On a recent morning in a Hong Kong industrial building a technician set about torturing a Fisher Price Crawl Along Musical Ball. He drop-tested the toy, designed for infants more than six months old, on three separate floor surfaces.

Each surface, of varying material and hardness, complies with safety standards set by the US, the European Union, Australia and New Zealand. Further complicating matters for the man from Intertek, the UK-based quality control firm, each toy safety standard dictates the ball be dropped a unique number of times from a unique height.

After being slammed six times on the American-standard floor, the musical ball stops chiming. But that does not concern the technician. If it survives 10 drops without any shards of plastic that a baby could swallow breaking free, the toy will pass muster. For US consumers at least.

The global alphabet soup of different standards – ASTM in the US and EN71 in the EU – is just one of the reasons these are tough times to be an elf.

Chinese toy manufacturers are contending with rising costs, the spectre of a US recession and diminished consumer confidence after several high-profile product safety recalls last year, according to executives attending an industry fair in Hong Kong this week.

The Hong Kong Toys & Games Fair is the first of three large annual events – followed next month by fairs in Nuremberg and New York – where toy buyers and retailers determine orders for the year. And, from its start in Hong Kong, this year is shaping up as a difficult one for the industry.

For the Chinese toy industry, much of which is run out of Hong Kong, “these are the worst conditions since Sars [the 2003 disease outbreak that killed nearly 300 people in Hong Kong and scared many buyers away],” according to Gary Wong, a sales executive at toy manufacturer Trystart Industrial, who has been in the industry for 16 years.

“I don’t think the toy safety scare will have a long-term impact unless there is another string of recalls.

“But costs increased by more than 10 per cent last year. A lot of factories have had to shut down,” he says.

Imported plastics are more expensive because of high oil prices, while tax rebates for exports have been reduced recently. Wages too have risen sharply, while the renminbi has appreciated about 12 per cent since 2005.

At Yangzhou Arron Toys, which employs 1,000 workers in the Yangtze River Delta, “labour costs have gone up 50 per cent and our prices at least 20 per cent” says Linda Ren, sales manager for the company.

In China “labour rates are rising every day” and adding to rising taxes, says Alan Hassenfeld, chairman of the Hasbro toy company. “Some of it is infinitesimal but …everything hit at one time.”

An executive at a large international retail chain, who asked that neither he nor his employer be identified, says his company has been “getting away with 6-8 per cent price increases [from suppliers], but 15 per cent is not uncommon”. Extra product safety testing is also adding to companies’ cost burden and, more importantly, lengthening delivery cycles.

“[Testing] is not a huge cost component,” says Mr Hassenfeld. “But all the retailers want to double- and triple-check the tests, and are putting in their own procedure .. Just-in-time [delivery] might become just-in-time plus a little bit.”

Despite these pressures, China retains many advantages as a toy manufacturing base.

“Even with all these other things going on, it’s still very cost-competitive,” says Mr Hassenfeld. “And the reliability of [products made in China] can’t be beat so long as you’re not ‘nickel-ing and dime-ing’ people.”

Manufacturers also say that demand at this week’s fair appeared strong despite last year’s product safety scares and lacklustre Christmas retail sales.

“We were very concerned when we heard news that Christmas sales were the worst in five years,” says Lawrence Chan, chairman of the Hong Kong Toys Council.

“But toy sales did not decline and instead rose by three per cent. In that respect, the recalls did not really affect toys.”

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