While the mainland business press last week was dominated by attacks on Mitsubishi Motors and Japan Air Lines for their poor service to customers, one Japanese company announced an astonishing success - Toshiba rose to number two in sales of colour televisions last year. Its sales ranked second only to Chang Hong, the most popular Chinese brand. It led a counter-attack by foreign makers that together accounted for 35 per cent of the market by sets and 45 per cent by revenue, triple the share of two years earlier. As a result, the domestic industry in 2000 posted a loss for the first time. According to official figures, during the first 10 months China produced 27.71 million sets, down from a record 42.62 million in all 1999, with sales down five per cent to 29.02 million from the first 10 months of 1999 and stocks reaching six million. The most successful foreign brands were Toshiba, Philips, Sony, Samsung, Sharp and Matsushita, all with plants in China. Last year marked the first time in a decade that the share of foreign brands in the market went up. In the 1980s, Japanese brands, imported and made in China, dominated a rapidly growing market of people who had never owned a television or wanted to trade in their black-and-white set. Chinese companies piled into the market and defeated the Japanese brands in the domestic market by offering lower prices and good quality as well as becoming exporters, shipping 19.44 million sets last year, up from 12.98 million in 1999. According to official figures, colour televisions have been one of the most profitable investments in China from 1980 to 1999, with the industry investing 28 billion yuan (about HK$26.2 billion) for a return of 450 billion. So how did the foreign firms repel this onslaught? 'If we fight domestic brands on prices for the same product, we will certainly lose,' said Nobumasa Hirata, head of Toshiba's operations in China and for three years general manager of its factory in Dalian producing colour televisions. 'When multinationals invest abroad, they usually stick to their original investment strategy. But the rate of development in China is too fast. Because of this, we changed our original plan and decided to produce in China the most advanced large-screen sets we were making in Europe and America,' Mr Hirata said. So Toshiba and other foreign companies went for a different segment of the market - high-technology and wide-screen sets of 34 inches and above - which have enabled them to increase their market share so rapidly. 'The foreign-invested firms have an edge in financing and management over domestic companies,' said He Ju, deputy general manager of Guo Mei Electronics, one of China's biggest retailers. 'The sales of foreign brands are going up and supply of the hi-tech models cannot meet demand.' Initially, Toshiba did not believe that Chinese would not buy sets larger than 25 inches because of their small and cramped apartments and modest incomes and because most Japanese are content with smaller sets. But local staff at the Dalian plant spoke up and said Chinese consumers liked large sets, prompting the company to do market research that persuaded it to change the production line to the bigger models. 'An official at Toshiba's Beijing office said: 'The wide-screen sets are not for everyone. It depends on your income and your apartment. Those with larger homes buy the bigger sets.' Like other foreign manufacturers, Toshiba has much deeper pockets and higher spending on research and development than its domestic competitors. The biggest Chinese manufacturers, with annual sales of more than one billion yuan spend about 3 per cent of revenue on research and development (R&D), against about 5 per cent for the foreign firms. Last year Toshiba spent 400 billion yen (about HK$26.7 billion) on R&D, 5.8 per cent of its sales. The losses sustained by the Chinese television industry last year were in part self inflicted. Over-investment has led to production capacity more than double national demand and fierce competition in the form of eight price wars since 1996, in defiance of government warnings to stabilise prices. Zhang Qi, a division chief at the Ministry of Information Industry, said price wars in this sector since 1996 had cost the nation losses totalling 14.7 billion yuan. 'The golden era of colour television production is over,' said an official of the ministry's statistics division. 'The market is saturated and will not peak again. I expect this year and next to be difficult. Then the market will stabilise.' The Toshiba official did not see evidence of anti-Japanese feeling, despite the media campaigns against Japan Air Lines and Mitsubishi, saying he did not want to comment on other companies. The media campaigns against these companies have stimulated racist anti-Japanese sentiment on the Internet. Some call on the world to boycott Japanese products and others are more virulent. 'Comrades, rise up. Wipe out Japan! Our electrical goods are no worse than those from Japan,' said one on the Chinese Forum chatroom last week. 'We can buy cars from Europe and US. Why do we have to buy cars from Japanese who look down their noses at us?'