Risks Faced by China-based Toy Manufacturers

BACKGROUND

As China has become the world's factory, trade friction between China and the US has escalated as China's exports to the US continue to rise. Recently, China-made toys have made the headlines after a number of safety concerns were raised by the US government and numerous major recalls of toys were made by US toy retailers. China is one of the largest sources of US imports for many products. In 2006, China was the number one supplier for toys, with a staggering 86% of total US imports of toys coming from China.

In recent months, millions of toys have been recalled in the US For example, in August 2007, Mattel Inc., the world's biggest toymaker, recalled over 20 million pieces of Chinese-made toy products due to excessive lead paint and loose magnets. Such recalls will cause financial ruin for many Chinese toy manufacturers because they have to bear the huge costs of recalls as well as the potential loss of business with US retailers. In addition, they may be exposed to massive indemnity claims from US retailers as a result of recently filed class actions in the US