Shareholding reform key to Changhong's survival
By Lu Haoting (China Business Weekly)
Updated: 2004-07-20 11:25

Changhong, China's largest TV maker, is doing everything possible to live up to its name -- which means bright rainbow in English.

The TV titan must speed up reform of its shareholding system and focus on technology innovation if it is going to survive the cut-throat competition, experts suggest.

Sichuan Changhong Electric Co adjusted its leading group on July 8, when its board chairman, Ni Runfeng, 60, resigned and Zhao Yong, 41, moved into the job.

Company spokesman Liu Haizhong last week refused to comment on Ni's departure, and declined to comment on Changhong's future business strategies.

But he confirmed Zhao had taken over as board chairman.

"Adjusting the pace of reform, in accordance with changes in the market, is the most urgent task for Changhong," said Luo Zhongwei, a senior researcher with the Chinese Academy of Social Sciences' Institute of Industrial Economics.

"The State's stakes should be reduced in Changhong if the TV maker wants to achieve a breakthrough in business growth," Luo said.

"Otherwise, Changhong will find it hard to adopt other reforms and act as swiftly as its competitors, whose shareholders have successfully diversified."

The State holds 53.6 per cent of the shares in Changhong.

In comparison, the State holds 25.22 per cent of the shares in Guangdong-based TCL Corp, which reformed its shareholding system in 2002.

Last year, Changhong, with a domestic market share of 16.04 per cent, lost its No 1 position to Konka Group, which grabbed 17.04 per cent of the Chinese market, indicated a survey by Sino-Market Research Ltd.

TV: Technology upgrade crucial

Shenzhen-based Konka was China's first Sino-foreign electronics joint venture.

Changhong's output value, in the year's first half, fell 17.6 per cent year-on-year, indicate Mianyang municipal government's statistics.

Sichuan Province's exports plunged from US$91.78 million last July to US$9.7 million in January, due to the US dumping investigation, indicate customs figures.

Changhong is Sichuan's major TV producer.

Changhong's exports this year will continue feeling the pinch, due largely to the 26.37-per-cent import duty imposed by the US Department of Commerce (DOC). The United States is Changhong's largest export market.

Changhong's rivals got off easy in comparison. The DOC imposed a 21.25-per-cent duty on TCL's televisions. A 9.69-per-cent duty was imposed on Konka, and a 4.35-per-cent duty was imposed on Xiamen Overseas Chinese Electronic Co (Xoceco).

Sichuan's State-owned Assets Supervision and Administration Commission (SSASAC) announced the adjustment in Changhong's leadership.

SSASAC said Ni was leaving his post because he had reached the retirement age. Ni, during the same announcement, was appointed a consultant to the provincial government.

However, some media reported Ni had been removed because Changhong's business growth had been slower than expected in recent years.

SSASAC officials were not immediately available for comment.

"The reform of Changhong's shareholding system cannot be achieved by any single person, no matter who is the board's chairman," said Lu Renbo, a researcher with the State Council's Development and Research Centre.

"The government plays a decisive role. The pace and effect of the reform depends on what attitudes the government holds and how clear the rules are."

Ni in 1999 began reforming Changhong's shareholding system. He tried to reduce the amount of shares held by the State to 20 per cent or less.

But the plan was shelved after the nation suspended the State share sell-off plan in 2002.

Changhong, located in Mianyang, which is in the hinterland of Sichuan Province, may encounter more difficulties, compared with its rivals, as it moves towards a more diverse shareholding system, Luo said.

Changhong's rivals are based in China's southeast coastal areas, where the private-sector economy is relatively mature, Luo said.

"It takes time for the government, worried about the possible loss of State assets, to take a giant step," Luo said.

"If the government is too concerned about the growth of Changhong, it will be hard for it to loosen control over the company."

Changhong's taxes account for more than 50 per cent of Mianyang's annual fiscal revenues. The TV conglomerate, which has a brand value worth 26.6 billion yuan (US$3.20 billion), has become a pillar of the local economy.

"Besides internal system reform, technology innovation should also top the agenda of Changhong's new leadership," Lu said.

"More than 50 per cent of the TV sets made in China will be exported beginning next year, based on China's present annual output capacity of 50 million TV sets and the domestic market demand of only 30 million sets," Lu said.

Upgrading the industrial structure and grasping more core technologies is the best way to counter other nations' trade barriers, Lu said.

China's TV manufacturers are on the verge of being squeezed out of the US market, as the DOC slapped dumping duties on China-made colour TV sets that have a cathode-ray tube (CRT) and are 21 inches or larger.

High-end products -- such as liquid crystal TVs, plasma TVs and digital TVs -- are not included in the US duties.

Zhao, who has a doctor's degree in mechanical engineering from Tsinghua University, is reportedly tech savvy.

Ni, on the other hand, prefers price cuts.

"Without Ni's guidance, Changhong would not have grown so fast from a military factory into China's largest TV maker," Luo said.

"But for today's Changhong, cutting prices is not enough."

Changhong initiated a price war in 1996, and repeated that tactic several times over the next seven years. That drove up Changhong's market share and pushed down national prices of TV sets. It also transformed, in China, the TV from a luxury product into a household appliance that ordinary families could afford.

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