Price War Destructive

A current price war is forcing domestic air conditioner makers down the same road as TV manufacturers, a senior industrial official warned.

Huo Dufang, president of the China Household Electrical Appliances Association, said the sharp price cuts introduced by some air conditioner enterprises in an attempt to batter their rivals, will prove self destructive.

If the cuts evolve into a price war, Huo said, it will hamper the sector's future development.

Huo called on air conditioner manufacturers to stop or not to imitate such short-sighted behavior.

"Low prices make products inviting for consumers, but quality and after-sale service are more important. Manufacturers need to make a profit to develop new products and should not become involved in the mass production of low-end products that is the inevitable consequence of a price war," Huo said.

Chunlan Group, the former No. 1 air conditioner maker in China, cut 500-1,000 yuan (US$60-120) of 40 of its products on February 16.

Following Chunlan, another air conditioner maker, the Aux Company, tried to invite another 19 air conditioner makers to form a price cut coalition.

They failed in their quest. Only four other companies participated in the discussion and no agreement on pricing was reached.

Haier and Gree, two leading enterprises in the sector, both received an invitation from Aux but said they have no interest in a price war and did not turn up to the meeting.

"It was a wise choice," Huo commented.

The Electrolux Company, a world leader in the electronic appliances sector will not lower its prices until production costs drop as a result of technological progress, according to Zhang Jianjun, manager of the company's air conditioner marketing department.

"We should take note of the growing popularity of foreign brands in China despite their higher prices," said Gao Debu, a professor from the Economic School of Renmin University of China.

When China becomes a member of the World Trade Organization, it will be easier for overseas players to enter the home market, thus making their products cheaper.

At this time, price will cease to be an advantage for domestic manufacturers, Gao said.

"The benefits of investing in the development of new technology may be slower to emerge than the false benefits of price cuts, but it is the only choice for the sector," Gao said.

Industrial insiders said the cost of an air conditioner made of poor-quality parts is 1,000 yuan (US$120) less than a high-quality appliance.

"If the price is lowered by lowering the quality, the reputation of domestic producers will be destroyed, which is the equivalent of suicide," said Huo.

During the noisy TV price wars, many products were found to be of inferior quality.

Last year, TV manufacturers suffered a total loss of 15 billion yuan (US$1.8 billion) and ended the year with a huge stockpile of 6 million unsold TV sets.

To date, China has 300 air conditioner makers, 100 of whom entered the sector only last year.

Experts predict that about 18 million air conditioners will be made this year, 4 million more than the market needs.

(China Daily 02/22/2001)

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