Exports of domestically branded DVD players have been stalled because of huge patent fees.

According to the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, exports of DVD players with Chinese brands have suffered a severe decline this year.

Exports to the European Union by Skyworth, a major local DVD player producer, amounted to 17,911 units in the first five months, 95 per cent down from that in the same period of last year. Its exports to the United States plunged to zero. Exports by SVA stood at a mere 16 units to the EU and three units to the United States. Changhong, China's home electronics giant, saw its exports to the EU fall 60 per cent to 1,800 units in the first five months.

Statistics provided by Shanghai Customs show the export of DVD players of domestic brands from Shanghai port reached 193,000 sets from January to May, a year-on-year 78.6 per cent decrease, accounting for less than 7 per cent of the port's total export volume of DVD players.

According to Chen Xiang, secretary of the branch of the audio and video products of the chamber, the charge of patent fees, which weakened the products' export competitiveness and eroded their profit margin, led to the decrease.

"Some enterprises have to stop exporting DVD machines and turn to production of other categories; some others have to secede from the group of DVD manufacturers," he said.

China has become the world's biggest DVD production and export base. In 2003, DVD players manufactured by Chinese enterprises accounted for 70 per cent of the world's total production volume of about 100 million sets.

Nevertheless, since the first DVD player was produced in the 1990s, with all the core technologies introduced from abroad, domestic DVD players have only a narrow competitive edge and little room for further development, Chen said.

Since 2002, foreign firms holding patents of relevant technologies, including the 3C Alliance (Sony, Philips, and Pioneer), 6C Alliance (Panasonic, JVC, Hitachi, Toshiba, Mitsubishi Electric, and Time Warner), and 1C (French Thompson), began to charge Chinese DVD machine makers patent fees for using core technologies in their exported DVD machines with domestic brands.

Patent fees levied on Chinese DVD player manufacturers has reached as high as US$27.45 per unit, representing nearly 20 to 30 per cent of their production cost.

When compared to the shrinking exports of domestically branded DVD players, China's total DVD player exports continued to see an explosive growth rate of 113.8 per cent in the first five months, amounting to 41 million units, Chen said.

In the Shanghai port, the export of DVD players manufactured by foreign-funded enterprises grew and the total export volume amounted to 2.563 million sets with an increase of 10.7 per cent during the first five months this year.

According to relevant regulations concerning the charging of patent fees, domestically made DVD players with brands warranted by patent owners can be partially exempted from patent fees while those with domestic brands must pay all patent fees.

The difference in the charging of patent fees has obliged some domestic DVD machine makers to give up the production of DVD players under their own brands and turn to the processing trade, Chen said.

"The backlash is a miserable thing for the Chinese DVD industry," said Fan Wenjian, a spokesman from Shinco, China's largest DVD player producer.

When DVD players are processed and assembled with imported core technologies, they are sold with foreign brands.

Domestic manufacturers obtain a small processing fee, while a large portion of the profits goes into other peoples' pocket, Fan said.

In the first five months of this year, nearly 30 DVD player producers have gone bankrupt in Shenzhen's Baoan District where many DVD player producers are gathered, Fan said.

Fan said Chinese companies have urged foreign technology owners to lower royalties.

"The patent owners should revalue their benefits if all the Chinese companies are forced to quit exports. The foreign companies would then harvest fewer patent fees and face fiercer competition in the domestic market," Fan said.

Foreign companies have agreed to negotiate the issue but no timetable has been set, he said.

Besides waiting for the response, Fan said DVD player manufacturers have to seek ways outside the industry: Shinco successfully made the production of air conditioners a new profit source.

And Nintaus, another famous DVD player manufacturer, said it would diversify into colour TV sets and cell phones.

Domestic Chinese manufacturers are also being pushed to export high-end products as a way of offsetting patent fees charged by foreign technology holders.

"We hardly make any profit in DVD exports due to the royalties, so we transferred to the export of more expensive and profitable products," he said.

Shinco, currently the largest DVD exporter in China, has transferred its focus to mobile DVD players, EVD (Enhanced Versatile Disc) players and LCD TVs.

Meanwhile, Fan said, DVD player makers have organized various inter-industrial alliances.

As for EVD, HDV and HVD they are pointing the way to future products in place of DVD products, he said.

With further elucidation of differences between concepts of EVD, HDV and HVD, and policy regulation of State standards, it is expected that DVD machine makers will rapidly complete their transformation and an age will end with DVD players and a new one begin.

EVD players will have an advantage over DVD because they are based on Chinese-developed technology. China's EVD Alliance was founded in April to further push the production of EVD players.

According to statistics from the Research Institute of Market Economy of the Development Research Centre of the State Council, China now has more than 200 DVD player manufacturers, with annual output hitting 70 million units. Domestic demand, however, is only approximately 5 million units.

(China Daily 08/03/2004 page11)