Shanghai - As children around the globe unwrap Christmas presents with "made in China" labels, some toymakers here are turning their attention to a new and potentially lucrative market - their own.
For nearly 20 years, China's 20 000 domestic factories have served as the elves of Santa Claus' workshop, exporting a remarkable 70% of the world's toys, worth nearly $16bn last year.
But demand from China's increasingly flush middle class is creating a home market that is expected to grow at 40% a year and total about $12.5bn by 2010, according to consulting group chinaIRN.com.
'Toys as part of development recognissed'
"As income levels have risen, families have recognised the benefit of toys in a child's healthy development, sparking a swift rise" in the growth of the domestic market, it said in a 2006 report.
The potential for a toy boom at home comes as no surprise to Haixin Group, China's only listed toy group, which began adjusting its domestic marketing strategy for its four companies a couple of years ago.
"As competition has become fiercer, the profit margins in exports have fallen more," Ma Junxian, vice general manager of Haixin Group subsidiary Shanghai Haixin Toys, told AFP in an interview at company headquarters.
"But the domestic market had been expanding by the day as consumer purchasing power has increased, so our strategic focus has begun to shift from exports to the home market," she said.
"I'm very optimistic about the home market."
As a group company, Haixin still earns 75% of its revenues from exports. But Ma has good reason to believe that her subsidiary is headed in the right direction.
Chinese toy firms ring up profits
The country's biggest producer of high-quality stuffed toys, Shanghai Haixin, last year rang up 80m yuan ($10m) in sales, 75% of which were in China.
At its two factories in the Shanghai suburbs, Haixin's nearly 2 000 workers sew up under licence such Warner Brothers cartoon favourites as Porky Pig and Korea's Dori and Coco.
The company is also in the vanguard of brand development, with its Global Buddies line.
On New Year's Day, Haixin will also leap into retailing with its first own-branded store in one of Shanghai's biggest malls, going head to head with global retailing chain Toys 'R' Us, which just opened in the same location a week ago.
Shanghai Haixin's expansion comes as leading foreign groups like Denmark's Lego and US giant Mattel seek a piece of the action in China.
Overseas toy groups target China
According to Shanghai Toy Industry Association, overseas toy groups are targeting a sizeable population of about 300m children under the age of 14, of which about 80% live in major urban centres.
The association said that while the average Chinese consumer only spends about 100 yuan on a toy, which puts more expensive foreign items out of the reach of many parents in China, demand is growing.
Foreign toy producers, which already account for $100m worth of China's toy market, are seeing sales grow by around 3% a year, it said.
While that bodes well for the increasingly wealthy Chinese consumer, the country's fragmented toy manufacturers need to get cracking if they are to avoid being left behind, industry experts say.
"Many companies don't have good designers and they simply copy the foreign brand's style, which they feel is okay as long as they fill their orders," said Haixin's Ma.
Liang Mei, secretary-general of China Toy Association based in Beijing, agreed that domestic companies had to do more than just learn from foreign brand designs.
"We need to innovate more of our products and have our own brands. That is the future trend for the whole industry."