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issue: December 2007 APPLIANCE Magazine

China Report
Chinese A/C Industry Rebounds


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by Yu Hao, China Correspondent

Not many noticed the news on August 14, 2007, when, at the request of creditor Wu Xi Fei Lin Electronics Company, Ltd., the Court of the Hi-Tech District of Wuxi City, Jiang Su Province, adjudged bankruptcy of Wu Xi Little Swan Group Company, Ltd.

It was a pity that Little Swan was forced to withdraw from the market now, just as the industry is turning around. The Chinese air-conditioning industry is rebounding in the 2007 refrigeration year (from September 2006 to August 2007).

During the 2006 refrigeration year (September 2005 to August 2006), Chinese air-conditioning companies encountered major setbacks, including surging raw materials costs, cool weather during the sales season, and a shrinking export profit margin caused by the appreciation of the RMB, China’s currency. China’s air-conditioning industry touched bottom, with sales down 10% from the same period in the previous year.

Under these conditions, Chinese A/C companies collectively chose to focus on profit instead of unit sales. This strategic adjustment achieved significant results in 2007 refrigeration year.

A/C compressor producers such as SHEC and Guangdong Meizhi Compressor Ltd. reveal that compressor production could not keep up with demand this year, so they had to selectively fill orders from A/C producers.

The year showed excellent sales results. Gree said sales reached 16 million units, with domestic sales at more than 10 million units. Midea achieved domestic sales of 7 million units.

A half-year report from Gree shows gross earnings and net profits increased 62.55% and 56.81% compared with last year. Midea’s report shows gross earnings and net profits increased 58.34% and 125% compared with last year. Haier’s half-year report shows gross earnings and net profits increased 52.14% and 94.38% compared with last year. Other brands, such as Chigo, Aux, Hisense, Kelon, Galanz, Chang Hong, TCL, and Shinco all realized significant profits in the 2007 refrigeration year.

Retail appliance chain Gome reported that its flagship stores in Beijing, Shanghai, Guangzhou, and Nanjing saw hot A/C sales that were “worth commemorating.” Gome was selling 3000 units a day in Guangzhou in June, while the Beijing store doubled its sales value from June of the previous year.

Data from the National Bureau of Statistics of China revealed the output of A/C units from August 2006 to May 2007 was 50,443,200 units, an 18.9% increase over the previous year. Gross sales were 46,107,700 units, with 9.3% growth. Because of higher average prices, a further increase in profits was also expected. Statistics from the State Information Center show the average Chinese A/C unit price increased 10.3% compared with the same period in the previous year.

Growing sales were attributed to a collective strategic adjustment by HVAC OEMs and a booming real estate market. Statistics from the State Information Center indicate that, from 2006 to 2007, China’s domestic economy remained in a state of high-speed development, with sales of commercial residences up by 25.1% over the same period in the previous year. It is estimated that the completion of commercial residences was around 5 million units.

Another important factor was warm weather during the 2007 sales season. Statistics from the China Meteorological Bureau show the average temperature during the January-to-July period was 1.4°C higher than any other year on record. Record high temperatures occurred at South China and south of the Yangtze River. Daily highs in Shanghai, Fujian, and Guangdong stayed above 35°C for several consecutive days, breaking records dating back to 1880. High- temperature warnings were issued for more than 20 days this season in Guangzhou.

The export market also brought good news. Statistics from General Customs of China revealed that, in the first half of 2007, under the condition of rising unit prices of export products, A/C exports increased significantly.

 

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