Jan. 10 - China made toys like Hello Kitty dolls and Transformers so far seem immune to slowing consumer demand in the West, but rising labor costs and a stronger yuan may put a dent in the fun and games. Jane Lanhee Lee reports.
EDITOR'S NOTE: THIS EDIT CONTAINS CONVERTED 4:3 MATERIAL. It may take a bag of tricks for toy makers to survive the global downturn. This is Jean Xueref. He launched the Hello Kitty magic toy company last year. (SOUNDBITE) (English) PRESIDENT, HK MAGIC LTD, JEAN XUEREF, SAYING: "We decided to create this company because based on the fact that we lost a lot of turnover on the other company. We said what we have to do? We are going to close? No. We take the situation in hand and we go against this crisis." Global toy makers roll out their latest trinkets at the world's second largest toy fair in Hong Kong this week, doing their best to pass on a 5-10% rise in costs. (SOUNDBITE) (English) REUTERS REPORTER, JANE LANHEE LEE, SAYING; "The yuan is rising, labour costs are rising, but markets in the U.S. and Europe are slumping - tough times for manufacturers. But toy makers are hoping consumers on a budget will keep buying as a cheaper alternative to taking the kids out." The toy industry is like lipstick. It's generally seen as recession proof. But it's still not clear how China's toy makers will weather the year ahead. Today China unveiled December export data which showed it grew 13.4 percent on year - that's the slowest pace in over two years. And economists are expecting a tough 2012 spring for China exports. Frederic Neumann, HSBC economist says toy makers may have it harder. (SOUNDBITE) (English) CO-HEAD OF ASIAN ECONOMIC RESEARCH, HSBC, FREDERIC NEUMANN, SAYING: "However, there are other sectors that are not highly impacted by that, and that includes high-tech, for example. So we actually think exports will continue to do quite well. Even within exports there are some industries that will suffer disproportionately because of high labour costs." To cope with rising labour costs, some toy makers are moving away from China's more expensive coastal cities to inland provinces. But that's not an option for many of them, says T.S. Wong, chairman of Hong Kong's Toy Advisory Board. (SOUNDBITE) (English) CHAIRMAN, HONG KONG TOY ADVISORY BOARD, T.S. WONG, SAYING: "The toy industry is now enjoying just in time supply, quality supply, so if we move away from this network just imagine the chaos that you will face." But a protest at the Toy Fair calling for higher wages in China is an indication of what's to come -- and it's not all fun and games. Jane Lanhee Lee, Reuters