China Refrigeration 2004.(Special Report)

In addition to the buzz surrounding China's booming market, products with energy-saving, environmentally sound, and health-related features were the focus of China Refrigeration 2004, held April 8-10 in Pudong, Shanghai.

* Known as one of the three most important HVAC/R exhibitions in the world (together with AHR and IKK), more than 630 exhibitors from 22 countries and regions displayed their latest products and technologies at this year's China Refrigeration. Shanghai and Beijing, the largest two cities of China, have hosted China Refrigeration intermittently since 1994. After a successful show last year in Beijing, it was back to Shanghai again in 2004. And the success of this year's show was even greater: the exhibition area of the Shanghai New International Expo Center, which occupies a gross floor space area of 34,500 sq m, was 6,000 sq m larger compared to 2 years ago.

This year's exhibitors included several global leading players such as Carrier, Fedders, Rheem, and Ciat of France, us well as the well known local manufacturers such as Dalian Bingshan, Broad, Yantai Moon, Midea, and Hitachi-Hisense. Leading compressor manufacturers such as Bitzer, Copeland, Danfoss, and RefComp were also present.

Most of this year's exhibitors were commercial and industrial HVAC/R manufacturers with large and well-decorated booths. The large domestic residential air-conditioning and refrigeration OEMs--Haier, Gree, Kelon, and Galanz--were absent.

HVAC appliances with energy-saving, environmentally sound, and health-related features are increasingly becoming the market trends. This was easily seen from the products on display, which reflected the newest improvements in the industry.

China's HVAC Market

By virtue of China's relatively low production costs and a huge market potential, as well as the Chinese government's increasingly positive attitude towards environmentally friendly HVAC/R products, the world's leading HVAC/R players are accelerating their industry development in China by OEM production. LG Electronics, considered the number-two electronic products maker in Korea, has set an ambitious goal for the Chinese air-conditioning market with plans to reach a turnover of U.S. $700 million by 2006.

Danfoss, a Danish air conditioning giant, announced the move of its Asia Pacific headquarters from Singapore to Shanghai, effective May 1. Noel Ryan, sales executive of Danfoss Refrigeration & Air-conditioning, commented that while China is a huge market with great potential, nowadays the largest air-conditioning market is North America. Even so, he noted that China is already considered the biggest marketplace for residential air-conditioners and that he believes China might become the largest commercial air-conditioner market in the world by 2010.

The promising future of the Chinese market is definitely irresistible to HVAC/R players around the world. According to Mr. Kim Yung-Jae from the Korean Refrigeration and Air-conditioning Industry Association (KRAIA), China is a thriving market with a rapid growth rate. Because Beijing will hold the 2008 Olympic Games and Shanghai will host World Expo in 2010, China's HVAC/R industry will be largely promoted by these great events, he said. "Korean companies have attached great importance to the Chinese market," Mr. Kim noted. "By impressing Chinese consumers with the Korean brands, as well as Korean technology on the platform provided by China Refrigeration, we can set a foundation for Korean HVAC/R players' further expansion in China."

Export-Oriented Future?

According to a WTO report, the volume of world trade will grow by 7.5 percent this year, a 3-percent increase from last year, and the world GDP growth rate is also estimated to be 3.7 percent compared with last year's 2.5 percent. Li Rongcan, deputy director of Planning and Finance Department of the Ministry of Commerce, said this positive momentum of the world economy would increase overseas demand, which may create a relatively good environment and a continuing upward trend for exports of HVAC/R products.

Other statistics from the Customs General Administration of China indicated that the monthly export of HVAC/R products nearly tripled at the beginning of this year. During the first quarter, China's foreign trade continued to grow fast, with the total volume of exports reaching $115.7 billion, a 34-percent increase year on year.

The international market has already become Chinese HVAC/R players' foundation of survival. However, to meet the ever-improving requirements of global HVAC/R markets, Chinese OEMs still have a lot of work to do on improving the technology and the quality of their products.

More and more Chinese HVAC/R manufactures have realized that self-owned brands can bring them much more in the long run. Midea (MD), a leading Chinese air-conditioner manufacturer with a large proportion of OEM export, saw an upward trend in its overseas market sales. According to Fang Hong Bo, general manager of MD group, the profit per unit the company gets from the overseas market is 20 percent higher than it receives from the domestic market. Therefore, MD will put more emphasis on exports, and the group is now trying to establish a new image for its in-house products by exporting under its own brand rather than by another OEM brand. Mr. Fang also expects MD's export turnover to jump 60 percent to $800 million from last year's $500 million, and to reach a total value of $1.5 billion in 2005. The group also plans to boost its overall sales by acquiring foreign brands or cooperating with foreign makers.

However, Chinese HVAC/R makers' efforts on expanding their space in the international market can not always be smooth; the dumping accusation and strict recycling law on HVAC/R products will undoubtedly have a negative impact on Chinese HVAC/R export in the future.

In 2003, China's air-conditioner exports amounted to 14.8 million units, and a report from industry officials indicates that, 60 percent of China's air-conditioner sales in 2005 will be exported units.

Health Pursuit

Due to the SARS epidemic that hit China in 2003, today's consumers are more aware of indoor air quality. It's no surprise that at China Refrigeration 2004, HVAC/R appliances with health-related functions were everywhere. Many exhibitors launched new products designed for better air quality, including new types of chillers, high-efficiency filters, anti-virus systems, as well as improved fresh-air fan engine units.

"As a result of the SARS epidemic last year, people have come to see the importance of air quality conditions in a new light," Mr. Pan Qiusheng, deputy director of The Chinese Association of Refrigeration (CAR), told APPLIANCE. "HVAC/R products with antiviral functions or other related features are highly needed. This demand will greatly push the refrigeration technology forward into a new direction."

Tsinghua Tongfang, a 10-year-old artificial environment player owned by China's prestigious Tsinghua University, displayed its TFS-KZ300 anti-viral air processing units at its pavilion together with other air cleaning products. Employing air-purified and anti-bacterial parts, an ultra-violet lamp, photo catalysis oxidation filtration, as well as a HEPA (High Efficiency Particulate Air) filter, the system is said to remove the majority of harmful particles, including mold spores, dust, dust mites, pet dander, and other irritating allergens from the air.

LG Electronics also presented a commercial air-conditioner with health features. Based on the company's patented "Plasma air purification" technology, LG's air-conditioning system can also act as a highly efficient air purifier that reportedly eliminates dust, pollen, bacteria, and viruses.

Energy Savings

China is now facing a power shortage as the economy remains on the fast track, according to Wang Yonggan, the general secretary of China Electricity Council. About 22 provinces, autonomous regions, and municipalities had to cut off electricity at peak times in 2003. China is expected to have a shortfall of more than 20 million kilowatts in electricity supply this year.

While the development of the refrigeration industry is largely depending on energy and environmental conditions, Mr. Pan Qiusheng told APPLIANCE that energy-saving and environmentally sound products have also become first choice for consumers.

Addressing this trend, Dalian Sanyo introduced its new ice-storage air-conditioning system, which saves energy by making ice after midnight, avoiding peak times. The ice supplements mechanical cooling during the day when utility rates are at their highest level and can result in significant operating cost savings.

Moreover, if the chiller is unable to operate normally for some reason, the ice stored in advance can provide cooling for up to 2 days. Some are claiming that this unique feature of producing and storing energy during off peak hours has made Dalian Sanyo's system one of the most efficient in the Chinese market, making it ideal for commercial AC applications in office building and hotels.

Alfa Laval, a Sweden-based provider of specialized products and engineered solutions, displayed its new NH3 refrigeration plate heat exchanger. The refrigerant NH3 (R717) has been widely recognized as one of the most highly efficient and economical refrigerants. Though this refrigerant is ozone-friendly, there is still a chance for ammonia leakage, which can be fatal. To address this issue, Alfa Laval used a LBBW (laser beam braze welding) application on the refrigerant sealing and a stainless steel stroll. This, the company says, has improved the structural reliability and has almost completely reduced the possibility of leakage.

Hitachi-Hisense (HH), a joint venture co-established by Japanese air-conditioning giant Hitachi and leading domestic player Hisense, exhibited its household products for the first time at CR 2004. Art official delegate from HH told APPLIANCE that the company's new SET-FREE mini residential central air-conditioning system, which was scheduled to be launched in May 2004, represents "the latest technical achievement of Hitachi."

Utilizing d.c. inverter driven scroll compressor technology and R407C refrigerant, the company says its SET-FREE mini units provide not only the ultimate in flexibility, efficiency, and comfort, but also a professional air conditioning system solution to residential users. With the ability to cool/heat up to seven rooms from one condensing unit, the units are ideal for large homes and small offices.

Commercial Air-Conditioners Prevailing

The rapid grouch of real estate has had a significant influence on R&D of central air-conditioning systems, which are now being widely used in high rise apartments and villas.

The commercial AC market is now undergoing a rapid grouch of more than 10 percent, and manufacturers believe that the ever expanding needs for energy-saving and environmentally sound equipment will further expand the market for commercial air-conditioners.

With the astonishing development of China's construction industry, the value of the Chinese commercial air-conditioner market is estimated to reach more than 20 billion RMB (approx. U.S. $2.4 billion) by 2005. In cities such as Beijing and Shanghai, the demand for commercial air-conditioners is growing at a speed of 70 percent to 80 percent annually, according to market research. Up-to-date sales on commercial ACs have already seen a 50-percent growth versus the same period last year.

Therefore, commercial air-conditioning products were another hot topic at China Refrigeration 2004. For instance, Carrier's light-commercial air-conditioning system, "Aqua snap Junior," made its debut at the show. The environmentally safe system uses refrigerant R407C and is said to provide excellent stability, low toxicity, and non-combustibility. In addition, the unit uses a specially modified fan, and the scroll compressor and pump are housed in a single compact compartment. This design, Carrier says, has greatly reduced noise and vibration levels.

Some manufacturers are planning their strategies around the growth of the commercial segment. Tsinghua Tongfang announced that a central air-conditioner production base would be under construction in Wuxi, Jiangsu Province. With an annual output up to 100,000 units, the company says the base will become an important fortress in its strategy for the South China market.

Domestic Vs. Overseas

As a result of the intensified competition and China's WTO entry, sweeping changes have taken place in the Chinese HVAC/R industry. As domestic companies continue to adopt new technologies and applications to meet foreign demand, the Chinese HVAC/R industry will continue to see further developments in the near future. This tech-oriented trend will also improve brand image and the operating strategies of Chinese domestic players.

During China Refrigeration 2004, domestic exhibitors fully showed their strength. Dalian Bingshan, one of the largest Chinese industrial air-conditioning appliance producers, demonstrated its power with a 1,100-sq-m booth, which attracted a lot of attention in the show venue. Other domestic HVAC/B players such as Broad, Yantai Moon, also boasted large area pavilions.

However, as more and more international HVAC/R players have come to China and try to get a piece of this rapidly growing market, intensified competition will be inevitable to domestic players. The localization policy has always been considered a market penetration strategy and a cost-cut alternative in the Chinese market.

Taking China as their production base, many multinational players have already established their R&D centers in the country to sharpen their own competitive advantages for the intensive competition on global market. For example, Fedders moved its international headquarters to China from the U.S. last year. Trane moved its Asia-Pacific headquarters to Shanghai and will invest $1.5 million in its Shanghai-based Asian R&D center, which will mainly focus on developing commercial air-conditioning products in China.

LG is taking similar actions. According to Mr. Jing Chengdong, chief director for LG Air-Conditioning (Tianjing) Company, "To become more price-competitive in China's market, the production of commercial air-conditioning system will be fully Localized in Tianjing by the end of this year."

In the wake of the WTO era, it is clear that as more and more Chinese HVAC/R makers seek to develop their overseas business, there will be intensified competition for the HVAC/R industry--both domestically and overseas.

by Sean Zhang, China correspondent

e-mail: editor@appliance.com

COPYRIGHT 2004 Dana Chase Publications, Inc.

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