Price Storms in Air-conditioner Market Brewing

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Last updated at: (Beijing Time) Monday, March 25, 2002

Price Storms in Air-conditioner Market Brewing

A severe price war in China's air-conditioner industry is inevitable this year as major manufacturers all plan to increase their production, experts said.

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Severe price war inevitable

A severe price war in China's air-conditioner industry is inevitable this year as major manufacturers all plan to increase their production, experts said.

Oversupply--the biggest challenge

Jiang Feng, deputy secretary-general of the China Household Electric Appliance Association, said oversupply will be the biggest challenge facing Chinese air-conditioner makers this year.

"The gap between demand and supply will widen as many large makers are ambitiously seeking to increase their production and grab greater market share, coupled with stocks left by the industry's quick expansion over past years,'' he said.

The sector's output has increased by 24 per cent on average since 1997 and reached 23.13 million units last year, accounting for half the world's production.

Some 22.67 million units were sold last year and the stocks of the industry amounted to 2.26 million by the end of 2001.

Some 24.5 million air-conditioners are expected to be marketed this year.

It seems price will be the most effective weapon for makers in competition following the example set by their counterparts in other home electric appliances industries, Jiang said.

Price reductions of foreign-branded products

Price reductions of foreign-branded products resulting from tariff cuts will also force domestic makers to follow a more active price strategy in a bid to make up disadvantages in technologies and models, he added.

Responses of air-conditioner makers and sellers

Guomei

One of China's largest retailers of home electric appliances, Guomei, slashed the prices of its air-conditioners in its chain stores nationally last Saturday.

This price cut involved more than 50 models of 10 brands and it ranged from 400 yuan to 1,000 yuan (US$48 to US$120).

Galanz

Just two weeks ago, Galanz, China's largest microwave-stove maker and a newcomer to the air-conditioner sector, launched an average 30 per cent price cut on 20 air-conditioner models.

Yu Xiaochang, deputy general manager of Galanz, said the company lowered prices because production capacity has been expanded greatly since Galanz entered the industry last year.

"We plan to produce 1.8 million units of air-conditioners this year compared with 500,000 last year,'' Yu said.

Other companies

Other companies like Shinco, Rowa and Aux also said they will increase production this year to surpass 1 million units.

Haier

Gao Yicheng, manager of Haier Group's sales department, said Haier has not decided whether to lower prices of its air-conditioners yet but he considered 2002 to be a decisive year for national brands.

"It is something like a final war similar to that experienced by the washing machine industry in 1995. This year's results will decide each company's position in the industry,'' Gao said.

He predicted more than 100 small makers will collapse in the face of fierce competition this year.

More than 400 air-conditioner makers are crowded in the field offering similar medium- and low-end products, which has led to the current oversupply.

"Half of the market will be controlled by the top 3-4 manufacturers,'' Gao said.

The top three air-conditioner makers Gree, Midea and Haier last year had a total market share of 39 per cent.

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