At the start of 2008, China had 8,610 companies that produced and exported toys, but by the end of the year, that number had declined by 49 percent to 4,388, the Beijing Times said, citing customs data.

Chinese toy exports grew marginally in 2008 by 1.8 percent to 8.6 billion dollars, but the overall figure masked a dramatically worsening performance towards the end of the year, according to the paper.

In November, toy exports declined by 8.6 percent from the same month a year earlier, while December marked a drop of 7.6 percent, the paper said.

China's southern province of Guangdong, which produces roughly half of the world's toys, has seen some large-scale factory closures.

Smart Union, a Hong Kong-listed maker of products for US giants Mattel and Disney, shut down in October last year, causing 7,000 people to lose their jobs.

China's toy industry had already been facing problems before the economic crisis struck.

Recalls around the world of dangerous Chinese-made toys severely tarnished the industry's reputation, while rising labour and land costs also caused problems.

Adding to the woes, India banned Chinese toy imports in late January for six months, triggering trade tensions between the world's two biggest emerging economies.

In reaction, Chinese officials are now deciding whether they should appeal to the WTO Dispute Settlement Body, state media said last week.

Overall, China's exports have also been hit hard by the crisis, with shipments abroad declining for the first time in seven years in November and December.

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