GUANGZHOU - The new European directive on toy safety came into force Wednesday and has caused concern for many Chinese manufacturers over rising costs and shrinking profits.

Two toy sellers try out talking dolls at a trade center in Yiwu, East China's Zhejiang province, July 17, 2011. [Photo/Xinhua]

The European Union's Council Directive 2009/48/EC on the safety of toys limits the use of 19 types of heavy metals, while only eight types were restricted by the previous regulations.

Seen by many toy makers as the "toughest regulation" so far, the new regulation also forbids the use of 55 allergenic fragrances and limits the use of 11 others for the first time.

As the biggest toy exporter, China's export value takes up 70 percent of the global trade. China's toy exports to the EU was 2.2 billion US dollars in 2010, taking up one fourth of China's exports and 87 percent of the EU's imports.

Many Chinese manufacturers believe that the implementation of the new directive will push up their costs and squeeze their profit margins.

"On toy testing alone, the new regulation includes 57 articles while previously there were only 16, so we have to spend more on new testing machines," said Wu Difei, sales manager of the Guangdong Meiye Electronic Technology Co., which has been in the export business for years.

Wu added that higher investments in toy packaging, materials and environmental protection will elevate the costs at least 15 percent.

Wen Suihong, chief editor of the monthly magazine Toy Industry, said China's toy industry will enter a difficult patch since profit margins have already been squeezed by surging costs.

Statistics from the Ministry of Commerce show that despite the 35 percent year-on-year increase in toy export volume between January and May 2011, the value rose only 13.2 percent, with each toy sold at 0.48 U.S. dollar on average, down 16.2 percent year-on-year.

"The new regulation is like adding insult to injury, since the factories have already been plagued by problems such as power and labor shortages," Wu said.

The higher threshold to the EU market will exert an "extremely negative" impact on the exports of lower-end toys, said Feng Fei of the Development Research Center of the State Council.

"It is also a tactic often used by developed countries to undermine the competitiveness of the products from emerging market countries,"  Feng added.

On the other hand, the tougher regulation may be a blessing in disguise since it will force Chinese toy makers to climb up the value ladder.

Wu said that his company will rely on continuous research and development to produce new products that meet the requirements of the new regulation.

Wu added that he would not worry too much since his company targets the middle and higher ends of the market.

After over 30 years since China's reform and opening-up, Chinese companies have developed their adaptation capacity to a changing global market, Feng said.

"We consider the new regulation as an opportunity for backward toy makers to improve their competitiveness," said Cai Jiechen, deputy secretary general of Guangdong Toy Association.

Even with the higher threshold, there is no other country that has a production capacity that can be comparable to China, Cai said.

China's primary toy exporters have attended the training provided by the EU since 2009, which aims to prepare manufacturers for the new regulation.