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A serious quality blunder in a single shipment of toys to an EU buyer last year led a thriving 10-year toy manufacturing business in east China's Jiangsu Province to financial ruin.

Liang Mei, executive vice-president and secretary-general of the China Toy Association, told this cautionary tale at the EU-China Seminar on Toy Safety and Social and Environmental Standards yesterday in Shanghai, to remind participants of the ever tightening rules on product standards in the EU and other major markets.

As a new environment-sensitive directive on the EU's electronic and electrical goods took effect at the start of the month, China's toy makers are having to be even more careful about the materials they use.

In the past, banned materials were mainly those that were a threat to health. But the new rules also embrace materials that are deemed harmful to the environment.

The RoHS directive, the Restriction of Hazardous Substances, bans the use of six dangerous substances such as lead, cadmium and mercury in toys as well as in electronics goods.

Toys that are found to contain the above substances will be banned from the EU market, according to the directive.

Compliance with the new environment requirements is likely to push manufacturing costs up by at least 20 percent, industry experts estimate.

The costs are twofold raw materials that comply with stricter requirements, and certification to prove product compliance.

Last year, China exported US$15.18 billion worth of toys, 23.6 percent of which went to Europe.

Chinese toys made up nearly 80 percent of Europe's total imports, according to Aage Hillersborg, vice-chairman of Toy Industries of Europe.

He told China Daily that the ratio is bound to grow as European production dropped by 5 percent while total toy consumption rose by 3 percent last year.

The market is huge, but the challenges have also become significant.

Liang said a shortage of raw materials, labour, design and managerial staff, along with undercutting among domestic producers, is already creating difficulties for the industry.

The EU's environment requirement, though sensible, makes the situation worse, Liang said.

Producers are already feeling the pinch of heightened costs and reduced profits.

Yang Xiandong, manager of the electronics department at Jinjiang Heng Sheng Toys Co Ltd, told China Daily that the RoHS drove up his company's costs by 20 to 25 percent.

Certification of one type of toy, Yang said, could cost up to 180,000 to 200,000 yuan (US$22,500 to 25,000).

Raw materials, which are yet to follow the new directive, are in short supply.

The price of welding tin, a popular material in electronic welding, Yang said, surged from 30 yuan (US$3.75) to 120 yuan (US$15) per kilogram.

Also, management costs are high to ensure every component in the supply chain complies with the EU requirement.

(China Daily July 14, 2005)