Frost & Sullivan: China's Air Conditioner Market: Room AC Declining, HVAC Booming

SHANGHAI, March 26, 2012 /PRNewswire/ -- Between 2009 and 2011, because of the Chinese government's consumer electronics subsidy program, China room air conditioner (Room AC) market had a booming growth rate with a CAGR of double-digit. However, the program will be ended in 2012. Considering multiple negative factors, such as export declining, raw material cost increasing, inventory backlog, and so on, China room AC market is seemed to have declined recently after three-year bullish development.

Compared with room AC market, heating ventilation air conditioner (HVAC) market, as an important part of air conditioner market, shows a totally different prospective, which is going to boom.

Room AC Slow Down

Frost & Sullivan forecast that China's room AC is going to experience decline because of several passive factors listed below.

Policy influence

To promote China's household appliance to be more energy saving, China's government promulgated three different polices to stimulate citizens to purchase or replace energy saving home appliances. Those policies include "Government Subsidy to Energy Saving Household Appliance", "Household Appliance Trade-in", and" Home Appliance Subsidy Program for Rural Areas".

In the past three years, 2009 to 2011, hundreds of household appliance manufacturers were benefited from those policies. Room AC market gained momentum like other household appliance market did. However, by the June 2011, "Government Subsidy to Energy Saving Household Appliance" came to an end; followed by "Household Appliance Trade-in" ended by the end of 2011. It is expected that "Home Appliance Subsidy Program for Rural Areas" will be ended by the end of 2012. Without policies assistance, it is clear that sales will be declined in household appliances market. Especially for room AC market, this negative factor will impact the market in long term.

"Frozen Season"

In 2011, some negative systematic risks, such as RMB appreciation, global financial market slump, raw material prices rising, labor costs double, transportation costs increase, and so on, impacted China's room AC indirectly. Especially, raw material and labor cost increased suppressed room AC manufacturer to expand profit margin.

Inventory Backlog

In the three-year bullish market, due to policies benefits, most room AC manufacturers expand production capacity blindly. Due to accidental encounter rain early summer and the end in 2011, Room AC sales volume decreased sharply in south China. The decrease brought huge pressure of inventory to room AC manufacturers.

The latest statistics show that inventory backlog was over 20 million units by the end of 2011. China's first three biggest room AC manufacturers, Midea, Haier and Gree, were trapped by huge inventory backlog in 2011. As a result, many manufacturers' cash flow statement became weak. To solve problem of liquidity, most manufacturers began to lay off to save operational cash flow. An extreme example indicates that Midea laid off 50% of its sales staff nationally by the end of 2011.

HVAC Booming

China now has the largest HVAC market in the world. At the same time, it is also the largest manufacturer of HVAC products. The top three Chinese manufacturers, Haier, Midea and Gree, can supply 50% of the world's demand for HVAC products.

In 2011, although total China's air conditioner market slump, HVAC showed a different perspective, which, inspiring and remarkable, not only HVAC was applied in commercial and industrial field, but also it was expanded to be applied in metro, high-speed rail way, and civic field.

In 2011, China's HVAC market was driven by a boom in China's commercial property, energy saving policies from 12th Five-year Plan, and multiple applied fields like high-end real estate. It is estimated that China's HVAC market was RMB 50.0 billion in 2011, up to 20% compared with the figure of 2010. Due to energy saving policies from 12th Five-year Plan, China's government will focus on energy saving of public buildings. Especially, both commercial buildings and high-end civic buildings like villa and high-end apartment are important part of energy saving of public buildings. Considering other driving forces like favorable economy development, urban population growth, rising income, and growing retail market, and so on, it is reasonable to predict that China's HVAC market will grow fast with a favorable and remarkable CAGR. It is predicted that the total market size will be RMB 110.7 billion in 2015, with a CAGR of 20.0%.

In China's HVAC market, 2011, Japan and Korea's brands (Daikin, Hitachi, Toshiba and Samsung) took the largest market share, which was 32% of total market size. America and Euro's brands (York, Carrier, Trane, Mcquay, Dunham-bush) was ranked second with 23% of total market size. Domestic brands (Haier, Gree and Midea) took 22% of total market size. Considering the growth rate, it is clear that domestic brands grew fastest with an average number of 10%. Japan and Korea's brands followed with an average growth rate of 6%. US-Euro's Brands grew the slowest with only 2%-4% growth rate.

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SOURCE Frost & Sullivan