However, the conflict over DVD player royalties once again highlighted the fact Chinese manufacturers should speed up their research and development process for core technologies in electrical appliances.

"The Chinese market and the production capabilities of our manufacturers are huge so foreign technology holders will not be able to put exorbitant demands upon us," said Xing Jinhui, chief of the disc player department of Beijing Guomei, the largest Chinese home appliance retailer.

Xing's comments came after the 6C Group -- a DVD technology patent pool consisting of Toshiba, Matsushita, JVC, Mitsubishi, Hitachi and Times Warner -- reached an agreement with the China Electronic Acoustic Equipment Association on DVD player royalties.

Under the agreement, 6C agreed to offer a beneficiary patent price to Chinese DVD producers, and stated the group would not sue Chinese manufacturers for patent infringement.

Comments from the acoustic association, representing nearly 90 percent of domestic DVD player producers, were unavailable, but it was reported that the royalties would be lower than 4 percent of the average price of a DVD player, which costs on average 1,000 yuan (US$120.5) in the China market.

Throughout March, foreign companies were asking Chinese makers to pay US$19.60 for each player they produced.

But even the patent fee of 4 percent -- about US$4.8 -- of a DVD player still seems too high for some.

"It could force the domestic makers to report false sale numbers of their DVD players to 6C companies to reduce the payment," Xing told Business Weekly.

According to Xing, it is hard for foreign companies to check the accurate number of Chinese makers in the complicated domestic market.

Xing estimated that the patent fee for each exported Chinese DVD player might be US$3, an amount unable to cause a significant price hike for players or the need to reduce its export volumes significantly.

He was echoed by Wang Yongliang, manager of the Beijing branch of Jiangsu Shinco Electric, the largest DVD player manufacturer in China.

"We will not increase our prices due to the patent fee, which is only a tiny part of a player's total cost," Wang said.

Refusing to reveal the exact patent fee Shinco will pay to 6C, Wang said the domestic DVD industry had been preparing to pay for the fee for a long time, though they would not accept the amount 6C charged.

China produced more than 10 millions of the world's 26 million DVD players last year. The country's exports of DVD players account for one-third of the world's total.

Negotiations over the dispute between foreign and domestic DVD player makers started as early as 2000, and foreign technology holders increased their patent charges with rising Chinese exports in the world market.

However, experts said the escalating production capabilities of China forced 6C to agree to a favourable patent price because, if the negotiation breaks down, 6C would lose a significant income.

Despite the temporary foreign obstacle Chinese DVD makers had to break down, experts still warn that foreign key technology holders might bring forward similar patent fees, and therefore more obstacles, to Chinese household appliance makers if they do not master key technologies themselves.

"Although our appliance exports have grown remarkably in recent years, the technology gap between Chinese and foreign companies remains huge," said Hu Xiaohong, director of China Light Industry Information Centre. "Almost no domestic manufacturers hold key technologies of the appliances they produce, ranging from TV sets and refrigerators to DVD players."

Wang of Shinco appealed to the government to give more support to technological development.

"In the severe market competition marked by price cuts, any single enterprise is unable to invest heavily in the development of kernel technologies," Wang said.

(eastday.com May 24, 2002)