Sichuan Changhong Electric Appliance Co. issued a statement on the scale of its potential losses Tuesday following pressure from the Shanghai Stock Exchange.
Shares in the company were suspended from trade on Monday as the stock exchange said Changhong had "failed to make important information public" following widespread media reports on details of its loss.
According to the statement, the company is preparing to cover over US$310 million in debts from Apex Digital, its biggest customer and distributor in the US.
Apex owed Changhong US$467.5 million as of December 25, but the US company is now in a big loss as its business has been affected by the imposition of patent royalties and US anti-dumping measures on Chinese TV sets. According to reports in the 21st Century Business Herald on Monday, its president has been detained in Shenzhen on charges of fraud.
Apex has been a big seller of low-price television sets, DVD players and other home entertainment products at discount retailers such as Wal-Mart. In 2002, Apex sold 3 million Changhong-made television sets in the US within eight months.
Reportedly, Apex began to sell DVD players for US$179 in 1999, compared to US$400 for Sony models. By the end of 2002, this had reduced to US$49, causing 1.23 million to be sold in a single day and helping Wal-Mart enjoy a record high turnover of US$1.2 billion.
Earlier this year, the US Department of Commerce imposed 25 percent tariffs on Chinese television sets after a ruling that they were being sold below a reasonable market price. Apex has also been accused of ignoring royalty payments for patented DVD technology.
Some have estimated that Changhong could possibly recoup US$150 million from Apex's assets, leaving over US$310 million in uncovered debt.
The manufacturer will also earmark 182.8 million yuan (US$22.1 million) for potential losses in bond trading entrusted to scandal-hit China Southern Securities, the statement said.
"Due to these factors, the company forecasts a big loss in 2004," Changhong said. The specific scale of the loss and the impact on the company's business performance will be released in its 2004 annual report.
A loss this year will contrast with last year's net profit of 241.65 million yuan (US$29.19 million), but over the last twelve months their business performance has suffered due to stiff domestic competition.
In the first nine months of 2004, Changhong posted a 47 percent slide in earnings to 82.79 million yuan (US$10 million) from the same period a year ago. In the first half of the year, they exported US$200 million in television sets, compared to US$600 million for all of last year, said Liu Haizhong, a Changhong spokesperson.
Its Shanghai-listed yuan-denominated A shares, open to selected foreign investors, had by Friday lost half their value to end at 4.93 yuan (60 US cents) from their 2004 peak in mid-February, compared to a 25 percent fall on the broader market.
"China's TV makers are battling another difficult year due to nationwide overcapacity and a persistent price war in the industry," said Chen Yuanwang, an industry analyst from China Securities.
But with restructuring and technological innovations, the TV manufacturing industry is likely to regain rapid growth in late 2006, he expects.
(China Daily December 29, 2004)