2007 was a bad year for China's toy industry, when foreign companies recalled millions of Chinese toys over safety concerns. At Asia's largest toy fair in Hong Kong, Chinese toy makers were trying to regain the confidence of buyers. Claudia Blume at VOA's Asia News Center in Hong Kong reports about how safety concerns hurt the toy industry.

Christmas is barely over, but the toy industry is already planning for next December.

At Hong Kong's Toys and Games Fair, a giant plastic Santa, made in China, shakes his hips to music.

At this show, Chinese and Hong Kong toy makers, most of whom produce in mainland China, are trying to rebuild their reputations. The industry was badly shaken in 2007, when foreign companies recalled millions of Chinese toys over safety concerns ranging from faulty parts to toxic paint.

The fair highlighted efforts by manufacturers and the Chinese government to improve toy quality.

"In the latter half of the previous year we have carried out a comprehensive examination of the overall system concerning the 1,323 enterprises in Guangdong. We have examined the manufacturing processes of more than 400 enterprises and about 200 of them were banned from exporting their products because we have identified small problems or bigger problems with their procedures," said Li Qingxiang, the deputy general director of the entry-exit inspection bureau of Guangdong province, home to most of China's toy factories.

Qi says the Guangdong government set up a new accreditation system for toy manufacturers, raised quality standards for toy exports and stepped up controls on the use of hazardous materials.

Manufacturers say those moves have raised their costs. "Now most of the customers are more concerned. They are asking for more certification and testing, so overall the expense is more," said Benny Kwong, the marketing director of Ontex, a Hong Kong company that makes educational toys in Guangdong.

He said they now spend about 30 percent more.

Despite the costs, some toy makers welcome the stricter rules.

Bob Yu, the marketing manager at Sun Fai Crafts and Toys, which produces toy cars and trains in Guangdong, says the new regulations have been good for his factory and others that produce higher-priced toys.

"Because before, the competition between factories is like very serious and some people just don't care about the quality at all so the price - there is no bottom price. There seems like no standard in the industry," he said. "I mean the stricter regulation, that can be a good thing to the factories that target the higher-end market because they have already invested in the hardware and the software in the factory and can use it effectively."

Tougher controls mean production takes longer, so buyers will have to place orders earlier than before. They also will be paying more for Chinese-made toys.

Toy manufacturers expect production costs to go up significantly this year. Lawrence Chan is chairman of the Hong Kong Toys Council. He says increased spending on quality control contributes to the higher expenses, but there are other factors.

"One thing is, in the last few years is the cost of raw materials, the most important part plastic raw material, continues to edge up, since 2004. At the same time, the manufacturing costs in China are also edging up continuously, for example due to oil prices going up, then the cost of power supply going up, the labor cost going up," he said.

Chan says other factors include the appreciation of China's currency, the renminbi, and higher tax costs.

Some Hong Kong and international toy companies have pondered moving production to countries with lower costs, such as Vietnam or India. But most toy makers and buyers say that because of China's decades of expertise and developed infrastructure, it will remain the world's toy factory.

"Eighty percent of the toys of the world, or maybe greater than 80 percent, are made in China. Where can they go in the world to make toys that have the facilities, the tool making, the experience, the workers, the model makers? This culture spent the last 25 years learning to become the world's toy maker," said Terence Davis, a visitor at the Hong Kong toy fair.

Although profits were smaller and costs were higher for toy makers because of last year's problems, sales of Chinese toys were little affected by the safety scares. State media reported in January that toy exports grew 20 percent in the first 10 months of 2007. Manufacturers, however, say they fear that without tough action now, sales could tumble in the coming months.