An oversupply of air conditioners caused by stagnant sales in June and July has made this a financially difficult year for Chinese air conditioner manufacturers, said Jiang Feng, vice-director of the China Household Electric Appliance Association.

Flooding in China's western and southern regions negated the need for air conditioners, as did cool temperatures and persistent rainfall in North China in June and July.

The industry's stock reached 10 million in June, compared with 2.3 million at the end of last year.

August is the last month in the industry's traditional peak period, and product makers are trying to think of sale gimmicks to make money.

Shinco Company announced last Friday a new value-insured policy to attract more consumers in August.

The company said any buyer of a Shinco air conditioner in August can be refunded the difference at the company's local branch if the price is lowered before April 30.

Liu Bin, Shinco spokesman, said the new policy was created to get a handle on the industry's credit crisis among consumers caused by continuous price cuts.

Many consumers are weary of buying an air conditioner for fear it will be devaluated immediately afterward, Liu said.

Analysts said Shinco's promotion is wise since the oversupply has put large pressure on manufacturers' capital turnover.

Air conditioner manufacturers are also spending more on advertisements this year to get potential customers' attention.

Indeed, newspaper-advertising fees soared 44.22 per cent to 225 million yuan (US$27 million) in June.

Song Muxiang, vice-president of the Guangzhou-based Panasonic Air Conditioner Company, said the oversupply is the result of domestic makers overestimating the potential of the market and blindly expanding capacity.

A big surge in the demand for home air conditioners in recent years suckered manufacturers into over-estimating this year's market, Jiang said.

Shinco, Rowa and Aux all announced earlier this year that they would increase their production beyond 1 million units. Galanz even targeted making 1.8 million units, up from 1 million last year.

Jiang said that 24.5 million air conditioners are expected to be made this year while national demand is expected to reach just 17 million units at most.

Exports of air conditioners in the first year after China's entry into the World Trade Organization also failed to meet domestic makers' expectations.

In the first half of this year, exports totaled 5.5 million units, rising 38 per cent compared with the same period last year.

But 3.8 million units, 58 per cent of the exports, are realized by foreign-funded companies. In fact, exports by domestic makers only increased by 10 per cent.

(China Daily August 5, 2002)