Turnover dropped 19.41 per cent to HK$909 million from HK$1.13 billion.

Tens of thousands of toymakers on the mainland are struggling to survive amid rising labour and raw materials costs, as well as growing consumer concerns about safety.

With the United States tipped to fall into a recession this year, the worst may not be over.

Mattel, the world's largest toymaker, last year recalled about 21 million mainland-made toys because of excessive levels of lead in paint used on the products.

It also made a voluntary recall of Playmates Toys products in the US, including one million Doggie Daycare play sets, 680,000 Barbie tanning play sets and 350,000 Batman and other action figures that all contained detachable magnetic parts.

'US sales were significantly affected by concerns over the widely publicised industry recalls,' said Playmates Toys president Lou Novak. This was 'despite the fact Playmates Toys has maintained an excellent safety record for over four decades'.

Revenue from the US market last year dropped 28.85 per cent from HK$847.36 million, or 66.8 per cent of total sales. Gross profit declined 24.97 per cent to HK$406 million from HK$541 million a year earlier.

Mr Novak said the industry was slowly restoring consumer confidence in its products, but admitted the safety concerns would not disappear overnight.

Mr Novak said the company would design its toys differently to control costs and would raise selling prices.

'We will use less packaging and plastics,' he said. But he conceded that Playmates Toys could not entirely combat inflationary pressures on the mainland.

Lou Qijin, deputy chairman of the toy manufacturer's association in Yiwu, Zhejiang province, one of three mainland toy production centres, said the entire industry was facing unprecedented difficulties.

'From the second half of last year until now, we have suffered one blow after another - recalls, stringent quality checks by the government, inflationary costs and weakening demand for toys,' Mr Lou said. 'The worst thing is that we can't raise selling prices.'

He said industry players in Yiwu, which mainly made toys for other companies, had reached a consensus that the key to survival was to climb up the value chain through innovation and by diversifying into domestic markets.

'We need to be stronger and build up our brands,' Mr Lou said. 'And the domestic market is the best place to nurture our own brands.'

Eleven of the city's 400 toy manufacturers have donated more than 3 million yuan (HK$3.29 million) to set up a toy research and development centre in alliance with Zhejiang university.

Gloomy outlook

Manufacturers struggle to survive rising labour and raw materials costs

Turnover for last year was down 19.41%