More than 20% of Chinese-made toys and baby clothes are below standard, the country's consumer watchdog has said.
Some Chinese-made toys have been banned in the EU
An investigation by the General Administration of Quality Supervision, Inspection and Quarantine found some were even dangerous, Beijing News said.
Industrial waste, including dirty carpet fluff, paper and used instant noodle packaging, was found in some toys, the newspaper reported.
Some baby clothes contained harmful chemicals, the investigation found.
"These fluffy toys with bacteria or even viruses in them could cause children to itch if they touch them for a short time, or even cause disease over the long term," Beijing News said.
It said some toys had parts which could be broken off and swallowed.
China is the world's largest exporter of toys.
The US and the European Union - which have safety standards regulations - have complained about the quality of Chinese-made toys.
About half of all goods withdrawn from sale in the EU in 2006 were Chinese, according to figures from the European Commission.
China's state news agency, Xinhua, has reported that China will ban the sale of toys that fail to pass a national compulsory safety certification beginning from 1 June.
Toys that "could have a direct effect on the safety of babies and children" will have to bear the mark CCC (China Compulsory Certification) before they can be sold in China, according to a statement issued by the country's consumer watchdog.
China has been facing persistent consumer and food safety problems.
In 2004, China punished 97 government officials over the sale of fake milk powder with no nutritional value that caused the deaths of at least 13 babies in the eastern province of Anhui.
In recent months there have been complaints in the US about pet deaths from tainted wheat gluten and rice protein imported from China.