Exports of domestically branded DVD players have stalled because
of huge patent fees.
According to the China Chamber of Commerce for Import and Export
of Machinery and Electronic Products (CCCME), exports of
Chinese-brand DVD players have plummeted this year.
Exports to the European Union by Skyworth, a major producer,
totaled just 17,911 units in the first five months, a drop of 95
percent from the same period last year. Exports to the United
States plunged to zero. SVA exported a mere 16 units to the EU and
three units to the US. Even Changhong, China's home
electronics giant, saw its exports to the EU fall 60 percent to
1,800 units in the first five months.
Shanghai Customs reports that exports of domestic-brand DVD
players shipped from Shanghai Port totaled 193,000 sets in the
January-May period, a drop of 78.6 percent year-on-year and
accounting for less than 7 percent of the port's total export
volume of DVD players.
According to Chen Xiang, secretary of the audio and video
products branch of CCCME, payment of patent fees has eroded the
companies' profit margins, weakened their competitiveness and thus
led to the decrease. Some have ceased making export models or have
become processors for foreign brands, while others have withdrawn
completely from DVD player production.
China has become the world's biggest DVD producer and exporter. In
2003, DVD players manufactured by Chinese enterprises accounted for
70 percent of the world's total production of about 100 million
sets.
Nevertheless, with all the core technologies introduced from
abroad, domestic DVD players have only a narrow competitive edge
and little room for further development, Chen said.
Since 2002, foreign firms holding technology patents -- the 3C
Alliance (Sony, Philips, and Pioneer), 6C Alliance (Panasonic, JVC,
Hitachi, Toshiba, Mitsubishi Electric, and Time Warner) and 1C
(French Thompson) -- began to charge Chinese domestic-brand
manufacturers patent fees for using core technologies in their
exported DVD players.
The fees have reached as high as US$27.45 per unit, representing
20 to 30 percent of their production cost.
As exports of domestically branded DVD players wither, China's
total DVD player exports have maintained explosive growth, jumping
113.8 percent in the first five months to 41 million units, Chen
said.
Exports of foreign-branded DVD players shipped from the Shanghai
port totaled 2.6 million sets, up 10.7 percent during the first
five months of the year.
Domestically made DVD players with brands warranted by patent
owners may be partially exempted from patent fees, while domestic
brands must pay all patent fees.
"The backlash is miserable for the Chinese DVD industry," said
Fan Wenjian, a spokesman for Shinco, China's
largest DVD player producer.
When DVD players are assembled with imported core technologies,
they are sold with foreign brands.
Domestic manufacturers obtain a small processing fee, while a
large portion of the profit goes into other peoples' pockets, Fan
said. In the first five months of this year, nearly 30 DVD player
producers have gone bankrupt in Shenzhen's Bao'an District, where
many of the manufacturers are gathered.
Chinese companies have urged foreign technology owners to lower
patent fees.
"The patent owners should revalue their benefits if all the
Chinese companies are forced to quit exporting. The foreign
companies would then earn fewer patent fees and have tougher
competition in the domestic market," Fan said.
Foreign companies have agreed to negotiate the issue but no
timetable has been set, he said.
Exporting only high-end products is one way to offset patent
fees charged by foreign technology holders.
Meanwhile, DVD player makers are looking for avenues of
diversification. Shinco has turned successfully to air conditioner
production, while Nintaus has said it will move into color TVs and
mobile phones.
Shinco, currently the largest DVD exporter in China, has shifted
its focus in the video market to mobile DVD players, EVD (Enhanced
Versatile Disc) players and LCD TVs.
Meanwhile, Fan said, manufacturers have organized various
inter-industrial alliances.
Video products such as EVD, HDV and HVD may replace DVD, he
said. When the differences in the systems are clarified and the
state sets standards, DVD machine makers are expected to complete
their transformation, bringing the DVD era to an end and beginning
a new one.
EVD technology was developed domestically. China's EVD Alliance
was founded in April to push the production of EVD players.
The Market Economy Research Institute of the State Council's
Development Research Center says that China now has more than 200
DVD player manufacturers, with annual output hitting 70 million
units. Domestic demand, however, is only approximately 5 million
units.
(China Daily August 3, 2004)
