On January 1, China cut the import duty on digital cameras, one of the hottest items in the electronic market, to zero. Last week Konica-Minolta announced an investment of US$35 million in Shanghai and a near doubling of camera production in China. These decisions mean that foreign brands, mostly Japanese, will continue to dominate the booming market this year while mainland manufacturers are paying the price for their country's entry into the WTO in 2001. Having lost the Chinese market to domestic manufacturers of colour televisions, washing machines and refrigerators, foreign companies are fighting back in products where they still have a technical lead - lifts, copiers, mobile telephones and computers - and where concessions made under World Trade Organisation stipulations have given them access to markets that they did not enjoy before. The leading makers of digital cameras, such as Fuji, Canon, Olympus and Konica-Minolta, have set up factories in China, allowing them to use the same low costs of land and labour as domestic firms. In 1997, for example, Fuji set up a camera plant in Suzhou, one of its three global production bases. Now Beijing is giving foreign firms the rights to distribute and sell within the country. The result: they have the same production and marketing costs as domestic firms. Add to that their increased capital and more advanced technology and the mainland companies have lost their competitive advantage. This is what has happened in the mobile-phone sector. Between 2001 and 2003, the share of domestic brands rose sharply, reaching more than 50 per cent in 2003 for the first time. However, in the first nine months of last year, domestic brands sold 40.67 million units, a numerical increase of 19.7 per cent, but their market share fell to 48.7 per cent, down from 54 per cent at the end of 2003. The foreign firms, such as Nokia, Sony Ericsson, Samsung and Motorola, have recaptured market share with new models, improved marketing and sales channels, heavy advertising and riding better the price wars generated by the fierce competition. Like Fuji, the foreign mobile phone companies have made the mainland a global manufacturing centre, supplying the export and domestic markets, enabling them to enjoy economies of scale their local competitors cannot match. Nokia, for example, employs 4,500 people in four factories and five research and development centres in China. In digital cameras, the superiority of foreign brands is even more evident. The import duty on them fell from 45 per cent in 2001 to 15 per cent in 2002, 10 per cent last year and zero on January 1. Import quotas were abolished on January 1, 2003. The cut in import tariff to zero would intensify the competition in the domestic market, said Wu Chengmin, the head of digital cameras for BenQ: 'Once existing inventories are emptied, the price war will start in earnest, probably in the second quarter. The final protective wall has been demolished.' Last year, the domestic market for digital cameras exceeded 2.5 million units, up from 1.4 million in 2003. According to ZOL Data Centre, a Beijing-based research company specialising in information technology products, Japanese brands, led by Canon, Sony and Nikon, have a 70 per cent share of the market - and a technology level to match. Jiang Chongwang, IT research manager of consultancy Analysys International, said the import duty cut would widen the gap between domestic and foreign brands. 'Sony, Canon and Fuji have plants in China and the right to sell here. Nearly all of their production is here. The domestic manufacturers lack the experience and technology and cannot keep up. The key is research and technology. This situation will not change for the next two to three years,' Mr Jiang said. He said mainland and Taiwanese brands last year had 5 per cent to 10 per cent of the market, with mainland firms producing 170,000 to 180,000 units. Research firm International Data Corp expects sales in China this year to rise to 3.5 million units and reach 6.5 million units in 2008. Canon forecasts mainland sales to rise to 15 million by 2008, overtaking Japan. 'By 2008, China will join Europe and the United States as one of the world's top three digital camera markets,' a Canon official maintained. Among the affected companies is Shanghai-based Seagull Camera, China's biggest camera maker, which has a small share of the digital market and concentrates on other cameras. 'The impact of the Japanese brands is not so big on us,' a Seagull official said. 'China has become the world's manufacturing centre for digital cameras for Japanese firms. Only a few very high-technology models are still made in Japan.' Mr Wu said that the import tax cut was a good development for his company. 'The more investment by Japanese companies in China, the more opportunity for us to supply them. We will increase our investment in research and development and manufacturing in Suzhou. 'Japanese brands will dominate for the next 12 months but the monopoly will be broken in five years, as the cameras spread to secondary cities and offer more functions,' he added.