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TROUBLE IN TOYLAND

Safety problems bear down on Chinese manufacturer

August 24, 2007|Don Lee and Mark Magnier | Times Staff Writers

SHANGHAI — In the harsh world of Chinese toy manufacturing, Cheung Shu-hung was a rarity among factory bosses.

On hot summer days, workers said, he went out and bought iced tea, apples and watermelon, delivering them to his employees who have been making goods for Mattel Inc. for more than a decade. When some workers needed help buying homes, Cheung dug into his own pocket.

Then his world came crashing down. This month, Mattel recalled nearly 1 million Fisher-Price toys made at Cheung's Lee Der Industrial Co. because they were contaminated with lead paint. About a week later, Cheung hanged himself with an electric cord in a utility room at a Lee Der factory in the southeastern city of Foshan.

"He kept saying, 'It's over. . . . A reputation built over 10 years is gone,' " said Xie Yuguang, 59, Cheung's partner and chairman of Lee Der, which has three factories in Foshan.

A series of product-safety scares in recent months involving Chinese-made goods, including pet-food ingredients, tires, seafood, medicine, toothpaste, vitamins and toys has rattled consumers in the U.S. and other countries.

For Mattel and other companies, the recalls have underscored the risks of making goods in China. Lured by cheap labor, they have found themselves paying the price for a system rife with quality breakdowns because of weak standards and enforcement, cutthroat competition and businesses cutting corners, counterfeiting and cheating to make profits.

At the same time, the problems have drawn back the curtain on the pressures faced by many Chinese manufacturers, many of whom say that sharply rising labor and material costs, ill-considered crackdowns by officials and demands by foreign companies to hold down costs have put them under enormous stress.

"I see this whole thing as a tragedy," said Zheng Yusheng, Shanghai-based associate dean at the Cheung Kong Graduate School of Business and a professor at the Wharton School at the University of Pennsylvania. He said Lee Der, China's government and Mattel all must share in the responsibility for the recall.

Toy manufacturing, once based in Hong Kong, moved across the border into China's Guangdong province as the country's economy opened up over the last two decades. Last year, Chinese toy exports exceeded $17.7 billion, accounting for about 80% of the toys consumed in the world, according to the China Toy Assn.

At many toy plants, employee wages average around $130 a month. Workers at some factories say it's not uncommon at busy times to put in mandatory 14-hour days, seven days a week. Conditions at some plants are brutal, with unsafe surroundings and managers abusing workers verbally and physically, New York-based China Labor Watch said in a report this week.

Cheung and Lee Der were hardly well-known in the industry. But by most accounts, Lee Der was among the better factories to work for -- and Cheung played a key role in that. Even workers not enamored of him described Cheung as a decent man.

The company paid workers on time, and when shifts exceeded 10 hours, overtime was given, said some of the small number of remaining workers at the company.

Most everyone said Cheung was devoted to the firm and lived a simple life. About 48 and single, he slept in an unadorned, 250-square-foot room on the third floor above the company's Foshan offices and drove a Toyota SUV.

"He would give money to workers who didn't have enough for their children to go to school," said Liu Jianguo, 35, an assistant production manager who said Cheung gave him about $2,500 to buy an apartment.

Cheung and Xie launched Lee Der in 1993 with almost $4 million, Xie said. Xie vaguely recalled the company's first order from Mattel as a relatively small batch of educational toys, but as Mattel orders increased, Lee Der dropped other clients and staked its future with the world's largest toy maker.

Lee Der grew to about 2,500 workers across three plants, with annual sales of around $26 million. A new $5-million plant was to open in the fall. "Since 1993, we never had a single case of quality problems," Xie said.

That is until April, when Lee Der's four-year paint supplier, Dongxing New Energy Co., ran short of yellow pigment powder. Xie said Dongxing turned to the Internet and bought about 330 pounds of the powder for about $1,250 from a supplier in nearby Dongguan city.

But the company, Dongguan Zhongxin Toner Powder Factory, presented fake registration and other papers certifying its quality. Chinese authorities are looking for workers there who have since vanished, according to Southern Metropolis Daily, a local Chinese newspaper.

At the start of production in late April, Xie said, most of the paint contained little of the lead-tainted pigment, and routine random checks didn't catch the problem.

Xie admitted that "under deadline pressure, we became slack on quality control. We had our responsibility."

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