11 Sept 2017
China's Toy Market
I. Market Overview
Toys in the Chinese market can be classified broadly into electronic, mechanical, plastic and wooden toys. In addition to traditional offerings, models, licensed toys (movie spin-offs, cartoon characters, etc), dolls, high-tech toys, educational toys, internet-connected toys and toys for adult recreation and entertainment have continued to come onto the market.
According to data from market research company Euromonitor, the total retail sales of toys and games in China have soared from RMB89.7 billion in 2011 to RMB232.17 billion in 2016, registering an average annual growth rate of 20.9%. In 2016, retail sales of traditional toys and games increased by 8% year-on-year to RMB69.35 billion, representing 29.9% of total market turnover, while retail sales of electronic toys and games increased by 19% year-on-year to RMB162.82 billion, accounting for 70.1% of total market turnover.
As urban dwellers’ incomes rise and their quality of life improves, their demands for toys are beginning to change. There is a shift away from traditional, medium- to low-end battery-operated toys, construction sets and decorative toys towards innovative electronic toys, intelligent toys, up-market plush toys and decorative cloth toys. Nevertheless, industry players believe that many people are underestimating the spending power of China’s low-income groups. With average income rising at a rate of 7-10% annually, wage-earners are enjoying higher disposable incomes, which should mean an increase in demand for inexpensive toys as well.
There were around 236 million children under the age of 14 on the Chinese mainland in 2016, the year when China began the full implementation of the two-child policy under the 13th Five-Year Plan (2016-2020). The National Health and Family Planning Commission predicts that the number of newborns will climb to between 17.5 million and 21 million annually during the period. This, along with China’s steady economic growth, should mean the prospects of its toy market are rosy.
Electronic toys: high-tech electronic toys have caught on in recent years. Interactive, electronic toys with relatively high technology content have emerged as mainstream items. Another growth area is educational toys inspiring children’s imagination and creativity and enhancing their in-hand manipulation skills. Toys that combine learning and fun are well received by children and parents alike.
E-sports have witnessed rapid growth on the Chinese mainland in recent years and their development has fuelled the growth of the electronic toy market. E-sports are conducted using electronic devices such as computers and video game consoles. The size of China’s e-sports industry reached RMB50.46 billion in 2016, accounting for 30.5% of China’s games market. E-sports have become an integral part of the games industry. Famous e-sports games include “League of Legends” and “DOTA2”. Mobile e-sports revenue approached RMB20 billion in 2016, up 187.1% year-on-year. Of this, Tencent’s “King of Glory” added nearly RMB7 billion to the company’s sales revenue in 2016.
According to Euromonitor data, children under six are the main consumers of traditional toys and games, accounting for about 46% of retail sales. Parents tend to buy educational toys so that their children can prepare for starting school as they play. Due to the popularity of electronic games, the percentage of children aged 7-19 playing with traditional toys and games has dropped from 45% in 2015 to 41.5% in 2016.
Plush toys: (1) Plush toys in novel and unique designs and especially popular TV drama characters and animation characters have been much sought after in the past few years. (2) The latest trend in this sector of the toy market is integrating electronic toys with plush toys. (3) Plush toys that double as household decorative items have also gained favour among many households.
Educational toys: educational toys like jigsaw puzzles, DIY toys and 3D construction sets are becoming the latest craze among parents and children. These toys are marked by several common characteristics - innovative design, high interactivity and high technology content.
Animation and related spin-offs: According to the Forward Industry Research Institute, the animation spin-off market in China topped RMB38 billion in 2016, with animation toys accounting for the lion's share. Toy-animation crossover is gradually developing as a profitable business model, with “Legend of Qin” and “Boonie Bears” some of the more popular products. Up to now, the three “Boonie Bears” films have made RMB830 in total box office revenue, with sales of licensed animation products reaching RMB2 billion. However, most enterprises still focus on the production of animation characters from the US and Japan.
Toys for adult recreation and entertainment: according to a market survey, the production, design and sales of toys in China mainly target children, with toys for children accounting for 99% and toys for adults having quite a small market. In the US, over 40% of toys are specially designed and made for adults. In Japan, toys for adults have a market share of over 65%. Among Japanese adults aged 18 or above, at least 84% have their own toys. The biggest difference between toys for adults and toys for children is that the former put greater emphasis on the training of thinking skills, memory, resourcefulness and co-ordination and the development of personal character. Some consumers of toys for adults said they now have the financial means to buy toys they could not afford when they were little, with the toys acting as some kind of compensation. According to the China Toy Association, toys for adults have a potential market value of about RMB20 billion.
China’s toy imports in 2016 with breakdown as follows:
HS Code Description 2016
9503 Tricycles, scooters, pedal cars and similar wheeled toys; carriages; dolls; other toys: reduced-size (“scale”) models and similar recreational models working or not; puzzles of all kinds 495.3 0.4 9504 Articles for funfair, table or parlour games, including pintables, billiards, special tables for casino games and automatic bowling alley equipment 1,019.1 158.9 9505 Festive, carnival or other entertainment articles, including conjuring tricks and novelty jokes 16.0 66.0
Source: Global Trade Atlas
II. Market Competition
China is a major toy producer. It is estimated that about 80% of all the toys produced worldwide are made in China. The main toy production and export bases are Guangdong, Jiangsu, Shanghai, Shandong, Zhejiang and Fujian. Among these six, Guangdong is the leader, with manufacturing activities centred around Shenzhen, Dongguan, Guangzhou, Shantou’s Chenghai, and Foshan. The bulk of toy exports are produced to OEM orders for foreign brands.
Competition in the Chinese toy market is intensifying. The high-end of the market is dominated by foreign enterprises while local brands are the mainstay in the medium- to low-end segments of the market. Practically all international toy giants have established their own factories on the mainland or collaborated with local manufacturers to engage in production. Most of the major global toy makers have also made inroads into the mainland market by appointing sales agents or setting up their own marketing operations there. Some examples are Mattel and Hasbro of the US and Sega of Japan.
In light of factors like declining external demand, escalating production costs and changes in the renminbi exchange rate, Chinese toy exporters are coming under tremendous pressure. Many enterprises are increasingly looking to the domestic market for business opportunities. In recent years, many brands have proactively set up sales channels to tap into the local market, among which are international brand names such as Disney and DreamWorks and local brands like Auldey and Goodbaby. Foreign products and products made by Sino-foreign joint ventures make up the lion’s share of the domestic toy market.
Competition is keen in the market for traditional toys, with few brands commanding significant market shares. Alongside famous international brands like Lego and Mattel, which are perennial favourites, domestic brands such as LDCX of Guangzhou and GA Creatives are growing in their competitive strength. They mainly seek to attract consumers in second- and third-tier cities with their price advantage and diversified sales channels.
In terms of pricing, there is a huge gap between locally-made toys and international brand-name toys. As such, locally-made toys still maintain a strong edge in the medium- to low-end segments of the market and practically monopolise sales channels like the wholesale market and individually-run retailers.
While OEM remains the primary production mode in China’s toy industry, changes are taking place. Some Chinese toy makers are paying more attention to R&D. A number of key enterprises with their own proprietary IPR and brand names have emerged, such as Auldey, Lanmao, Goodbaby, Dove and Huawei. In the Pearl River Delta region, toy enterprises have also embarked on transformation and are gradually shifting their operations to other activities of the value chain like sales and marketing and product development.
III. Sales Channels
Traditional sales channels for toys include major shopping centres offering mainly mid- to high-end, international brand-name toys; supermarkets and hypermarkets which are important sales avenues for medium-to-low priced toys; and wholesale markets. Specialty stores and franchise chains such as Toys “R” Us, Edutainment, Leyou and Lijiababy have been expanding in recent years and become a major toy-buying channel for parents. New sales channels like online shops have also flourished.
Toy suppliers have found their way into the fast developing e-commerce platforms in recent years. Major online shopping channels include Tmall, Taobao, JD.com and Yihaodian. According to Tmall, a number of toy brands like Hasbro, Barbie, Toys “R” Us and Bandai from Japan have gained a foothold in baby.tmall.com. Meanwhile, some foreign brands have successfully entered the mainland market through online platforms.
There are two main ways by which foreign brands break into the Chinese market - by appointing agents to assist in penetrating the market or by making a direct entry into the retail sector. The products offered by these foreign toy makers are essentially toys with high technology content like electronic toys, educational toys and game consoles, posing direct threats to the traditional toy market.
Zoos, museums and science and technology museums also serve as sales channels for toys. These venues offer markedly different products from those in department stores, with each having their own focus. While zoos offer relatively more animal figurines, museums often make available a full range of dinosaur toys, and science and technology museums deal mainly in intellectual toys of all kinds.
Selected toy exhibitions to be held in China in 2017-2018:
Date Exhibition Venue 18-20 October 2017 China Toy Expo: International Trade Fairs for Toys & Preschool Educational Resources Shanghai New International Expo Center 24-26 November 2017 Shenzhen International Maternity-Baby-Children Products Exhibition Shenzhen Convention and Exhibition Center 8-10 April 2018 Guangzhou International Toy & Hobby Fair Poly World Trade Center Expo, Guangzhou 25-27 July 2018 Children, Baby, Maternity Expo (CBME) National Exhibition and Convention Center (Shanghai)
IV. Import and Trade Regulations
China implements zero tariffs for toys from countries and regions enjoying the Most Favoured Nation status.
Under the Regulations for the Administration of Inspection of Toy Imports and Exports, inspection must be carried out on each and every batch of imported plush toys, mechanical toys, battery-operated toys, plastic toys, inflatable toys, wooden toys, children vehicles and other toy categories included in the list of imported toys subject to inspection. Those which fail the inspections must not be sold or used.
A new set of mandatory national standards for children’s toys came into effect on 1 October 2004. In the new standards, more attention is paid to the potential danger in toys, with an aim of minimising hazards posed to children. The new standards differ from the old ones mainly in the limits imposed on hazardous heavy metals. A test for selenium has been added, while most of the indicators in the new standards are also more stringent.
Foreign companies venturing into the mainland toy market should be aware of the relevant standards applicable to the industry. In the Standardisation Law of the People’s Republic of China, which took effect on 1 April 1989, four levels of standards are stipulated: national standards, industry standards, local standards and enterprise standards, in descending order of binding force. National standards are classified into mandatory and recommended standards, represented respectively by standard codes GB and GB/T. For the industry standards, there are likewise mandatory standards and recommended standards, and the toy industry is deemed a light industry and represented by the standard codes QB and QB/T respectively. Local standards are mandatory standards within their respective administrative regions, while enterprise standards are applicable to the respective enterprises. For details of the standards, reference can be made to www.standardcn.com and the website of the Standardisation Administration of China (SAC).
On 1 June 2007, the new version of the National Standard on Instructions for Use for Toys (GB 5296.5-2006) was implemented. Compared to the 1996 version, revisions on labelling requirements have been made in aspects like age grading, safety warnings, major ingredients and materials, usage methods, and repair and maintenance. New requirements on durability labelling and installation positions have also been added. Meanwhile, appendix A in the 1996 version on the “content of the instructions for use for toys” was deleted.
In order to further regulate recall activities for children’s toys, to prevent and eliminate harm that may result from defective toys and to ensure children’s health and safety, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) has promulgated and implemented the Regulations for the Administration of Recalls for Toys since 3 September 2007.
Since 1 September 2008, China has implemented a new set of recommended standards for plush toys and cloth toys, GB/T 9832-2007, which were revised by the National Toys Quality Supervision and Inspection Centre based on the standards on the safety and quality of plush toys and cloth toys drawn up in 1993. The new standards require that toy fillings should be even and of an appropriate softness, contain no hard objects and can hold the toy’s shape.
Since 23 November 2015, the AQSIQ has implemented the Measures for the Administration of Inspection and Supervision of Toy Imports and Exports (Revised), requiring the recall of defective import and export toys that may cause injuries to children. Export toys making declaration for inspection for the first time must submit the test report issued by the test laboratory for import and export toys and other materials specified by the AQSIQ.
In order to minimise the effects of wooden toys on the environment and on people’s health when they are being produced, used or discarded pursuant to the Environmental Protection Law of the PRC, the Requirements for Environmental Certification of Wooden Toys (HJ566-2010) have been implemented since 1 June 2010. The national standards set out requirements for environmental performance associated with the production of wooden toys and their raw materials and packaging materials.
On 1 December 2010, revisions were made on the implementation regulations of the China Compulsory Certification (“CCC”) scheme on six types of toys, namely children’s vehicles, battery-operated toys, projectile toys, dolls, plastic toys and metal toys. The revisions further clarify the relevant technical requirements of these types of toys and shorten the time limit for certification. The CCC toy standards govern the raw materials, structural design as well as the circuit design of toys in a bid to protect children’s safety when the toys are played with. The above products which have not been certified or do not carry the certification mark are not allowed to leave the factory, be sold in, imported to or used in other business activities in China.
The Guidelines for Matching Toys with Children’s Age (GB/T 28022-2011) have been in force since 1 February 2012. The guidelines apply to toys which are designed for children aged below 13, and set out the methods of matching toys with children’s age and the relevant terms and definitions.
To ensure the safety and quality of children’s toys and to protect the health and safety of children, the SAC has revised GB 6675-2003: National Technical Requirements for Toy Safety which was subsequently superseded and replaced by Parts 1 to 4 and 11 to 14 of GB 6675-2014: National Standard for Toy Safety. The requirements are mandatory and have come into force since 1 January 2016.
Determination of Total Lead Content in Materials of Toys and Children’s Products (GB/T 22788-2016) has been implemented since 1 July 2017 to replace the Determination of Total Lead Content in Surface Coating on Toys (GB/T 22788-2008). The new national standards revise the scope of applicability and include metallic and non-metallic materials in the determination of total lead content.