This factory belonging to the United States in China has made toys for Walmart. Prices put him in life

By Nicholas P. Brown

(Reuters) – Email began to flock on April 9, the 145% rate of President Donald Trump on Chinese imports entered into force. Customers canceled toy orders from the Huntar Company Inc. factory in Guangdong province in China.

But Huntar CEO, Jason Cheung, 45, had already interrupted production in the installation of 600,000 square feet in Shaoguan. He saw the price for what he was: an existential threat to his business, which makes educational toys for the shelves of Walmart and Target, like Learning Resources Inc Blocks, which help teach children mathematics.

“I had to start saving money as soon as possible,” said Cheung. During the four weeks that followed, he reduced production from 60% to 70%, dismissed a third of the 400 Chinese workers in the factory and reduced wages and wages to those still employed.

Now he continues a frantic and long effort to move his operation to Vietnam before the company founded 42 years ago short of money.

He thinks he is about a month old.

The fate of Huntar characterizes a crisis confronted with countless factories in China, where around 80% of toys sold in the United States are manufactured, according to the commercial group The Toy Association. New orders have dropped sharply in the middle of a brutal trade war with the United States which threatens to devastate the sector in the two countries.

Huntar is also unique in a key way: based in the United States, she rides the two sides of the trade war.

On paper, Cheung is Trump's Bogeyman, the Chinese owner of the factory occupying American jobs. But it is also the American rates of the owner of small businesses had to protect. He is the American son of a Chinese immigrant, manages a second generation family business which employs 15 people in the United States – people who would lose their jobs if Huntar vacillates.

Trump said the prices will encourage companies to reshape manufacturing or, at least, hunting it from China.

Huntar illustrates why economists say that is unlikely: a shortage of facilities and workers with an expertise in toy in other countries; heavy equipment that is difficult to move and would cost millions of dollars to replace; And, above all, no time to resolve these obstacles before the chests are dry.

More likely, factories like Cheung will simply closure, a prospect that led Beijing to the negotiating table with US officials in Geneva this weekend, three familiar sources told Reuters with the thought of the Chinese government.

In a realistic way, China cannot replace the demand of the American market for product categories such as toys, furniture and textiles, which already feel the impact of prices, said one of the managers. While the commercial negotiations started, Trump reported that it was open to reducing China's tariffs to 80%.

It wouldn't help Huntar, says Cheung, noting that any rate rate out of around 50% will make survival difficult. On a practical level, there is no difference between 80% and the 145% prices with which he is currently faced.

The crises have already struck Huntar, says Cheung, but not like that. The 2008 recession brought a constant slowdown, which he could plan. And the cocvid pandemic brought a blow, but its production volume remained high enough to keep it afloat by a temporary crisis.

This time, he said: “Our manufacturing company has mainly stopped overnight.” Cheung starts to feel like his only hope is just that – hope.

“I refresh my” price “Google is looking for five or six times a day, hoping that something has changed,” he said.

A lucky dream and office

Huntar manufactures toys for us, Canadian and European sellers, such as Learning Resources Inc and Play-A-Kaze, which distributes them to retailers or sells directly to consumers.

He also manufactures her own educational toys under her popular Playing brand, which she had to stop shipping to the United States, so far costing the hundreds of thousands of dollars.

The factories belonging to the United States in China are rare because Chinese law makes it difficult and expensive for foreign entities to own them, explains lawyer Dan Harris, partner of Harris Sliwoski who focuses on international manufacturing law.

But Huntar has roots in a company that Cheung's father created in 1983, a few years after escaping communist China and settling in the California bay region.

Cheung grew up in the inner district of Richmond de San Francisco, he says, in a small house that you could simply open the broken door. His father would sell clothes and furniture on a flea market to increase the salary of his concierge, with Cheung by scoring, bored at tears.

While the operation ripened, Cheung's father created a factory in China, to exercise more control over quality. Cheung, who joined the company in 2004, still uses the office that his father created in their living room for decades.

“We think it may be lucky or something,” he says.

The past few weeks have been anything but lucky. The factory is on $ 750,000 in canceled shipments – Value Cheung could not recover even if the trade war ended, because its shipping costs would surely increase while the factories were running to erase the arrears. This is what happened after Covid, recalls Cheung, when the shipment costs in balloon of $ 2,000 per container at more than $ 20,000.

“They don't deserve this,” said Rick Woldenberg, CEO of Toy Company Learning Resources, and a Cheung customer since his father was in charge over 20 years ago.

Woldenberg has canceled future production in China, saying that its annual prices would drop from $ 2 million to $ 100 million. “It is not who we want to be,” said Woldenberg, “but they know that we have no choice.”

According to a Toy Association's survey in April, more than 45% of small and medium-sized toy companies in the United States say that the prices in China will put them out of business in a few weeks or months.

Learning resources, which employ 500 people in the United States and manufactures 60% of its products in China, continued the US government, asking a federal judge to prevent prices from taking effect.

“If nothing changes, we will be paralyzed,” said Woldenberg.

'Moi me cannibalize'

Cheung has traveled his contact list, calling factories in Vietnam in the hope of finding a new house for Huntar.

Moving to the United States is out of the question. Salaries here is so high that the manufacture of the United States would be even more expensive than staying in China and absorbing the prices, says Cheung.

Even in Vietnam, financial and logistical obstacles are too large.

Few factories have enough space to manage its operation, and the competition is raised among others that seek to move. Even if he found a good place, Cheung should form a new staff and carry out quality security and control controls that could easily take months.

There is also the question of infrastructure. The Cheung factory is solar energy, helping to ensure profitability in a thin margin company. It has specific CVC and wastewater systems designed to cancel the environmental risks of aerosol paint and chemicals used to decorate toys. And it has more than 30 injection machines, each weighing several tonnes, which display toys by pumping melted plastic boxes on steel. These probably cannot be moved, and Cheung says he does not know where he would find the money – much over a million dollars – to buy new ones.

A more realistic decision would be to outsource certain operations and close others. Cheung could reduce losses by finding a Vietnamese factory to take the line owner of the Huntar Playersings, while abandoning toy manufacturing activities for third -party customers.

Going all-in-that is to say keep your factory intact in China in the hope that the trade war is resolved-is a gambit at higher and rewards. If the prices went down quickly, his business would survive, but if they did not do it, he would lose everything. The costs of maintaining a large factory on the move and the payment of employees, while producing a fraction of its normal production, would flow it in several weeks, he says.

“I approach this moment when I must choose essentially to cannibalize myself,” he says.

It is difficult to reduce a business that once embodied the American dream. Cheung's father came to the United States in 1978, after having escaped China by swimming through the Shenzhen river in Hong Kong – all for a shooting. He “wanted to see this company continue through me and, hopefully, his grandchildren,” says Cheung.

His father, he says, feels desperate these days. Although grateful for the life he built here, American radiance as a land of milk and honey has dissipated. “His idea from the United States has definitely changed,” said Cheung.

(Report by Nicholas P. Brown. Edition by Vanessa O'Connell and Michael Learmonth)