U.S. businesses share blame for China toy recall, 8/16/07

Mattel recalled millions of toys, including Barbie, for fear of lead paint.
Mattel recalled millions of toys, including Barbie, for fear of lead paint. Mattel/MCT

BEIJING — This week’s product recall by toy titan Mattel Inc. is the latest black eye for the “Made in China” label, but experts here and abroad believe that U.S. manufacturers and importers share the blame by putting relentless pressure on Chinese suppliers to deliver lower prices to American consumers.

“Everybody is pushing, pushing, pushing for lower and lower prices. The vendors are squeezed to the point where they aren’t making a profit anymore. So they are looking to cut corners,” said Peter Dean, a former U.S. toy company executive who now teaches at Hong Kong Polytechnic University.

The squeeze on China’s manufacturers, led by big retail names like Wal-Mart and Target, means low prices and low inflation for U.S. consumers. But perversely, it may now be giving an incentive for Chinese manufacturers to cut corners or outright cheat.

Carter Keithley has heard that toy manufacturers in China are getting squeezed. But as president of the New York-based Toy Industry Association, which represents U.S. toymakers and toy importers, he’s not sympathetic.

“It is absolutely forbidden to cut corners on safety simply because their costs are going up in other areas. I don’t know where they are getting squeezed on costs, but it is irrelevant,” said Keithley. “Our manufacturers have to source toys that conform to our safety standards. There is no alternative to that.”

But if that’s the reality for selling into the U.S. market, here’s the reality for China’s factories, which now produce nearly 80 percent of the world’s toys. They operate in an environment of lax regulation, dirt-cheap labor and intense competition. And they understand that there’s little direct U.S. regulation of product-safety standards. The U.S. Consumer Product Safety Commission relies almost entirely on the toy industry’s ability to police itself.

Toy manufacturing has gradually left the United States over the past two decades. The 1994 North American Free Trade Agreement accelerated the exodus to Mexico, and China’s entry into the World Trade Organization in late 2001 then shifted those jobs across the Pacific.

U.S. imports of Mexican-made toys fell from $1.28 billion in 2002 to $646 million in 2003, the second year after China’s entry into the world trading system. Meanwhile, U.S. toy imports from China were valued at $14.8 billion in 2002 but rose to $22.2 billion last year.

“It isn’t unusual that at this level of export and economic growth they have these (safety) problems,” said Jaime Zabludovsky, formerly Mexico’s top trade negotiator and now publisher of Inteligencia Comercial, a trade newsletter. “Geography counts. Mexico had these problems 20 years ago.”

As Chinese companies are pushed by toy companies to do more internally on safety, they’re being pulled in the other direction by giant retail cost-cutters like Wal-Mart and Target. These companies import so much from China that it affects the broader U.S. economy. Wal-Mart in 2004 imported $18 billion worth of goods from China, more than 9 percent of all U.S. imports from China.

Meeting with economic writers last week, President Bush stressed that “one of the reasons why inflation remains low in the face of rising energy prices is imports from China.”

While American shoppers reap the benefits of low inflation, the low-cost Chinese manufacturers have seen their labor costs rise by a third since late 2005. The costs of steel, plastics and a wide array of other raw materials used to make products are going up. And fuel prices have sent transportation costs soaring in recent years.

“You’re looking at this sort of economic nightmare, where you are pushed to deliver a cheaper product, while all your costs are going up. People are feeling pushed,” said Christopher Byrne, an independent analyst in New York who closely follows the toy industry. “There’s no defense for doing it, but I understand why someone would feel they have to cut costs somewhere.”

Mattel, the world’s largest toy company, said Tuesday it was recalling 19 million toys with either lead-tainted paint or containing small, powerful magnets that could harm children if swallowed. The recall affects toys marketed in North America, Europe, Australia and elsewhere.

Less than two weeks ago, Mattel issued an earlier recall for another 1.5 million Chinese-made toys with lead-tainted paint.

"Every company will constantly be looking to where it is most effective to produce ... but our Number 1 priority is always the safety of children. You cannot put a price tag on that," said Michele Sturdivant, a Mattel spokeswoman in El Segundo, Calif.

Mattel said Tuesday the lead paint used on its imported toys came from a subcontractor that had been given lead-free paint but did not use it. It did not offer proof.

Asked why the subcontractor did not use the lead-free paint it was provided by Mattel, Sturdivant acknowledged it seemed odd and said "we're trying to get to the bottom of it. If they were given paint we don't understand why they didn't use it."

Some 65 percent of Mattel's toys are made in China, Sturdivant said.

Mattel and other U.S. toymakers this week pledged even stricter measures on what are already tight controls over their supply chain. But experts believe price pressures for labor and materials are causing companies to skirt monitoring and cut production costs further in China.

“There are thousands and thousands of factories. There’s no way to monitor them all. There’s a lot of cheating going on,” said Anita Chan, a researcher on China’s labor practices at the Australian National University in Canberra. “Everyone tries to . . . bribe the inspectors.”

Major toy marketers, like Mattel, either operate their own factories or require suppliers to certify that toys have been tested for safety. But fraud still occurs.

“In China, making fake reports is quite common instead of sending toys for proper testing,” said Janet Cheng, of the corporate social responsibility unit in the Hong Kong office of SGS, a Swiss-based private inspections and monitoring company. “Buyers call us and ask whether testing results are real or not.”

Dean, who previously worked for Little Tikes, maker of durable indoor and outdoor toys, said Chinese factories routinely attest to the safety of their goods.

“This certificate was always worthless as far as I was concerned,” he said.

China has been hit by a series of health and safety issues in the past six months involving melamine-tainted pet food, toothpaste laced with an ingredient in antifreeze, faulty tires, tainted seafood and other products. The massive worldwide nature of the latest toy recall compounds image problems for Chinese-manufactured goods.

“This is clearly bad for Brand China,” said Arthur Kroeber, managing director of Dragonomics Research and Advisory in Beijing. “If a country is associated in a big way with inferior or hazardous goods, once that perception is established, it takes a long time to overcome.”

Maryanne McGerty-Seibert, spokeswoman for the Consumer Product Safety Commission, acknowledged that about 60 percent of the more than 400 product recalls this year are products made in China.

China’s mounting pressures in the manufacturing sector were driven home with an exclamation point on Monday, when Zhang Shuhong, who ran the Lee Der Industrial Co. Ltd, was found hanged to death in a warehouse. Lee Der made 967,000 pre-school toys that Mattel recalled earlier this month because the toys contained paint with excessive amounts of lead.

“He was probably one of the less exploitative manufacturers in China. He had a conscience,” said Steve Tsang, a scholar of contemporary China at Oxford University in England.

Experts agreed that moving production out of China would not necessarily make consumer goods safer given other issues in global production.

“Where would you go right now? If you go to Thailand, they just don’t have the capacity and the knowledge base,” Dean said. “I’m not sure they’d be any more reliable. . . . The reliance on China is paramount.”

China’s leaders have taken high-profile measures to assure the world of their concern about product safety, including executing the former head of the Food and Drug Administration last month after a corruption conviction.

(Johnson reported from Beijing, Hall from Washington.)