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SCMP Reporter

Although leading manufacturers of consumer durables are struggling to maintain sales in a saturated market, demand is soaring for one new product.

 Less than three years ago, watching a movie on a disk was considered a novelty in the mainland. Now many households are abandoning videos and opting for VCDs. The annual market for VCD players has grown from zero in 1995 to 10 million units this year.

 The key reason for the trend is the rampant proliferation of pirated VCDs.

 ABN-Amro Asia's chief representative in Shanghai Bruce Richardson said VCD players were the hottest item on the market.

 'They can't sell video players any more, not even in the countryside,' he said. 'Nobody's renting videos anymore. VCD is now becoming the industry standard.'  Cheap, pirated VCDs triggered the market growth and people appreciated the technology of disk.

 Mr Richardson said even a legitimate VCD of a foreign movie in a market cost only about 50 yuan (about HK$46.50). A VCD player also is inexpensive, selling for about 1,000 yuan. The player also can act as a karaoke machine and CD player.

 Hong Kong-based electronics manufacturer Shell Electronic MFG (Holdings) entered the mainland VCD player market in late 1995 and saw demand for its players rise from four million units in 1996 to 10 million last year.

 Shell's plant in Shunde, Guangdong province, has churned out as many as 80,000 VCD players a month since it went into operation in July.

 Shell's group deputy general manager David Chow said production at the facility had been growing at a rate of 35 per cent per month.

 Production capacity was 200,000 units a month. It would be fully used once extra shifts were introduced.

 The popularity of VCD players began in the south and spread to coastal and northern cities. Mr Chow said potential for growth in the market was tremendous as the system was being introduced as the primary home entertainment equipment besides television.

 'The trend will grow to the rural areas from rich cities,' he said.

  Shell is among the top five mainland VCD player manufacturers, and has achieved about 10 per cent market share.

 Mr Richardson said the popularity of VCDs had prompted many manufacturers to enter the market and there were signs of over-production. 'Local manufacturers of low quality products will be gone in a year,' he said.

 Another Shanghai-based analyst noted a further trend in which local manufacturers were gaining market share from foreign competitors.

 She said local producers, mainly from Guangdong, were winning consumers by offering lower prices. Most importantly, they had designed players to adjust to the bad audio-visual quality of pirated VCDs.

 Foreign-made VCD players lacked that 'special function', which Chinese producers frequently flaunted in their advertising.

 Mr Chow said hundreds of producers were competing, but there were only 10 key manufacturers, most in Guangdong. Mr Chow was confident small players would drop out because of their low-quality products.

 He, too, noted local producers had captured market share from foreign suppliers in 1996-97 through heavily advertising lower prices.

 VCD players are a bright spot in a bleak durables market. Although consumers are replacing their televisions and refrigerators, the market for major goods increasingly is becoming saturated.

 National production capacity for colour televisions is 30 million units per year, for example, but sales in 1997 reached only 18 million. About 13 million air conditioners were produced in 1997, but only seven million units were sold in the first 11 months.

 Beyond VCDs, consumers are turning to other electronic products, such as personal computers. Many urban parents were buying computers for their children, said the Shanghai-based analyst.

 'They see this as an investment to boost their only child's intelligence,' she said. 'Things are changing as the economy develops. In the past, people only spent their money on food and clothing.'  Privately bought homes also are in demand in urban areas. Until a few years ago, when the government started massive housing reform, few mainlanders owned their own homes. Their flats were part of the cradle-to-grave package provided by state-owned enterprises.

 Now the government is vigorously encouraging people to buy subsidised flats to ease the welfare burden on enterprises.

 In Shanghai, private housing accounted for 75 per cent of turnover in the property market last year.



Booming VCD demand brightens picture for home entertainment