“We thought it was pure luck that allowed us to continue a manufacturing model from 30 years ago,” the 28-year-old Sze said. “Then the trade war got our customers worrying, and that forced us towards automation.”

The choice of the Sze family and Eastcolight, having opened their first factory in China in the sleepy town best known for its pineapple farms in 2000, sheds light on how Trump’s trade war is transforming the manufacturing sector in China.

China’s National Development and Reform Commission (NDRC), the state economic planning agency, said in a statement in December that “a small group” of businesses have relocated operations from China to avoid “impacts from trade disputes”, but that most businesses have decided to stay due to China’s developed industrial system and deep talent pool.

For the Sze family, the choice to remain in China was by default. Johnny Sze Chun-hong’s father, Andy Sze Wei-hung, who co-founded Eastcolight with his wife in 1991, had been a high school teacher in the Chinese province of Fujian, and his teaching experiences led him to realise the importance of a good education. The desire to stir students’ interest to learn was one motivation for him to create toys that could “bring education into play”, according to his son.

Like many investors from Hong Kong and Taiwan, Sze senior built a factory in the Pearl River Delta in 2000, a year before China’s entry into the World Trade Organisation. Blessed by China’s cheap labour and access to the global markets, Eastcolight’s business quickly expanded to 500 production items, sold to 110 countries across the world.

But unlike most Chinese assembly manufacturers that made semi-finished products for another company, Sze’s plant manufactured toys under its own brand and supply chain, from material making, to moulding, to painting and packaging. At the same time, the previous factory provided dormitory rooms for its workers, with 12 employees crammed into each room without hot water or air conditioning.

These conditions, though, are no longer appealing to China’s young generation of migrant workers, and with the monthly average salary in Guangdong having increased by about 700 per cent in the last two decades, many factories have been forced to turn to robotics and smart production. To address this, Eastcolight have also upgraded their facilities for its employees within its new factory.

“There is no country like China that can give you such a hard working labour force,” Sze said. “We had considered relocating the factory to southeast Asian countries, but they do not have a population that is as big so their wages could catch up very easily. Their production isn’t as efficient.”

China’s increasing income levels and loosening of family planning policies also persuaded Sze to stay closer to a substantial toy market. Augmented reality toys that combine mobile phone applications with physical toys are particularly receptive to Chinese customers, according to Sze.

As of 2017, there were around 233 million children under the age of 14 in China, which was the same year it began the full implementation of its two-child policy.

“China is very receptive to application toys. We never had a client anywhere in the world that could sell 5,000 of our units in just two days. This is really an amazing trend,” Sze added.

According to data from market research company, Euromonitor, the total retail sales of toys and games in China soared from 135.6 billion yuan (US$19.5 billion) in 2013 to 324.1 billion yuan (US$46.5 billion) in 2018, an average annual growth rate of 19.1 per cent.

In addition, China can now make almost every industrial product at a reasonable cost, making it an ideal place to assemble and manufacture goods, the agency added.

Adran Chong Pak-yan, the chief executive at Soap Studio Company, also decided to continue making his collectible action figures in China despite the trade war, even though the US is a key market. With licences from American movie companies such as Disney, he sells Marvel superheroes and Looney Tunes characters at prices ranging between HK$200 (US$26) to HK$5,000 (US$640) per item.

“Toy exports from China will demand a higher quality, which cannot be made in Southeast Asia,” Chong said. “We didn’t move our production because we are making medium to high-end products.”

Louis Chan, assistant principal economist at the Hong Kong Trade Development Council, remains cautious of the geopolitical uncertainty, predicting a rather weak export performance in Hong Kong’s toy sector through the beginning of 2020 after it recorded an almost 30 per cent drop in the first 10 months of 2019.

“There is a positive news from the trade war, but the question is if this can immediately brighten the outlook,” Chan said.