers' peak
Christmas shipping period. The Hong Kong toy
companies urged, and the mainland authorities agreed
to resume using Hong Kong and UK certification
standards, and the shipping stoppage was lifted. The
toy executives added that the PRC released an expanded
list of government-approved testing laboratories,
which should hasten compliance certification testing
and allow for the resumption of normal shipping
operations.

Inquiries From All Sides
-------------------------

6. (SBU) The Hong Kong toy companies, and their
respective industry associations, are receiving
queries from regulators, suppliers, and buyers
(particularly from the United States and EU), which
escalate after each recall event. In response, the
toy executives are spending a great deal of time
reviewing each part of the supply/production chain to
assure quality compliance and are updating regulatory
and testing requirements.

7. (SBU) Given the significant Hong Kong investment in
the toy sector and the possibility that the toy
recalls could have a negative impact on Hong Kong's
overall economy there has also been notable Hong Kong
media coverage. The toy executives explained that
since the lead paint and magnet recalls occurred back-
to-back, media interest was greater than would have
normally been the case. The volume of media inquiries
remains high, but the toy executives told us that
their responses are only directed to trusted reporters
as they do not want their "words twisted" during such
a sensitive period. Their overall strategy has been
to "take cover" and focus efforts on retesting all of
their products.

The Hong Kong Toy Industry
---------------------------

8. (U) Hong Kong's toy industry, comprised of over 250
companies, operates joint venture production
facilities with Chinese partners and build-own-operate
production facilities in the PRC. In total, Hong Kong
companies have invested in/own over 6,000 toy
factories in China, primarily in the Pearl River
Delta. Many of these companies are original equipment

HONG KONG 00002217 003 OF 003


manufacturers (OEM) for U.S. and European companies,
while others have their own product lines.

9. (U) The Toy Manufacturers Association of Hong Kong
(TMHK) was founded in 1996, with the goal of promoting
the development of Hong Kong toy industry, while
protecting the industry's interests. The group has
over 250 members. More information on The Toy
Manufacturers' Association of Hong Kong can be found
at: www.tmhk.net.

10. (U) The Hong Kong Toys Council (HKTC) is division
of the Federation of Hong Kong Industries, and was
established in 1986. The HKTC serves as an industry
advocate and information clearinghouse, in addition to
providing training International Council of Toy
Industries (ICTI) on ethical manufacturing. Early
Light Industrial, involved in the most recent Mattel
recall of die-cast vehicles is a member. More
information on the Hong Kong Toys Council can be found
at www.toyshk.org.

11. Meeting participants:

- Mr. C.K. Yeung, Executive Vice President of TMHK and
Vice Chairman of Blue Box Holdings
-Mr. Bernie Ting, TMHK member and Director of Qualidux
-Mr. Lawrence W.L. Chan, HKTC Chairman.

CUNNINGHAM

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