A total of 3,631 toy exporters or 52.7 per cent of the industry's businesses shut down in the first seven months of 2008. They were mainly small-sized toy producers with an export value of less than $100,000.
Customs data showed there are still 3,507 toy exporters in business in the country.
From January to August, the country exported 35.29 billion yuan (5.17 billion U.S. dollars) worth of toys. The figure is up 1.3 per cent year on year, but the growth rate is 21.8 per cent slower than 2007.
According to the customs report, the American credit crisis is part of the reason exports to the US have dropped 5.2 per cent to $1.62 billion.
The General Administration of Customs also indicated small-sized toy producers inability to adapt to policy and export environment changes as one of the reasons for the decline.
Western countries raised quality standards and issued several recalls on Chinese toys in 2007, making the industry tougher as a result.
Vice chairman of the China Toy Association, Liang Mei said "Last year was the most difficult time in decades for the Chinese toy industry."
Liang continued to explain those standards forced domestic exporters to increase production costs, thus driving many companies out of the market.
Licences of 600 Chinese toy exporters were also revoked at the beginning of this year, according to figures provided by the General Administration of Quality Supervision, Inspection and Quarantine.