THE Manley Group, Hong Kong's leading toy distributor and wholesaler, is contemplating selling its products directly to increasingly affluent mainlanders, by setting up a retail chain in China. However, in the shorter term, the company is eyeing the Hong Kong market. Plans to open about six retail outlets are already under way. With spectacular growth in its trading business, Manley chairman Samson Chan believed it was time to diversify into the retail sector in Hong Kong and China. In the 12 months up to June 30, this year, Manley's turnover stood at $950 million, and this is expected to rise more than 20 per cent in the current fiscal year. Named M-Mart, the first two stores will open by the end of the year in Shamshuipo and Ap Lei Chau, and will feature an average floor area of 10,000 to 12,000 square feet. Besides toys, the outlets will also display gift items, kitchenware and household goods. Mr Chan believed that China could provide a profitable wholesale and retail market in the long term. With the help of its production plant in Dongguan, and the well-established trading network, the retail outlets would be provided with a more cost-effective sourcing channel, he said. ''An 800,000 square feet manufacturing plant is already under construction in Shanghai, doubling the production at Manley's Dongguan factory,'' he said. Manley has a 90 per cent stake in the project giving it the right to sell a third of its products to the mainland market. Mr Chan expected a 10 per cent increase in the company's total turnover after the Shanghai plant began production in the middle of next year. He also said Manley planned to seek a listing on the stock exchange next year to raise capital for planned expansion in Hong Kong and China. Manley's major clients include Wall Mart and Toys R Us. The company aims to expand to toy markets in Europe and South America. It is also diversifying into footwear, leather bags and the garment trading business. The company recently invested $200 million to house its operation under one roof. The 180,000 sq ft headquarters in Cheung Sha Wan houses four subsidiaries. The headquarters also houses one of Asia's largest privately-owned sample centres, covering a total floor area of 40,000 sq ft and displaying more than 300,000 samples.