Chinese firms turn on each other in harsh world market

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Last updated at: (Beijing Time) Wednesday, September 17, 2003

Chinese firms turn on each other in harsh world market

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A Chinese-made motorcycle is sold with an average profit of just 50 yuan (6 US dollars), the value of a heap of waste iron, in Vietnam due to intense price wars among short-sighted domestic manufacturers.

The case of the motorcycle is just one example of the all-out price wars confronting an increasing number of Chinese manufacturers in the overseas market.

Experts say the intense price war, following the tariff and technological barriers, has become another major obstacle restricting the entry of Chinese products into foreign markets.

Statistics indicate that blind competition has pulled down the price of a Chinese motorcycle from around 700 US dollar five yearsago to 280 US dollars in Vietnam, creating a continuous fall in profits with the continuous rise in exports.

In another example, China's canned orange has successfully taken 60 percent of the world market, but only at the sacrifice ofprofits. The wholesale price of a case of 312-gram canned orange exported to the United States, for instance, has dropped from 9.50US dollars in 1995 to less than four US dollars though the retail price in the US market has maintained generally the same in the period.

Japan was once the "golden market" for Chinese chicken products,but fierce price wars among more than 100 Chinese enterprises had cut the export price from over 3,000 US dollars per ton several years ago to 1,100 US dollars early this year.

"The current price can barely cover the cost," said Du Wenjun, general manager of Dayong Group in Henan Province, central China. "But everybody is trying hard to sustain their prices with the wish that someone else will quit first."

Similar price wars among Chinese enterprises in the world market have also erupted in sectors like shoemaking, color televisions, textile and tungsten product manufacturing.

"Price advantage has always been a major means for Chinese products to occupy the world market," commented Professor Yang Shuming, of the Southwest University of Political Science and Law."However, to seek a market share at the sacrifice of profits can easily ignite anti-dumping disputes."

Statistics show that the number of anti-dumping charges in other countries against Chinese manufacturers totaled 500 by the end of 2002, accounting for 14 percent of the world's total and the highest in the world.

To Zhao Jian, general manager of an export and import company in Chongqing, the most painful sight is Chinese enterprises fighting each other instead of being united in foreign markets like their Western and Japanese counterparts.

In a typical case, her company followed up its diesel engine exports to Thailand with heavy investment in a complete market system with the establishment of over 20 repair and sales outlets there.

However, another Chinese enterprise jumped in this year with a suicidal 50 percent price cut, forcing her company to abandon the market and making Japanese competitors the only beneficiary in theprice war.

Experts cited over-capacity, a lack of competitiveness, export disorder and the incomplete legal system as the four primary reasons behind the ever intensifying price wars.

Due to random repeated construction, many industrial lines of China are unbalanced with overall supply far exceeding the domestic and even global demand.

A survey shows that China's canned orange production capacity is close to 400,000 tons per year while the global market demand stands at between 200,000 to 250,000 tons.

Meanwhile, many Chinese enterprises attach little importance toresearch and development, and due to lack of core technologies, price therefore turns out to be the only and last resort they can rely on.

China has about 600 motorcycle producers and contributes to half of the entire world output, but the average production capacity of each producer is barely 0.5 percent of that of Japan'sHonda, and most Chinese motorcycles are low- or medium-grade products in terms of displacement and technological contents.

Although the loss of profits is evident, many Chinese enterprises still conduct price wars.

"That's mainly because administrative departments generally only assess the overall export volume and pay little attention to profits while judging the performance of either an enterprise or its leaders," said Zhao Jian.

Though many enterprises have realized the necessity to standardize business operation through self-discipline, experts say the lack of relative laws and regulations have hindered the establishment of industrial associations or commercial chambers, making it impossible to create a satisfactory export order.

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