As Premier Wen Jiabao of the State Council stated during a recent press conference with Chinese and international journalists, the ongoing global financial crisis has led to an intensification of trade protectionism rather than its reduction. This growing trend is squeezing the operational space for many Chinese manufacturing companies, particularly those involved in export-oriented industries.
At present, Shanghai Huasheng Plastic Crafts & Gifts Co., Ltd., the authorized manufacturer of the South African World Cup mascot Zakumi, has been suspended for over a month due to its association with FIFA’s Global Authorized Representative, GlobalBrandsGroup (GBG). The company is currently awaiting the results of a new investigation scheduled for April. GBG emphasized that the suspension was based on formal findings, and there is still hope for a recovery. However, regardless of the outcome, Shanghai Huasheng is expected to face significant financial losses.
Industry experts suggest that being labeled as a “sweatshop†could severely impact the company's ability to secure future foreign trade orders. If this issue continues to escalate, it could trigger a broader crisis for the entire toy industry, which relies heavily on low-cost production in China.
The gross profit margin for many Chinese factories is less than 1%, reflecting the extremely tight margins they operate under. In September 2008, the South African World Cup mascot, a green-haired leopard named Zakumi, was introduced. While most production licenses were intended for South Africa, local traders struggled with limited local craftsmanship and turned to Chinese manufacturers for help.
Zhejiang-based entrepreneur Li Kaiwen had hoped to secure a contract to produce Zakumi toys but never received the official authorization. He only learned about Shanghai Huasheng’s situation through media reports in March, revealing that the company had already secured production orders in late 2008 but faced unexpected challenges.
Li expressed sympathy for his struggling counterparts, noting that rising raw material costs and low buyer prices left little room for profit. “We have no control over pricing or order values, and now we’re being blamed for poor working conditions,†he said.
For example, a 40-centimeter Zakumi plush toy is sold in China for 20 yuan, while in the UK, the same item retails for around 12.99 pounds (approximately 135 yuan). American toy companies typically enjoy a gross profit margin of over 40%, yet most of their products are manufactured in China, where the factory price might be just $1 for a $10 retail item, leaving only $0.10 in profit for the Chinese producer.
A South African retailer based in Johannesburg noted that although the government encourages local purchases, cost and production issues make it difficult to shift away from Chinese imports. Meanwhile, some analysts believe that South Africa’s pressure on Chinese firms may stem from high domestic unemployment, leading to accusations against Chinese production facilities.
In addition, trade between China and South Africa has been increasing rapidly. According to data from the South African Bureau of Statistics, in the first ten months of 2009, total trade between the two countries reached $11.874 billion, making China South Africa’s largest trading partner that year.
South Africa has long practiced trade protectionism against Chinese goods. In 2006, the country imposed restrictions on textile and clothing imports from China, using special licensing systems to limit these goods until 2008. Major retailers later criticized the policy, arguing it harmed consumers and hurt local businesses.
Since the 1990s, multinational corporations like Nike, Reebok, and Walmart have increasingly focused on labor standards when selecting suppliers in China. These companies often require their partners to meet strict social responsibility criteria, pushing down costs further onto workers.
According to Li Qiang, executive director of China Labor Watch, multinational buyers often prioritize lowering unit prices over actual production costs. This pressure forces companies to cut corners on labor and social responsibility, contributing to the rise of “sweatshops.â€
During economic downturns, concerns about labor rights and social responsibility tend to increase, especially in countries with rising unemployment. Scholars warn that in the post-crisis era, environmental and labor issues will become more common tools for trade protectionism.
Some experts argue that foreign trade protectionism often takes the form of non-governmental organizations pushing for stricter regulations, effectively acting on behalf of national governments to protect domestic industries. This subtle but powerful form of protectionism is becoming more prevalent in today’s global economy.
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