Toy manufacturers expect a 3 percent increase in the export value of toys this year, but more than 100 Hong Kong-owned factories on the mainland will cease operations because of rising costs, industry representatives said.

Increasing costs of labor, raw materials and more stringent quality inspections have made toy manufacturing more costly, representatives said.

The stepped-up quality inspections were a governmental response to the negative impact that recalled Chinese-made toys had on the market.

The manufacturers were dealt a severe blow when international brands, such as Mattel, had to recall their Chinese-made products. And in November, a Hong Kong-based JSSY Limited Company apologized for producing toys that contained a compound called 1,4-butanediol, which is also known as a "date rape" drug.

To restore lost confidence among overseas buyers, the Chinese toy industry will put on a festival and toy exhibition next week.

Hong Kong Toys Council executive committee member Yeung Chi-kong said the recalls caused a short-term impact on manufacturers.

He estimated that the total export value for the industry last year would reach HK$160 billion, representing a 3 percent increase from 2006. And he expects the value to increase by another 3 percent this year.

He said demand for Chinese-made toys will still increase despite the United States consumption market being affected by the sub-prime mortgage crisis.

Still, Hong Kong Toys Council Chairman Lawrence Chan expects several hundred of the 4,000 Hong Kong-owned factories on to mainland to shut down because, he estimates, operation costs will increase by 15 percent.

After the product recalls, manufacturers had to spend five to six times more money on quality control, Chan said.

"Some small-scale factories may find it difficult to survive," he said, adding that new labor contract laws could give rise to union disputes.

Chan said the industry needs to implement cost-saving measures, upgrade production and regain buyers' confidence to maintain its business.

The festival and exhibition next week - organized by the Federation of Hong Kong Industries, Hong Kong Toys Council, Toys Manufacturers' Association of Hong Kong, and the Trade Development Council - will attract 2,000 exhibitors from 36 locations.

A seminar on product safety is scheduled for January 9. Financial Secretary John Tsang and Guangdong Entry-Exit Inspection and Quarantine Bureau deputy director Li Qingxiang will attend the seminar.

Overseas buyers will also be invited to conduct site visits to the mainland toy factories.

(HK Edition 01/04/2008 page1)