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Cablegate: Safety Issues Shaking Up Toy Industry in South China

VZCZCXRO8127
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #1226/01 3200847
ZNR UUUUU ZZH
R 160847Z NOV 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6675
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEAUSA/DEPT OF HHS WASHDC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC

UNCLAS SECTION 01 OF 03 GUANGZHOU 001226

SIPDIS

SENSITIVE
SIPDIS

STATE PASS CONSUMER PRODUCTS SAFETY COMMISSION RICH O'BRIEN/INTL
PROGRAMS
STATE PASS USTR CHINA OFFICE
STATE PASS HOMELAND SECURITY COUNCIL
STATE PASS IMPORT SAFETY WORKING GROUP


E.O. 12958: N/A
TAGS: ETRD EIND TBIO ECON PGOV CH
SUBJECT: SAFETY ISSUES SHAKING UP TOY INDUSTRY IN SOUTH CHINA

REF: GUANGZHOU 911

(U) This document is sensitive but unclassified. Please protect
accordingly. Not for release outside U.S. government channels. Not
for internet publication.

1. (SBU) Summary: The toy industry in Guangdong Province is
undergoing a major "shake-out" cruise as manufacturers seek to
protect the integrity of their product, buyers express concerns, and
government officials enforce regulations in the interests of
maintaining the China "brand" name. In Shantou and Jieyang, two
eastern Guangdong cities that are centers of toy manufacturing,
officials have closed almost 30 percent of local toy producers since
July; orders from buyers have dropped sharply. Local officials
claim that training programs and more frequent inspections have been
successful, asserting that there have been no safety-related recalls
of toys made in area factories. Companies remain concerned about
"biased" foreign reporting with regard to product safety in south
China; at times, they complain about the difficulty of figuring out
how to meet differing international standards for products exported
to multiple countries. Some companies are eager to show their
quality assurance procedures; they note that the emphasis on safety
has enhanced quality and made them more competitive. End summary.

2. (U) Shantou and Jieyang in eastern Guangdong Province are
important centers of toy manufacturing. There are 78 registered toy
manufacturers in Shantou, including 40 that export toys overseas.
Local officials estimate that 8 percent of those toy exports are
destined for the United States. Jieyang has 26 registered toy
producers with 18 companies licensed to export.

Fewer Players, Fewer Orders
---------------------------

3. (SBU) Product safety concerns have caused officials to shut down
toy manufacturers with safety problems and have reduced orders from
buyers. In Shantou, national and provincial government agencies
have closed 30 toy manufacturers out of 108 that were registered in
July 2007 before the implementation of more stringent checks for toy
safety and quality. Officials in Jieyang blamed negative media
coverage for a sharp decline in orders for local toy factories.
They told us that Jieyang's toy industry had seen total orders fall
by approximately 30 per cent from a year ago.

Government Tightens Controls and Offers Training
--------------------------------------------- ---

4. (SBU) Shantou China Inspection and Quarantine (CIQ) officials
told us that a series of new measures to improve toy safety
standards in the area had ensured no safety-related problems in toys
produced in the area. The new measures include more frequent
inspections with a specific focus on safety controls for paint and
compilation of detailed files on the product quality performance for
each manufacturer. In addition, inspection agencies have also begun
installing a sophisticated closed-circuit video monitoring system
that will allow officials to monitor factories remotely.

5. (SBU) Another important component of the enhanced safety regime
is product safety training for toy makers. CIQ officials confirmed
that representatives of 8 local enterprises participated in a
special training seminar for 400 Guangdong Province toy producers on
October 15 in Dongguan City. (Note: there likely will be more on
training later this month when Vice Premier Wu Yi visits Guangzhou
for a State Council Product Safety Conference. End note.) The
training session was sponsored by China's General Administration of
Quality Supervision, Inspection and Quarantine (AQSIQ) and the
Ministry of Commerce (MOFCOM) in Beijing, and each geographic area
of Guangdong Province was granted a number of seats for industry
participants. Local CIQ officials selected enterprises to
participate and ensured that all slots were filled. The
high-profile event was widely covered in the media, but few details
were provided at the time. CIQ officials pointed out that the
Dongguan seminar supplemented more frequent local sessions on toy
quality standards and quality control procedures.

6. (SBU) Despite signs of more effective enforcement of safety
standards by local officials, overlap and a lack of coordination
among local agencies involved in monitoring product quality

GUANGZHOU 00001226 002 OF 003


continues. In addition to CIQ's controls for toy exports, the
Technical Supervision Bureau (TSB) regulates toys produced for the
domestic market. In discussions with both agencies, it was clear
that staff and laboratory resources are duplicated in each
organization. In addition, a joint meeting in Jieyang revealed that
long-serving local CIQ and TSB officers had never met or worked
together before.

Strategies for Safety - Control, Design, Test
---------------------------------------------

7. (SBU) Strict supply control, relying on internal design, and
frequent random testing are common quality control strategies at toy
factories in Shantou and Jieyang. Chen Fengchang, the general
manager of Goldlok Toy Manufacturing, told econoff that his firm
used only imported paints to ensure safety. Other materials are
also subject to strict controls. Chen explained that when the
factory was opened in the 1980s, its Japanese customers sent
employees to live and work at the factory for a few years to ensure
quality standards were high. Today the firm exports most of the
action figures, models and radio-controlled toys it produces to
Japan, Europe and the United States.

8. (SBU) Jieyang Defa Toy Company executive Lu Jianwen emphasized
strict supply controls to maintain traceability of paint and fabrics
used in the production. Lu only buys paints from a few select
domestic suppliers, all of whom are specially certified. In
addition, the firm's contracts with paint and other suppliers
include penalties if materials supplied do not meet specific quality
standards. Jeiyang Defa Toy Company primarily exports plastic
Barbie-like dolls to Europe and Russia under its own brand name.

9. (SBU) Auldey Toy Company's general manager highlighted reliance
on internal design as the key to preventing safety and quality
problems with the firm's toys. The company holds over 1000 patents
on its toys and produces no original equipment manufacturing (OEM)
products under contract for other toy companies. Auldey Toy Company
is one of two "famous brands" in the Shantou toy industry, producing
approximately 1000 different toy lines ranging from infant toys to
four-wheel drive motor cars and yo-yos. The factory is one of the
largest and most successful in the area, selling most of its toys on
the domestic market.

10. (U) In addition, executives at each company said they rely on
frequent quality testing in their own labs, local government labs
and at private laboratories such as SGS and Intertek when requested
by customers. Toy manufacturers said they passed the costs of
private lab testing on to customers except when a problem was
identified that the manufacturer should have prevented.

Blaming Media and Mixed Standards
---------------------------------

11. (SBU) Government and industry representatives echoed complaints
we've heard before blaming both the media and the variation in
international standards for product quality problems (reftel).
Shantou CIQ officials said recent Philippine media reports had
incorrectly blamed candy made in Shantou for making children sick
despite ample proof that no quality problems existed. They argued
that biased foreign media coverage had spread China's product safety
image problem beyond the United States and other developed markets.
Several toy producers also suggested that the United Stats should
harmonize safety standards with the European Union.

Comment - Getting More Competitive
----------------------------------

12. (SBU) Recent toy safety problems appear in some ways to have
strengthened the competitiveness of eastern Guangdong's toy
industry. Executives at each firm seemed to believe that recent
events had placed them in an advantageous position because they
already met most quality guidelines prior to the negative publicity
of recent toy recalls. The local CIQ closing of almost 30 per cent
of area toy producers and more frequent inspections have helped
force local factories to conform to international quality standards.
With the drop in orders the remaining factories must compete more
vigorously for sales.


GUANGZHOU 00001226 003 OF 003


GOLDBERG

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