By staff reporters Ji Minhua and Xu Ke 

The factory floor of Foshan Lee Der Toys Limited, once bustling with hundreds of employees, is nearly empty four days after the body of their boss was found hanging in one of the factory warehouses.  

Before taking his life, Cheung Shu-hung, the deputy chair of Foshan Lee Der Toys Limited, had made a final tour of the premises and made sure the wages outstanding to the workforce were paid in full. 

He would normally come to the factory every day with weekends often no exception, said a mid-level manager at Lee Der to Caijing. “He put his whole life into the toy factory. Pretty much all the money he earned over the years he invested back into the factory,” he said.  

Cheung, a Hong Kong businessman had hung himself on August 11 after U.S. leading toy brand Mattel, Inc., in cooperation with the U.S. Consumer Product Safety Commission, announced the recall of 967,000 plastic toys after Mattel found toys manufactured by Lee Der contained excessive amounts of lead.  

A girl is shopping for Barbie dolls at a toy store in California.

Prior to this incident, Lee Der had been the second largest toy-maker in the Guangdong city. It had an excellent track record of safe production stretching back over a decade. Seemingly overnight, the joint venture found itself the center of a major scandal. 

Yet who was to blame? Through a long investigation, Caijing has traced back the chain of calamity to Lee Der’s paint supplier, Dongxing New Energy Co. Ltd, and then to Dongguan Zhongzin Colorants, and then to the chain of inspections that failed at every checkpoint.  

The tainted paint had come from Lee Der’s supplier Dongxing, who bought the paint from Dongguan Zhongzin Colorants, a company they had found on the internet.  

Dongxing’s boss had been good friends with Cheung for many years, and the small family-run business had supplied colored packaging and cardboard cartons to Lee Der.  

Dongxing, founded in 2001, added paint manufacturing to its business ventures in 2002 and began supplying paint to Foshan Lee Der. It had provided Lee Der with five tons of paints and coating that first year.  

Many Foshan Lee Der staff said that the growth of Dongxing’s business was thanks to the orders from Foshan Lee Der and Foshan Hengjing Toy Company Ltd., a subsidiary of Lee Der. 

A representative for one of Mattel’s approved paint suppliers told Caijing that there were only eight companies in China approved by Mattel to supply their toys, and Dongxing was not one of them. Yet Mattel had apparently not noticed the business relationship between Foshan Lee Der and Dongxing, although it had existed for a good four years. 

The paint company spokesperson said that some Mattel suppliers would indeed source paint from non-approved suppliers yet still have their product accepted by Mattel.  

“Mattel’s requirement is that a test report on the paint is sent along with the finished toys, but I can’t say for certain whether or not Dongxing would provide such a report,” he said. 

Official investigations following the recall announcement revealed there had been no problems with the quality of the paint supplied by Dongxing over the four years they’d done business with Lee Der. But in early April Dongxing was short of yellow colorant and decided to buy some from a supplier in Guangdong province that they found via the Internet. This supplier, Dongguan Zhongxin Colorants, located in Dongguan city, sent fake paperwork to Dongxing claiming that their yellow colorant was lead-free, a problem Dongxing failed to notice. On April 10, Dongxing bought 500 kilos of colorant from Dongguan Zhongzin. 

Lee Der’s management told the media that they decided not to test the colorant they received from Dongxing because they feared the process would hold up production at Lee Der. Normally, Dongxing would send the colorant to testing agencies in Guangdong, which would take five to 10 days, said the management.  

So Dongxing skipped the testing and around 200 kilos of the tainted colorant was used between April 19 and mid-June. 

The change of colorant was noticed on the ground. A former Lee Der paint sprayer said he had observed in April that the paint they were using smelled differently from usual. 

A manager from the paint-spraying department said he was not convinced by Dongxing’s explanation.  

He said that suppliers will buy new raw materials when their current stock is close to being used up, but they don’t wait until the last minute. In any case, the excuse about not wanting to hold up production at Lee Der doesn’t explain why there were no tests on the colorant at any later point during the two months it was being used to make paint, he added. 

Another source said that ordinarily a colorant will have to pass five different quality tests before use, with the colorant supplier and paint manufacturer being just two of these. So the problem wasn’t detected at the toy factory, by Mattel or by the Entry-Exit Inspection and Quarantine agency. It meant a failure at every checkpoint down the line. 

Shut down after the recall 

The construction work on three of Lee Der’s new factory buildings is almost complete. Only two weeks ago, Cheung Shu Hung would still make regular visits. 

“The boss was building these new workshops because he had an ambitious growth plan,” one department manager from Lee Der told Caijing. 

As his workforce describes him, Cheung was a man who “cared about his obligations,” who “never kept the workers waiting for their pay.” A good man who mixed easily with the workers. Many of them had been with the company for years and were very upset by their boss’s death. 

Cheung had put his whole life into the company. He had founded Lee Der in 1993 and single-handedly guided its growth to its recent size. Foshan Chancheng Fenjiang Industrial and Lee Der Industrial Co. of Hong Kong each held fifty percent of stock. However, an agreement was made that the mainland partner would not take any dividend from the business, and it indeed had little to do with Lee Der’s day-to-day running. 

The two shareholders in Lee Der Industrial were Hong Kong residents Chiu Kwei-Tsun and Cheung, each holding half of the company stock. Since Chiu was quite advanced in years, the company’s Mainland business had been given over to Cheung to run. So it was Cheung who was the real manager of Foshan Lee Der.  

And Cheung had no family. For many years he lived in the Nanhai district of Foshan, practically making the factory his home.  

The supplier  

Lee Der became a Mattel supplier in the late 1990s, making plastic toys for the U.S. giant. The manufacturing process was straightforward. Materials were plastic parts, adhesive, paint and thinner; the process involved spray-painting the parts, assembling the toy, and then packaging the finished product. Under Cheung’s management, Lee Der turned a healthy profit and provided employment for over one thousand employees. 

A departmental manager at the company told Caijing that Lee Der’s relationship with Mattel had been so good that in 1997 they had been awarded a certificate of merit by Mattel.  

Lee Der experienced a rapid expansion in the years between 1998 and 1999. In July 2000, Foshan Hengjing Toy Company Ltd., was created as a wholly-owned subsidiary of Hong Kong Lee Der Industrial. Some years later this company leased workshops at the former Foshan Shuaimeng Toy Factory as a production site, meaning that Lee Der Industrial was now running three manufacturing operations in Foshan. Their total number of employees was now over 2,500 and production last year was worth around 200 million. The output volume was by now the second largest of any toy-maker in Foshan, behind only Sino-American Toys.  

In mid-June 2006, Mattel’s testing labs in China began looking at samples of toys made by Foshan Lee Der and discovered some were not up to standard.  

The Sierra Club, a U.S. environmental organization, lobbied to take the lead paint-covered toys off the shelf. As public opinion in the United States rose against Mattel, a series of media exposes brought to light negligence by the company, its suppliers and in safety procedures.  

As the situation continued to escalate, local business inspection agencies, originally lax in their supervision, now started playing hardball and adopted measures that were tantamount to a shut-down of the toy-maker.  

On July 7, Lee Der factories began using paint products that met Mattel’s standards, but production had already been affected. Lee Der maintained intermittent production for some time before finally shutting down altogether in August. 

At first, Mattel refused to name their errant supplier. But under strong domestic public pressure in the United States Mattel finally issued a recall notice on August 2, announcing close to a million Lee Der-made toys were problematic, including those from their Sesame Street and Dora the Explorer product lines. Unlike past notices that only named the country of the recalled products, they made public the name of the company that had supplied them. 

According to a source, Lee Der had already begun to put its house in order after the recall notice by using a paint supplier approved by Mattel. Cheung and his management team were already working to get measures in place to win back Mattel’s trust. Even on the very day the recall announcement was made, Lee Der had taken a new order from Mattel. 

Despite this, China’s General Administration of Quality Supervision, Inspection and Quarantine announced a temporary ban on exports of the company’s products on August 9. 

A source close to Lee Der said that in the days after the scandal broke, the company submitted products for safety inspection on a number of occasions, but the local agency refused to inspect or approve them for distribution. This uncompromising policy of the shut-down became the final straw that broke Cheung to end his life in the factory.  

Xie Yuguang, the current chair of Lee Der’s board, told Caijing that there was HKD ＄16 million worth of these new products, quality-approved, in the factory already. But the export ban from the inspection authorities had removed any hope Lee Der may have had of saving the situation. 

“The factory could have withstood the losses from the recall. The boss had already made plans early in the year to have us work it out. But when we couldn’t get our product abroad, he couldn’t see any hope,” said a manager in the paint department to Caijing. 

On August 14, Mattel issued a new recall notice. This time it was for 1.9 million Chinese-made toys, the largest recall in the company’s history. Mattel said that in some products the paint used contained too much lead and in others there was a danger of children swallowing the small magnets used in the toys.  

According to an insider, checks on all China-made toys are ongoing in Mattel. What looked set to be a string of recall notices put Chinese toy manufacturers into a state of panic. 

The inspectors fail 

A number of insiders told Caijing that the weak link inspection comes from lack of implementation. Inspection agencies for the most part rely on toy makers voluntarily submitting test reports or at best conduct sample testing. Regular testing prior to export is not a widespread practice, they said. 

“The limitations of the inspection agency mean it can’t fulfill its appointed role, and the 1992 regulations are inadequate as a basis for effective oversight of toy export quality,” one toy maker said. 

The departmental precursor of the General Administration of Quality Supervision had issued the Administrative Measures for Quality Certification of Toys for Export in 1992, which are regulations that serve as the basis which export inspection agencies conduct their oversight of toy exports.  

These regulations stipulate that before a toy maker is issued an export license for a product, they must submit to “model tests” by inspection agencies. Any toy for export that has been in production for two years must be submitted for re-testing.  

“Customs only look at imports. Quality of toy exports basically relies on toy makers voluntarily checking and reporting their products,” another toy maker for the export trade told Caijing. 

“I’ve never heard of an outgoing shipment being stopped by customs in China and checked for heavy metals. Mostly it’s too much bother; all those toys, all those different models, you’d have to check every different color,” he said. 

Between January and November 2005, the U.S. Consumer Product Safety Commission issued 27 recalls of Chinese-made toys. Later that same year, China’s General Administration of Quality Supervision issued a Warning Notice concerning Improving Testing and Supervision of Imported and Exported Toys to tighten up the testing procedures.  

Later, the Nanhai branch of the Guangdong entry-exit inspectorate was found fail to implement these new regulations and was subjected to corrective reorganization for “not carrying out ‘model tests’ on toy products.” 

When Lee Der was named during the recent Mattel toy recall, the Guangdong quality inspection authorities found enormous pressure. 

A member of staff at the Nanhai branch said that up until August they had been conducting sample tests on toys for export. It was only after the Lee Der recall incident that local inspection agencies began to make a big show of compulsory testing. 

“Testing is a lot stricter now than it used to be,” he said.  

Cold day in Toyland 

When Lee Der employees are asked to talk about Cheung, most remember him with fondness. The business had grown steadily since its founding and was successful despite the trade tensions between China and the United States. Lee Der was planning of output to the value of 300 million yuan this year. No one was expecting the disaster that struck. 

“I’ve been in this business for twenty years now, and seen my share of product recalls. I never heard of a factory closing down because of one,” one paint supplier said.  

“This Lee Der incident certainly got made a big deal of.”   

Recalls of toys are on a sharp rise. Some 300,000 shipments of toys were exported from China to the United States in 2006. That same year the U.S. Consumer Product Safety Commission issued just under 40 recall notices. As of August 16, the Commission has already issued 35 recalls of Chinese-made toys. 

And it comes at a time when the American media are questioning the safety of products “Made in China.” Since spring this year, there have been recalls of pet food, toothpaste and cars among others products. The quality of Chinese goods is now in doubt all round the world. 

On August 8, an official with China’s General Administration of Quality Inspection announced that the Chinese government would be adopting a series of measures to further raise quality and safety standards of Chinese manufacturers and improve the system of safety controls on consumer goods. Yet the official also said that the brands and importers themselves bore a great deal of responsibility for the problems with the toys they sourced in China. 

New rules governing the inspection of toys for export have come into force as a result of this incident. In Nanhai, to address the Lee Der recall incident and the suicide of Cheung, the local inspection agency summoned all toy-makers in the district to a meeting on August 16 concerning testing and inspections in their industry. Participants also collectively studied the newly-drafted quality control guide for toymakers.     

The new rules now divide toys into eleven different types from four types in the 1993 rules. The new rules say the quality certification process for toys should include model testing, inspection and approval of manufacturing businesses, follow-up inspections and oversight of day-to-day operations. A toy quality export license is now only issued effective for three years from five years in the previous regulation. The rules now state that if a business has its export license withdrawn it must wait a year before reapplying. 

One of Lee Der’s suppliers said they still don’t know when the inspection agency will allow Lee Der to export again. By the fourth day after Cheung’s death, managers at Lee Der were already encouraging their thousand-strong workforce to begin looking elsewhere for employment.  

It was that same day Mattel announced its largest ever toy recall because the products in question contained small magnets that were liable to come loose and could easily be swallowed by a child. Over 18 million Chinese-made toys were recalled worldwide. But the fault lay in Mattel’s own design. At the same time a separate recall notice was issued for 436,000 of a different type of toy; this time because the Chinese manufacturer had used paint with too high a lead content. As with the Lee Der case, the name of the toy maker was made public. 

Management at Mattel said other recall notices were likely. 65 percent of toys sold by Mattel are made in China.  

Bob Eckert, CEO of Mattel, said that Mattel had already recovered from the losses suffered due to the Lee Der recall. 

The Guangdong Toy-makers Association with other business associations in the province is now trying to right the damage the recalls have done to the reputation of their industry. 

And Cheung Shu-hung, once a pillar of that industry, won’t be there to see whether or not they’ll succeed.