Several small air-conditioner brands are expected to be driven out of an intensely competitive market next year, because of slim profit margins and the implementation of new energy efficiency standards, industry experts say.

"Competition in the domestic air-conditioner market will heat up, especially among small manufacturers, in 2005," said Cai Ying, an official from the State Information Centre.

According to a market report released by the centre recently, the top 10 air-conditioner brands including Haier, Gree, Aux, and Midea controlled more than 70 per cent of the domestic market in 2004. Brands ranking from No 11 to No 25 owned some 27 per cent of market shares, while the remainder of the producers struggled for less than 3 per cent.

The report said that there are 96 air-conditioner brands in the Chinese market this year, almost 60 per cent less than last year's 150. In 2000, there were more than 400 brands on the market.

"The high mortality in the sector is due to shrinking profits and shortages of compressors and other raw materials," Cai said.

The industry's average rate of net profit is only 2.59 per cent, much lower than the average of 15 to 20 per cent five years ago.

With such slender profit margins, big air-conditioner makers are increasing investment, in the expectation of winning a greater market share through large-scale production.

Earlier this year, Midea started the construction of its third manufacturing base in Wuhan, Gree's fifth phase of its Zhuhai project was put into operation, and TCL invested 300 million yuan (US$36 million) to build an operation base in Wuhan.

This will make it even harder for small and medium-sized producers to survive in the already over-supplied market, said Luo Qingqi, from Pully Consultants Co Ltd, a consultancy specializing in electric home appliances.

In addition, new compulsory energy-efficiency standards for air-conditioners, which will come into effect on March 1, will force many small brands out of the market.

The new standards require a minimum energy-efficiency rate of 2.6, which means the consumption of a kilowatt of power equates to at least 2.6 kilowatts of refrigerating output.

According to a market survey conducted by the China Home Appliance Association at the end of last year, about 28 per cent of products in the market do not meet the standards.

(China Daily October 8, 2004)