Up to 80% of the world's toys are made in China - often by children. But there are beautiful and affordable alternatives

With the festive countdown underway, the Toy Retailers Association has just released its "dream toys" list of this year's must-have Christmas gifts for kids, which they say won't break the bank

However, according to research recently carried out by Ethical Consumer magazine where I work, the price of many of these toys fail to reflect the hidden environmental and social costs of their production.

Take Hasbro. Its Transformer toys are made with PVC, a plastic that has come under fire from campaigners for its alleged carcinogenic properties and the dangerous byproducts, such as mercury, produced during its manufacture.

The campaigning organisation Centre for Health Environment and Justice says of PVC: "It is useless without the addition of a plethora of toxic additives including phthalates. These chemicals can evaporate or leach out of PVC, posing risks to children."

Hasbro defends the use of PVC, saying it has "carefully considered the science and believe that toys made from PVC and softened with phthalates pose no risk to children".

The EU attempted to remedy the situation in 2005 when it banned certain additives, but many still remain. In contrast to Hasbro, Lego – also on its Christmas list – banned the use of PVC in its products in 2003.

Hasbro has also been challenged over human rights abuses in its Chinese supplier factories. Up to 80% of the world's toys are made in China, where human rights are often overlooked. The report "Nightmare on Sesame Street" by the US-based National Labour Committee last year highlighted many of these problems.

It found that in the Kai Da factory in Shenzhen city, which supplies Hasbro, a hundred 16-year-old high-school children and several younger children were working. Conditions in the factory were said to be dangerous, with potentially toxic solvents and paints routinely handled by workers with only rudimentary protective gear. Shifts were allegedly routinely over 12 hours long, seven days a week, with no days off for many months, plus mandatory 19- and 23-hour shifts at busy times such as the pre-Christmas rush. Workers were also reported to be docked wages for room and board, leaving them receiving only 28 cents an hour. Little wonder, then, that Hasbro toys won't break the bank.

There are ethical alternatives. German manufacturer Holz Toys only uses European factories where labour rights are guaranteed while all its wooden products come from FSC-certified and sustainable forests. Maya Organic, which also produces wooden toys, is an umbrella organisation providing training, marketing and other support to a range of small worker-owned cooperatives in Karnataka, India and was established with the aim of alleviating poverty and empowering workers. Its toys are made from local wood, which is harvested by cutting branches rather than felling whole trees. Distributors include Greenshop.co.uk and Littlegreenagels.com.

Not all ethical toys are made of wood. The market has recently grown and a much wider range is now available – everything from recycled board games to science kits with an environmental theme can be found online.

The price of the toys produced by Holz, Maya Organic and other ethically-minded companies better reflects the true environmental and social costs of production. A quick glance at their websites reveals that their toys won't break the bank either.

• Tim Hunt is a researcher and writer at Ethical Consumer magazine