By John Ruwitch

HONG KONG, Aug 17 (Reuters) - Following the massive recall of China-made toys by Mattel Inc <MAT.N>, Hong Kong toymakers who now dominate China's toy production said the episode had been "politicised" and could force some toymakers out of business.

"I do think there will be companies closing down ... but it won't be like the Asian financial crisis where half the companies will be wiped out," said Ivan Ting, the executive director of Kader Holdings, one of Hong Kong's largest toymakers with factories in China which count industry goliaths like Hasbro <HAS.N> among its clients.

But longer term, Ting said the majority of Hong Kong toymakers would be unaffected by the scandal and might benefit by being forced to better manage their supply chains.

Hong Kong's pro-Beijing Wen Wei Po newspaper reported on Friday that some Hong Kong factory owners expected a "wave of shutdowns" of factories from the recall, which the report described as a "malicious" act on the part of the U.S.

China has said it would send officials to the U.S. this month to cool concerns about its products.

The Federation of Hong Kong Industries which represents toymakers on the influential Hong Kong Toys Council said there was a degree of politicisation of the recalls, following other scandals that had tarnished the "made in China" name for products like pet food and toothpaste.

"It's been politicised," said Clement Chen, the Federation Chairman, who added most of China's toy exports made in Hong Kong-owned factories were safe and that those with problems were "isolated cases".

In the southern Chinese city of Guangzhou -- at the massive Yide road toy wholesale market -- some toy merchants said the recall was one of a number of factors now squeezing the industry including rising labour and raw material costs. But for now, demand for toys was still outstripping supply in the world's largest toy production hub of the Pearl River Delta.

"The biggest problem is competition," said a man surnamed Li who is a representative for a Hong Kong-based toymaker. "It's just saturated and there are new companies coming in," he added, at a shop in a wholesale market where he peddles numerous toys including remote-controlled helicopters, some exported to Europe and the U.S.

U.S. Sen. Charles Schumer, a New York Democrat and strident critic of Chinese trade practices has called on China to open up toy factories to U.S. inspections. But Chen said "stepped up and tightened" inspections were already in place.

"The (Chinese) authorities now are very nervous ... It takes a few days to a week just to get inspected and get approval from the authorities before you can launch a shipment," said Chen.

(Additional reporting by James Pomfret)

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