Even Chinese plastics converters are now having to be content with growth rates below the fabulous levels to which they have become accustomed recently. As polymer prices have risen considerably in Asia, too, Chinese converters – like their colleagues throughout the world – are being plagued with cost increases of up to 40%. For their customers in the toy industry, the "gold rush" appears to have climaxed, as costs begin to rise and market realities in China become more similar to those elsewhere.

Toymakers have a profit margin of only 5%. Due to fierce market competition, they usually have to absorb most of the higher materials cost themselves. As contracts with their customers are usually concluded for a long period, sometimes with prices fixed for one year, they easily can come out on the wrong end of the price cycle. Consequently, many small and medium-sized plastic toy manufacturers in China are forced to reject large orders. Making matters worse, wages of workers in southern China´s toy industry have risen by 20% over the past two years. Since 2002, some 10,000 companies have gone under, due to higher production costs and crumbling demand.

As if this were not enough, the average Chinese toymaker is now suddenly being confronted with previously unknown quality regulations. Nearly all customer countries, in particular in Europe (where the EU directives WEEE and RoHS soon will make producers responsible for the cost of recycling electronic waste), but also the US, Japan and Russia, are in the process of introducing stricter regulations that will force manufacturers to make cost-intensive changes to their materials and technology.

Even the domestic market will not remain unregulated. This year, the "China Compulsory Certification" (3C) will become obligatory for toys and necessitate new, costly standard tests. The pressure will be most severe for manufacturers of cheap toys. Chinese market observers therefore consider a consolidation and restructuring of this industry to be inevitable in the near future.