Beijing Guomei Electrical Co Ltd announced yesterday it will slash the prices of color televisions sets produced by foreign-funded manufacturers by 20 percent to 50 percent beginning on Saturday.

"It is a nationwide price-cutting program," said Guomei's Shanghai purchasing director, Wang Huiwen.

The move comes a week after domes-tic manufactures began slashing prices.

"Supported by almost all foreign television makers, we will sell discounted TV sets in our more than 100 chain stores on the Chinese mainland," Wang said.

This weekend, Guomei will start selling 34-inch flat-screen color TVs made by foreign companies for around 6,500 yuan (US$783), down about 15 percent from current prices.

A similar Chinese model sells for about 5,000 yuan.

"Homegrown companies' aggressive price cuts on their products since last weekend have forced foreign rivals to slash their prices," said Li Yan, a spokeswoman for Guomei.

She said the foreign companies have to enter the price war started by their Chinese counterparts or they will lose market share.

Thanks to the latest price war, Guomei's local subsidiary sold 8,130 televisions last weekend, more than tripling its weekend sales volume from a month earlier.

Some industry officials said consumers shouldn't rush out to buy sets during the price war because there is still plenty of room to cut profit margins on high-end TV sets.

After a series of price wars since the late 1990s, the profit margin on low- and middle-end sets is less than 2 percent, but the margin is still more than 10 percent for top-end models, such as projection and plasma display TVs, according to an official with Shanghai Yongle Household Electrical Appliances Co.

TV sales were greatly hurt by the outbreak of SARS, according to industry officials, especially during the Labor Day holiday, which is normally a peak time for sales.

With the virus subsiding in China, even larger price cuts are likely in October, said industry officials.

Price cuts during the late 1990s were discouraged by the government as it battled to stop deflation. But many companies pushed ahead with cuts as a way to solve overproduction.

China still has the capacity to manufacture 87 percent more televisions than the market can absorb, according to Jonathan R. Woetzel, director of McKinsey & Co's China office.

China is the largest producer of televisions around the world, with an annual output of 39.67 million sets last year, which is equal to about 24.6 percent of the world's total production.

In addition, multinational consumer electronics companies have the skills to outdo their Chinese counterparts in the world's largest marketplace, said Woetzel.

"They (multinational companies) now match local companies in low-cost manufacturing and have also localized their product development and service networks," he said.

For example, Siemens, Electrolux and Samsung increased their collective share of the white-goods market from 6 percent to 22 percent between 1998 and 2000.

(eastday.com June 19, 2003)