"The price wars in the mainland television market have brought the industry to the verge of collapse," Qu Weizhi, vice minister of the Ministry of Information Industry, told a gathering of TV makers last week.

He advised color-set producers - most of whom are losing money - to turn to mergers and acquisitions to resuscitate the moribund sector.

Qu encouraged the big firms to acquire smaller ones to reduce production costs and enhance their profitability.

"Small manufacturers with low production scale and low profitability should quit the industry as soon as possible," Qu said.

His plea is not likely to move many companies to action, however.

According to a Shanghai Daily survey, most of China's major television manufacturers have little interest in teaming up with any of their domestic competitors.

"We are putting emphasis on technology innovation, and we'd prefer to merge with overseas electronics giants rather than a domestic company," said Liu Haizhong, a spokesman for Sichuan Changhong Electronic Co. Ltd., the nation's largest color TV producer.

There are 87 color TV set makers in China today with production capacity of 50 million units a year. Annual demand is much lower at 35 million sets, according to the China Household Electrical Appliances Association.

Profit margins are a mere 2 percent, or even less - the direct result of a series of price wars since 1996.

Last year, Chinese television makers earned a profit of 540 million yuan (US$65 million), only half of Sony's 1 billion yuan in earnings generated from its television business on China's mainland.

Destructive as the continuing deep discounts might be, domestic manufacturers said they simply had no other choice.

"Companies had to follow suit, or they would lose market share," said Li Yan, a spokeswoman for Beijing Guomei Electric Appliances Co. Ltd., a leading domestic home appliance retailer.

"If a domestic TV maker's market share goes below 10 percent, it can easily be crushed by its counterparts."

But market share doesn't guarantee profits, and most of those involved in the price-reduction strategy wrote their interim financial reports in red ink.

Shenzhen-listed Konka Group reported losses of 190 million yuan in the first half of this year, the first loss in eight years. Hong Kong-listed Skyworth Digital Holdings Ltd. lost HK$126 million (US$16 million) in the first half, and Xiamen Overseas Chinese Electronic Co. Ltd. and Amoisonic Electronics Co. also posted negative earnings.

Though they remained above the fray at first, foreign TV makers are also cutting prices to avoid losing market share.

Japan's Toshiba Corp. started to mark down its eight high-end models, mostly projection televisions, by around 5 percent nationwide since the weekend, aiming at the peak sales season over the next two months.

Meanwhile, the vice minister called on the set makers not to flee the market too quickly for more profitable pro-ducts such as mobile phones.

"Compared with foreign telecommunications giants, domestic TV producers are not as experienced or as financially and technologically powerful," said the vice minister.

(Eastday 09/03/2001)