The big event on my recent trip to China was the 20th annual Party Congress of the Chinese Communist Party. It’s a really big deal. This year’s Congress is bigger than any since the death of paramount leader Deng Xiao Ping, 30 years ago.
The current head of the government XI Jinping, has just been granted an unprecedented third five-year turn and has announced his direction for the country for the next five years. I’d call it “Back To The Future.” Internally, he’s taking China back to a time when the focus was supposed to be on the many, not the few.
This means the go-go growth economy of China and the billionaire boom is ending or over. The central government is taking control and clamping down on all aspects of the economy. This will mean significant changes to science and technology, healthcare, pharmaceuticals, and the military-industrial complex.
So what does this mean for us in toys? The changing mindset and philosophy for the party will not affect light industrial manufacturing, like toys, outside of implementations of environmental controls and a continued shift further out from the big cities to developing areas. China still needs to have tens if not hundreds of millions of people to keep working in many manual and entry-level jobs like making toys, shoes, and electronics. It will likely be in our grandchildren’s time before a shrinking labor force threatens the ability to produce toys in China.
I’m going to let you in on a little secret (OK, just my theory,) and I don’t get paid in dumplings or dollars from anyone. Many people are telling those of us in the toy industry to diversify our manufacturing resources to deleverage China. For some of the larger companies, that might be practical. However, for most, it’s not.
Taking, say, 10% of 20% of your products offshore to Vietnam or India might seem like good business because “what if we see what is happening in Russia with sanctions happens in China?” I’m here to tell you that if that happens, we can all pack it in and retire or find other industries to work in, like commercial fishing! If China closes down, parents and grandparents will have to go to the attic and pull out the Monopoly sets, old Cabbage Patch dolls, Tonka trucks, and Zhu Zhu Pets or start making their toys at home. That is because no country(s) in the world could pick up the slack if China closed down as a global supplier of everything from iPhones to air fryers to Care Bears. Not India, not Mexico, Vietnam, or here in the USA. Besides, the likes of Nike, Apple, Samsung, and Siemens will take every inch of manufacturing capacity from the toy industry and other light industrial businesses like ours. OK, folks like Lego, Hasbro, and Mattel will survive, but we still need to figure out the rest of us.
best to work and lobby for cooler heads prevailing between Washington, Beijing, and Taipei and not depend upon the hopes and dreams that other manufacturing hubs can fill the gap if the worst happens. The world and China are in a symbiotic relationship of mutual economic dependence that neither can afford to destroy. Xi is tough but also smart, and he certainly sees the consequences of rash and foolish actions such as those perpetrated by Putin and Russia. He is not going to fall into that trap. He made it clear that he’s playing the long game and can wait until 2049, the 100th anniversary of the People’s Republic of China, to see “the nation reunited”. A lot can happen in 25 years, and I’d be happy to wait that long or longer to find out.
So, keep your heads down, hold onto your hats and stay the course, as the world is certainly getting curiouser and curiouser…. as the story goes!