Dongguan, the province's leading toy base, had more than 4,000 factories and some 2,000 suppliers at its peak in 2001. However, the numbers began to drop about two years ago.

Rising prices for raw material and labor, along with stronger Chinese currency raised production costs by 25 percent for most companies, according to Li Zhuoming, head of the Guangdong Toy Association.

Apart from weakening demand, continued pressure from safety-related product recalls in 2007 and the heightened security threshold also contributed to the slowdown in sales, the customs administration said.

Large quality recalls by international toy giants, including Mattel Inc., also hurt the industry as Western countries raised standards to ensure toy safety.

The global financial crisis compounded the situation as consumption fell and fewer orders came in.

In Dongguan alone, about 20 percent of the small toy factories closed last year, according to Huangpu Customs.

Guangdong accounts for about 70 percent of the overall output in China, the world's largest producer and exporter of toys.

In 2008, Guangdong exported US$6.1 billion worth of toys, up 3.6 percent from 2007. The growth rate for 2008, however, was 19 percentage points smaller than that in the previous year.