The retail prices of air conditioners in China's mainland are likely to continue declining this year.

The average retail price of an air conditioner in the domestic market was 2,300 yuan (US$277.11) last year, compared with 2,900 yuan a year earlier, according to Gome Home Appliance Co, which collected revenues worth 2.85 billion yuan from selling air conditioners last year.

Meanwhile, industry officials said that the price of air conditioners still have margins to be lowered, though raw material prices have continued to increase since last year.

"Price wars will continue as the theme in the domestic air conditioner market in 2004 since hundreds of manufacturers are competing to survive in the over-supplied industry," said Wang Jinliang, general manager of Guangdong Midea Holding Co's air- conditioner division.

Currently, the domestic air conditioner industry hosts more than 300 players, a figure that is expected to be halved this year "as those financially and technologically weaker companies will likely to go bankrupt or be acquired by stronger ones," said Wang.

China's air-conditioner industry can produce 45 million units annually, or more than 60 percent of the world's annual turnover, said Chen Gang, deputy secretary general of China Household Electrical Appliances Association.

"However, the demand of air conditioners in the domestic market is only 15 million units per year," said Lu Renbo, a researcher of the Development Research Center of the State Council, China's cabinet.

In addition, industry officials said that though the production costs of air conditioners have risen sharply since last year, manufacturers have to sell their products at low prices to keep or grab larger shares in the market.

The country's largest electrical appliance retailer has started preparations for a price war.

Gome made its name sticking to the principal marketing strategy of price-cutting. It signed agreements to buy air conditioners worth 3.99 billion yuan (US$480.7 million) from 16 air-conditioner producers in Beijing yesterday.

The 16 companies signing the deal include major air conditioners makers in China's mainland such as Haier, Midea, TCL, Aux and Kelon.

(Eastday.com March 26, 2004)