China's import tariffs on toys will be eliminated on January 1, 2005, in accordance with the country's commitments to the World Trade Organization (WTO).

Reactions of domestic toy manufacturers and importers range from lack of interest to mild concern as the deadline for the stopping of the tariff is approaching.

Chen Heng, who operates a toy shop at Hongqiao market, a large toys market in Beijing, knows nothing about the tariff cut.

"A toy in this market is usually sold at less than 100 yuan (US$12.20), but a similar foreign one may cost several times this price," he said. For him, the tariff cut isn't going to make much difference to the wide price gap.

His sentiment is shared by Xu Youjing, manager of Beijing-based Kaiwei Toys Co. He too does not think the tariff cancellation will have much of an impact on the company's business because of the large difference in prices between imported and domestically manufactured products.

"Our products, mainly sold in supermarkets, are targeting the low and medium segments of the market," he said. "Most consumers cannot afford the high prices of imported toys."

But the large toy manufacturers in China seem less sanguine.

Liang Mei, secretary general of China Toy Association, said she expected a small increase in imported toys at the third anniversary of China's WTO membership.

Liang said the gradual increase of foreign toys would promote Chinese toys consumption by providing consumers with more choices on the markets, particularly the high-end market.

"However," she said, "the tariff is not the vital element that constrains imports of foreign toys, for tariff on imported toys was around 10 percent before 2001, and is only eight per cent this year much lower than that on some other items."

Foreign companies, however, are showing increased enthusiasm and planning to increase their sales in China's toys market.

"Zero tariff will definitely help to promote sales of imports," said Yan Renkuan, a senior official with Kaleeto Industrial Co, the Chinese exclusive agent for Tomy, one of the top three toy manufacturers in Japan.

"It will reduce our costs so we expect to import more products to the Chinese market next year," Yan said.

Most foreign toy manufacturers now sell their products through the established wholesalers in China. Hardly any of them have the sales volume to justify the cost of establishing their own sales channels.

"The association is making continuous efforts to provide information for foreign enterprises, and to help promote world-famous foreign brands," said Liang.

Cai Qisheng, president of Silerlit, which is the bellwether of China's toy sector, agreed that in the near future the increase of foreign toys will not be strong.

"It is because foreign toy makers still need deeper understanding of the differences between the Chinese and overseas markets in order to establish a firm foothold in China," he said.

"But the growth potential will attract more overseas toys manufacturers to China in the long run," Liang told China Daily.

Statistics from the association indicate that per capita toy consumption of Chinese below age 14 amounts to only 20 yuan (US$2.40) a year, much lower that the average of US$13 for Asia and US$34 for the developed countries in the West.

If per capita toy consumption of 286 million young people in China reaches the average figure of Asia, China's market for toys is expected to exceed 30 billion yuan (US$3.6 billion) a year.

Imported toys only account for a small proportion of the Chinese toy market so far partly because of high prices.

The world famous brands spend a lot on improving the quality and safety of their products, Yan told China Daily. Qualified materials are used on the toys and great care has been exercised to ensure that no small part or accessory that could injure the child can be accidentally removed from the toys.

Such extra expenditure accounts for a large part of the high cost of their toys.

"More and more Chinese consumers are showing an increased appreciation of quality and are willing to pay the higher prices for imports," Yan said. This trend, he said, would play an even more important part than tariff cuts in boosting sales of imported toys.

Any surge in imported toys would likely result in greater competition in the high-end segment of the market, said Liang.

She said some Chinese toy enterprises are content with processing for foreign companies or simply imitating the designs of their rivals. They would not be likely to feel the pinch of the expected increase in competition. But the major toy makers, which focus on developing high-tech products, are bracing themselves for the fight.

"We will not give up the high-end market," Cai said. "Silverlit has made great progress in manufacturing top-class products, such as the popular electric dogs."

Experts also predicted that the increase in imported toys would mean not just greater threats to Chinese toys industry. Increased competition could force mainland manufacturers to upgrade their technology and manufacturing prowess.

"Foreign enterprises enjoy advantages in technology, fashion, and management, so Chinese enterprises have a lot to learn from their overseas counterparts," Liang said.

(China Daily December 1, 2004)