A new EU directive is expected to affect US$56 billion worth of annual exports from more than 5,000 Chinese home appliance companies.

Small and medium-sized companies, which account for 30 per cent of China's electronic product lines and already face pressure from multinational companies and larger domestic enterprises, are expected to feel the directive's effects first, warn experts.

At a forum themed on countermeasures to the EU's Restriction of Hazardous Substances (RoHS) directive held over the weekend in Qingdao in East China's Shangdong Province, Huang Jianzhong, a senior official from the Ministry of Information Industry (MII), said Chinese manufacturers needed to increase production standards to seize a bigger share of the world market.

"Safe, healthy and environmentally-friendly have become key qualities in the home appliance market," he said.

"As Chinese brands are gradually recognized on the world market, we ought to further optimize our production to take a bigger stake."

Under the new EU directive, which took effect on July 1, electronic products containing six hazardous substances will not be allowed on the EU market.

The regulation allows a maximum concentration of only 0.1 per cent by weight of environmentally hazardous substances such as lead and mercury, which are necessary in the production of electrical products.

Guangzhou AC Panasonic recently announced that a quarter of its 208 suppliers, which provide a total of 7,268 different assembly parts, would be unable to meet the standards imposed by the EU directives. Unless they can upgrade their technologies in time, these suppliers stand to lose their market share.

"Manufacturers have to both upgrade their own production equipment and ensure the new standards are met by their parts suppliers, which will bring an average rise of 10 per cent in production costs," said Liu Wanshan, an official with the State Administration of Quality Supervision, Inspection and Quarantine.

The increased costs will bring many challenges to Chinese companies, which largely owe their success on the international market to low-price strategies.

"Chinese enterprises must substitute these substances with environmentally friendly materials in their exports to the EU," Liu added.

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