Smaller manufacturers are struggling to ensure their goods meet the required standards, due to a lack of knowledge of procedures and staff training.
The report was commissioned last autumn after a wave of product recalls of Chinese-made toys in Europe and the US.
Brussels said there were still "too many" dangerous toys on sale in Europe. China manufactures more than 85% of toys sold in Europe.
It makes 50 recommendations to tighten up safety procedures, including warnings about the dangers posed by magnets in toys.
The Commission said its research had found that the Chinese authorities had made "significant progress" in stiffening testing procedures and tackling abuses of the system.
But smaller operators remained a concern, it said, as they had less power over suppliers and their controls were not so effective.
In general, it added, Chinese firms needed to make safety compliance part of their business culture and not just rely on meeting basic government export control requirements.
Article Link (BBC)