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US duties leave TV producers three options


2004-06-29
China Business Weekly

China's TV manufacturers, on the verge of being squeezed out of the US market, appear to have three options: Export to other markets, export to the United States from facilities outside China, or export more high-end products.

The US Commerce Department announced on June 3 it will impose dumping duties on China-made colour TV sets -- which have a cathode-ray tube (CRT) -- that are 21 inches or larger.

The duties will remain in effect pending a review in five years.

The duties will be as high as 78 per cent, despite objections and appeals by major US retailers, including Wal-Mart Stores Inc. Major Chinese TV producers will also face duties ranging from 5.2 per cent to 26.4 per cent.

Chinese producers of TV sets will not make a profit if the United States imposes the duties on their exports.

Sichuan-based Changhong, which exports two-thirds of its TV sets to the United States, is worried.

Exports to the United States of its TV sets that are 21 inches or larger, which are subject to the duties, have virtually dried up, and exports of its smaller TVs have fallen nearly 80 per cent since January.

Company spokesman Liu Haizhong denied reports the firm's TV exports have been greatly affected by the duties.

Changhong is exporting more TV sets in other regions, including Europe, Russia and the Middle East, and that is offsetting the dwindling exports to the US market.

Changhong, he added, plans to export 5 million units this year, up from 3.21 million units last year.

Han Facai, with Konka's brand management centre, said Konka's exports of TV sets rose 270 per cent, year-on-year, in the year's first quarter.

That, he said, was the result of Konka's diverse markets.

Statistics from Guangdong Customs indicate exports of colour TV sets to regions other than the United States rose substantially in the year's first four months.

Some 6.39 million units, worth a combined US$560 million, were exported during that period, up 84 per cent and 110 per cent, respectively.

Lu Renbo, an expert with the State Council's Development and Research Centre, said rapidly rising exports to other markets will soften the effects of the US' duties.

Lu predicted East Europe, Southeast Asia, Middle East and South America will be the major markets for China's TV makers.

Chinese TV manufacturers will not abandon the US market, which is the world's largest TV market, Lu said.

The US market is growing in importance as a target market for exporters of China's colour TV sets. The United States sets the trends in terms of colour TV development, and is one of the world's key markets for colour TV sets.

Lu said all colour TV sets in the US market will be updated to digital TV sets in 2006. The market's capacity will reach tens of millions of TV sets.

Losing access to that market will be a direct blow to the development, upgrade and prosperity of China's digital TV industry, he said.

But, he explained that Chinese producers of TV sets earn more profits from their exported to the United States compared with their exports to other regions.

Chinese manufacturers are doing everything possible to minimize both risks and losses. Many are establishing solely funded or joint ventures overseas.

Several Chinese TV manufacturers -- including TCL, Konka, Changhong and SVA -- plan to establish and/or expand their production bases in Mexico, which is a member of the North America Free Trade Agreement, and some Asian countries to avoid the US' duties.

TCL, which is merging its TV unit with French electronics maker Thomson SA to form the world's largest TV producer, is expected to move some of its TV manufacturing to Thailand and Mexico.

"The tariffs will not affect TCL's performance, because we can move the affected products to other countries," said Yan Yong, TCL's managing director.

Yan said TCL's venture will have a combined production capacity of about 5 million units annually. The TV sets will be produced in Thailand and Mexico, from where TVs for the US market could be shipped.

TCL in last fiscal year sold about 1.2 million TVs to the United States, of which 20 per cent were 21 inches or larger.

TCL hopes to export about 4.5 million TVs this year. Company officials did not say how many of those units will be shipped to the US market.

Insiders suggest using other regions as exporting bases can only be a temporary measure, and will not resolve the problem.

The best way to counter the effects of the duties would be to upgrade the industrial structure, so that it is technologically sound.

Companies such as Haier, Hisense and Xiamen Overseas Chinese Electronic Co (Xoceco) said they plan to substantially enhance the output of products like liquid crystal TV sets, plasma TV sets and digital TVs.

Such items are not included in the US' new duties.

Yu Haitao, director of Hisense's information department, said the company has adjusted its strategy in response to the duties.

"First, we have gradually switched from colour TV receivers to LCD (liquid crystal displays), PDP (plasma display panels) and digital TV products to avoid the margins," Yu said.

Hisense has entered a strategic co-operation agreement with US Digital Television to export digital TV sets to the US market.

Yu estimates Hisense will ship 400,000 digital TV sets under this strategic co-operation. Of those, 11,500 units were delivered in the year's first quarter. Another 10,000 units were to be shipped this month.

China produces more than 86 million colour TV sets annually. Domestic demand, however, is about 30 million sets.

 
 
     
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