Barbie and the World Economy
A Barbie doll is for sale at the Anaheim Toys “R” Us store in a bright cardboard-and-cellophane box labeled “Made in China.” The price is $9.99.
But how much will China make from the sale of the pert fashion doll marketed around the world by Mattel Inc. of El Segundo?
About 35 cents, according to executives in the Asian and American toy industry--mostly in wages paid to 11,000 young peasant women working in two factories across the border from Hong Kong in China’s Guangdong province.
“What China is mostly exporting is its cheap labor,” said David A. Miller, president of Toy Manufacturers of America in New York.
China’s cut of the Barbie doll is important because it touches one of the main political strains between China and the United States today: the growing, lopsided trade deficit in favor of Beijing.
China contends that the U.S. Commerce Department’s calculation of the deficit, estimated to reach $36.2 billion by the end of the year, is distorted and unfair. U.S. political leaders view the deficit with alarm, proclaiming it America’s next No. 1 trade issue, eclipsing the long-standing wrangle with Japan.
But tracing Barbie’s peripatetic, multi-country path from her raw material source in a Saudi Arabian oil field to aisle 12-C of a Southern California toy store raises even bigger questions being debated in business and academic circles:
* How relevant are traditional bilateral trade calculations--a baseball-type scorecard of winners and losers--in an era of increasing globalization of products?
* If such calculations are relevant, should the deficit with China, a developing country where most exports are still labor-intensive “processed products,” be placed in the same category as the deficit with Japan, a fully industrialized country that has systematically targeted key American industries?
* In the end, what does the label “Made in China”--or “Made in U.S.A.” or “Made in Japan” or “Made in Mexico”--really mean?
“The America-China trade issue is a red herring,” contends Arjun Appadurai, a professor of cultural anthropology at the University of Chicago who has written extensively about the international flow of commodities. “It fails to take into account a much more complex set of values, of energies, of labor and of nationalism congealed into a package that carries the emotional label ‘Made in China.’ ”
Appadurai, editor of a pioneering 1986 book, “The Social Life of Things (Commodities in Cultural Perspective),” argues that the traditional model for calculating trade relations no longer is valid.
“The whole issue of bilateral deficits works within a framework that has been in question for some time, both in business and in government,” Appadurai said in a telephone interview. “Today’s forms of production are elusive and highly flexible. It is very difficult to localize a product like Barbie. But the political side can only accommodate two-player games, played between nation-states.”
Complicated Trade Rules
China gets its estimated share of the “My First Tea Party” Barbie sold in Anaheim from minimal taxes and licensing fees as well as in worker wages. But, because of complicated international trade rules that define a product’s point of origin, China is charged with an export value of $2 by the time the doll reaches the United States.
Eventually, after transoceanic shipping, domestic trucking, advertising and other functions that employ thousands of workers in the United States the Anaheim Barbie will achieve her full price, resulting in at least a $1 profit per doll for Mattel.
According to the U.S. Customs figures, toys imported from China in 1995 totaled $5.4 billion, about one-sixth of the total deficit figure as calculated by the U.S. government.
Several other countries contributed to the making of the Anaheim Barbie as much as or more than China did. From Saudi Arabia came the oil that, after refining, produces ethylene. Taiwan used the ethylene to produce vinyl plastic pellets that became Barbie’s body. Japan supplied her nylon hair. The United States supplied her cardboard packaging. Hong Kong managed everything.
Each country took a cut along the way of the doll’s $2 export value, the number used in calculating trade figures (about one-fifth of the eventual retail price). But China was stuck with the bill: In the trade ledgers, Barbie is one of its exports.
This fact is increasingly important as China’s trade advantage with the United States continues to grow, alarming politicians and pushing the world’s richest country and its most populous country into a testy standoff.
U.S. Commerce Department officials recently announced that, according to June figures, for the first time in history China had surpassed Japan as the country with the largest trade imbalance with the United States.
As it has in the past, China immediately cried foul, contending that the U.S. figures failed to take into account the value added to the product in Hong Kong and other way-stations.
“The business transaction is so complicated that it involves two or three ‘places’ in the whole course of processing,” Ma Xiaoye, an official in China’s Ministry of Trade and Economic Cooperation, wrote in a recent article describing Beijing’s position. “Value-added is accumulated in more than two places and combined with transshipment. This has led to great difficulties in determining the origin of goods, and the sizable scale of processing trade has resulted in a serious distortion of trade statistics.”
$25-Billion Misunderstanding
A vast gap divides the U.S. estimate of its trade deficit with China and the calculation of China’s Ministry of Trade.
In 1995, the Commerce Department placed the deficit at $33.8 billion in China’s favor. China said the deficit was $8.6 billion.
This $25-billion misunderstanding may seem irreconcilable. But China’s claim of a lower figure has supporters inside and outside the U.S. government.
“When you go through the analysis,” said Miller of the American toy manufacturers association, “the U.S. figure is about double what it should be.”
Washington, while sticking to its higher number, appears to recognize that the U.S.-China deficit is different in nature from the U.S.-Japan deficit. In announcing the June figures, Commerce Secretary Mickey Kantor was careful to avoid the charged rhetoric that sometimes accompanies announcements on trade-related issues.
“This is a deficit that cannot be construed as a U.S.-China deficit,” one official acknowledged, “but it has to be viewed in light of its regional components as well.”
Nicholas Lardy, an economist and China specialist with the Brookings Institution in Washington, contends that both the United States and China err in their trade figures but that the U.S. calculations are off by about 50%.
In a recent position paper, the United States-China Business Council, a high-powered lobby dedicated to promoting U.S.-China trade, blamed the trade discrepancy on two main accounting errors: the Commerce Department’s failure to factor in the role of Hong Kong as a critical entrepot, or middleman trade port, for both exports from China to the United States and exports from the United States to China.
“These large statistical errors, by both countries, are due to the ever-expanding role of Hong Kong as entrepot in the China trade,” the paper contends. And although Hong Kong is scheduled to revert from British control to mainland China sovereignty next July, the Chinese and American governments have agreed that the trade relationship will remain the same, with Hong Kong considered for trade purposes as if it were a separate country.
In fact, the differences in calculations would not matter much if they did not have an important political dimension in the United States. In recent years, the U.S. government has focused on trade issues, such as the annual renewal of most-favored-nation trading status, as a way of trying to influence China on a range of unrelated issues, including human rights and nuclear proliferation.
Like the bitter ongoing dispute with Japan, the U.S.-China trade clash could be a volatile political issue in years to come. Presidential candidate Ross Perot, armed with the June figures, made it a central point of his acceptance speech to his Reform Party in August.
“We’re the only industrialized nation in the world with a trade deficit with China,” Perot said. “We better find somebody who knows how to horse-trade, don’t you think?”
“Yes!” shouted his enthusiastic supporters in Valley Forge, Pa., where the convention was held.
In a recent appearance on CNN, Perot’s running mate, Pat Choate, referred to Chinese factory workers as “coolies” who have deprived Americans of jobs.
Such pronouncements are usually based on the assumption that, as the exporting country, China makes more from its products than does the United States. In fact, with transportation, advertising and other elements that create thousands of jobs in the U.S.--including Mattel’s $1 profit--factored in, most of Barbie’s eventual $10 cost is accumulated in the United States.
Mattel’s profit alone is three times what China gains from each Barbie.
The contradictions and peculiarities of U.S.-China trade are not limited to the toy industry or its most successful creation, the 37-year-old teenager called Barbie. Similar anomalies exist in a wide range of other products exported by China, including shoes, garments, electronic goods and small home appliances.
The Chinese government estimates that 75% of its products exported to the United States are “processed products,” for which most raw materials and components come from other sources.
“For most of these products,” said Ma Xiaoye from the Ministry of Foreign Trade, “China contributes almost nothing except the labor.”
That labor is provided by workers like 20-year-old Qin Tingzhen, a Sichuan peasant woman who until June toiled for $40 a month making plastic Mighty Morphin Power Ranger action dolls at the Qualidux toy factory in Dongguan in Guangdong province. The wages of China’s toy makers range from $30 to $40 a month.
But Barbie, the most profitable toy in history, serves as a familiar and convenient example.
Barbie accounted for $1.4 billion in sales for Mattel in 1995, according to Mattel spokesman Glenn Bozarth. Barbie is sold in 140 countries at a rate of two dolls every second. More than 40% of the dolls are sold overseas, primarily in Europe and Japan.
Optimum Locations
Barbie’s story begins in the “commodity management” center in the one-story Maple Building in Mattel’s El Segundo headquarters on the outskirts of Los Angeles International Airport. That is where Mattel’s team of experts on commodity and material prices determine the optimum locations to buy the plastic resins, the cloth, the paper and other materials.
Mattel declined to provide details of the materials’ sourcing and prices.
“We consider the information to be proprietary in nature,” Bozarth said.
But Mattel officials consented to provide guidance in certain areas, specifically to the percentage of China’s participation in the manufacturing cost and a rough idea of the source country for most materials. Meanwhile, interviews with executives in the Hong Kong and U.S. toy industries provided a fairly detailed Barbie “biography.”
According to Mattel, all Barbie dolls are made in four Asian factories, two in China and one each in Indonesia and Malaysia. Barbie has never been made in the United States. The first doll was produced in Japan in 1959, when that country was still struggling with its post-World War II economic recovery.
“The history of these toys is really the history of the growth of the economies of Asia,” Bernard Loomis, a former designer and executive with Mattel and several other American toy companies, said in a telephone interview from his home in Palm Beach Gardens, Fla.
After Japan’s economy took off, labor costs became too expensive for the production of plastic toys, and the factories were gradually relocated to other areas of East Asia where labor was cheaper.
At one time, Mattel maintained Barbie factories in Taiwan, Hong Kong and the Philippines. In 1988, after a bitter labor dispute, Mattel closed two Philippine factories that employed 4,000 workers.
The Indonesian Barbie plant, 30 miles from Jakarta in Cikarang, opened in 1992. Another factory opened in Malaysia. Meanwhile, for much the same economic reasons that Japan ceased making Barbies a decade earlier, the doll factories in Taiwan and Hong Kong were shut down and relocated to mainland China.
The two plants in China are the Meitai factory in Dongguan and the Zhongmei toy factory in Nanhai. According to the plant managers, each factory employs about 5,500 workers. The Meitai factory produces both plastic dolls and clothes. The Zhongmei factory makes only the dolls.
Evolution of Regional Economies
Because all Barbie factories are located in eastern and southern Asia, the commodities managers in El Segundo look to Asian countries for most of the materials. The evolution of the region’s economies is still tied in some way to the toy business.
At one time, Japan and Taiwan were the world’s toy makers. As their economies advanced, they stepped up the evolutionary industrial ladder, replacing the United States and Europe as suppliers of plastic resins. China also makes vinyl plastics, but American and Hong Kong toy companies say they are not yet of sufficiently high quality to be used in their products.
According to Fred Wan, public relations specialist with Formosa Plastics in Taipei, the world’s largest producer of polyvinyl chloride plastics used in toys (including Barbie), most of the oil the company uses to make its plastic resins is bought from the Chinese Petroleum Corp., Taiwan’s state-owned oil importer.
When supplies of crude oil are not available, Formosa Plastics sometimes gets its liquefied petrochemicals from its $4-billion natural gas polymerization plant in Point Comfort, Texas.
In theory, Wan said, it is possible that the Anaheim Barbie was made from natural gas obtained in Texas or Louisiana. In all likelihood, however, the resins, transported to China via Hong Kong in pellets or “chips,” came from the Taiwan oil import monopoly.
According to Ho Li-chun, spokeswoman for the Chinese Petroleum Corp., the biggest share of Taiwan’s imported oil--about 32%--comes from Saudi Arabia. Other major sources include Oman (10%), Kuwait (10%), Iran (8%) and the United Arab Emirates (7%).
Many toy companies get the nylon hair for their dolls from Italy. But, for reasons of quality and history, Mattel obtains Barbie hair from Japan. In addition to the cardboard packaging for the dolls, many of the paint pigments and oils used in decorating them come from the United States.
Only the cotton cloth used in making Barbie’s dress comes from China.
According to Hong Kong toy manufacturers, almost all of the machinery and tools, including the plastic mold injection machines used to produce most toys, are imported from Japan, Europe and the United States. Most of the molds themselves, the most expensive item in toy making, come from the U.S. (for Barbie), Japan or Hong Kong.
Virtually all the materials used in making Barbie are shipped through Hong Kong and trucked to the Guangdong factories.
According to the Hong Kong Trade Development Council, about 23,000 trucks make the daily four-hour round trip from Hong Kong harbor. They arrive bearing the raw materials and leave carrying the finished products, already packed in containers ready to load on ships destined for the world’s ports. Los Angeles gets the biggest share.
“In most cases, the only things that China supplies are the factory space, labor and electricity,” said Edmund K.S. Young, executive vice president of Perfekta Enterprises Ltd., a leading Hong Kong toy maker, and chairman of the Hong Kong Toy Council. “China doesn’t even get the benefit of the banking, the insurance or the shipping, because those are all in Hong Kong.”
The $2 export value placed on the Barbie doll when it leaves Hong Kong harbor, Young said, breaks down roughly as follows: 35 cents for labor, 65 cents for materials and $1 for transportation and overhead, including about 10 to 20 cents’ profit for the Hong Kong companies that manage the manufacturing process.
Labor Is Critical Aspect
Although the labor component is probably the cheapest aspect of toy making, it is also the most critical. The workers operate the plastic mold injection machines, sew the clothing and paint the details on the doll. A typical Barbie requires 15 separate paint stations.
This, in turn, requires an enormous, cheap work force.
In the labor-intensive factories of Guangdong more than 300,000 are engaged in making toys for export to the United States and other countries.
During a 1994 visit by a Times reporter to the Qualidux toy factory in Dongguan, Hong Kong manager Y.S. Wong offered a profile of the work force in his factory, where 6,000 women make Power Ranger action dolls and plastic gift toys for American fast-food restaurants.
The typical worker, Wang said, is an unmarried woman between 18 and 23 from Sichuan province who will work at the factory two to five years. Most are the second or third child in a peasant family that had already produced at least one son. In many rural areas of China, peasants are permitted two children in variance with China’s general “one-child” family-planning policy.
Most of the young women interviewed on that day in the factory said their goal was to save enough money to return to Sichuan with a dowry. One of them was Qin Tingzhen, a pretty, smiling 18-year-old who wore her hair tied atop her head with a bright pink scarf.
Asked about her job operating a mold injection machine to make a Power Ranger figure, Qin was delighted to learn that her product would eventually make it to the United States.
“I thought it was for Hong Kong,” she said, beaming.
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Made in China?
That’s what the box says. But Barbie is a global product.
U.S. CHINA TRADE:
In billions of dollars:
1978: $2
1995: $60
TRADE DEFICIT FAVORING CHINA
In billions of dollars:
U.S. -- 1995: $33.8 (estimate)
China -- 1995: $8.6 (estimate)
U.S. projected -- 1996: $36.2
*
BARBIE COST ANALYSIS
“MY FIRST TEA PARTY BARBIE”
Retail price: $9.99
$7.99: Shipping, ground transportation, marketing, wholesale, retail, profit
EXPORT VALUE: $2.00: Value in Hong Kong used to calculate import value in U.S. Breakdown at right.
EXPORT VALUE:
$1.00: Overhead and management (Hong Kong)
65: Materials (Taiwan, Japan, U.S., Saudi Arabia, China)
35: Labor
KEY SPOTS AND THEIR IMPORTANCE IN BUILDING BARBIE
El Segundo: Mattel Inc.
U.S.: Cardboard packaging, paint pigments, molds
China: Factory space, labor, electricity
Saudi Arabia: Oil
Hong Kong: Management, shipping
Taiwan: Refines oil into ethylene for plastic pellets for Barbie’s body.
Japan: Nylon hair
Sources: U.S. Commerce Dept., Chinese Ministry of Foreign Trade and Economic Cooperation, Mattel Inc., Hong Kong Toy Council.
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Giants in Toyland
U.S. figures put the 1995 trade deficit with China at $33.8 billion, about a sixth of which is toy imports. But some say the figure is distorted-- Beijing earns only 35 cents on a Barbie whose export value is $2, for example. Here’s a look at U.S. toy imports overall.
Taiwan: $500 million / 6%
China: $5.4 billion / 60%
Japan: $1 billion / 11%
Others: $2.1 billion / 23%
Source: Toy Manufacturers of America
