Air-conditioning market hotting up
By Zhang Lu (China Daily)
Updated: 2005-09-22 08:55

China's intensely competitive air-conditioner market is expected to wave goodbye to even more brands next year, industry insiders say.

"There will be around 25 brands, with a certain sales scale, left in the domestic air-conditioner market in 2006," said Cai Ying, an official from the Information Resource Development Department of the State Information Centre (SIC).

Air-conditioner manufacturers are facing huge market pressure, due to rising production and marketing costs, the implementation of new energy efficiency standards and shrinking profits, he said.

At present there are 63 air-conditioner brands in China's major urban markets, with 33 having disappeared in the past year, according to a report released by Cai's office yesterday.

The SIC report is based on statistics from 750 retail outlets in 106 major cities around the country .

There were 400 brands on the market in 2000. The number reduced dramatically in 2003 to 150.

"Big brands control the domestic market so small manufacturers will have difficulty surviving in next year's market," Cai said.

The top 10 brands dominated with 74.59 per cent of the market share, while small firms fought it out for the remainder.

Haier, Midea and Gree remained the top three brands, enjoying a market share of 16.22 per cent, 13.21 per cent and 9.3 per cent respectively.

Foreign and joint venture brands had 20.75 per cent of the market this year, compared with 26.77 per cent in 2004.

At the lower end of the market, the 29 smallest brands each had less than 0.01 per cent of the total market.

"Competition in the market will enter a new stage," Cai said.

He added that as many small manufacturers will be forced out of the market as growth potential decreases, the competition would further heat up among big brands in the following year.

The report said that air-conditioner sales volume in the year ending July 2005, rose by 9.45 per cent, much lower than the 18.81 per cent growth rate of 2004.

It is predicted that total domestic market sales for 2006 would be between 24 and 27 million units, a growth of 5 per cent.

"Due to fierce competition, several big air-conditioner brands will emerge in the next few years," Cai said.

"Big brands like Haier will focus more on technological improvements, energy efficiency and health issues, rather than price wars," Cai predicted.

The average retail price for air conditioners was 5 per cent higher in 2005 than the previous year, lower than manufacturers expectations.

Statistics also show products promoted with a low price strategy did not have the best results.

"Consumers are getting more rational, they pay more attention to product functions," Cai said.

Domestic air conditioner makers compete to develop new products to lure customers.

During the first half of this year, Gree launched 159 new products, Midea had 127, while Haier introduced 94.

The report predicted frequency conversion air conditioners, which are more energy efficient, would have a bigger market share next year. Many companies promoted frequency conversion products in 2005, but it accounted for less than 5 per cent of the total sales.

Despite the intense competition in the domestic market, Chinese air-conditioners showed improved performance in overseas markets, a trend that is expected to continue next year.

The report shows the country exported 24.68 million units from August, 2004 to July, 2005, a year-on-year increase of 9.32 per cent, although the industry was affected by the anti-dumping measures from aboard.

The export price kept growing from US$143.87 per set to US$178.84 during the first seven months this year, with an average price of US$160 per set.

(China Daily 09/22/2005 page10)

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