FEATURE: Price wars mean Chinese timepiece makers mark time

Asian Economic News, Feb 12, 2001

BEIJING, Feb. 9 Kyodo

There may only be a dozen Chinese timepiece manufacturers, but an intense price war among them suggests the industry as a whole is marking time.

Despite a monopolistic position and huge market for watches, the entire industry is suffering heavy losses and they cannot afford to recover present losses by raising prices anew.

He Xiaofu, general manager of the Guangzhou Timepieces & Pens Co., said demands in some areas fall short of supply, which would have normally offered an opportunity to raise prices.

But because its main competitors have all lowered prices, company officials feel they could not move in the opposite direction.

The local watchmakers' problems typify those facing highly competitive domestic sectors.

Price cutting to try to gain market share is a debilitating process that means local companies are being weakened at a time when they need to gird their strength in facing intense foreign competition as China nears World Trade Organization (WTO) accession.

''China lags far behind Switzerland and Japan with respect to the production of quartz watches in particular, and cannot compete with them easily,'' Li Shiyu, chairman of the Shanghai Clocks and Watches Co., said.

''The majority of Chinese-brand watches and clocks are concentrated in the low grade, while the strong demand in the market today is occurring in the middle and high grades. Domestic manufacturers have been slow to realize this.''

Li said Chinese watchmakers tend to produce similar movements.

Manufacturers have shifted to producing watches with automatic day and date calendars after seeing them sell well. To beat the price war and win a thin profit, manufacturers have tried to expand production, leading to a vicious cycle.

With an annual production capacity of 210 million clocks and 370 million wristwatches, China is a world-leading producer of timepieces and a major manufacturer of inner clockwork pieces for mechanical watches.

But while domestic watchmakers are engrossed in civil war, foreign-brand watches are making advances into the market.

Omega and Rolex watches, priced from 20,000 yuan ($2,415) to 50,000 yuan, sell well.

According to a report by the China Horology Association, Japanese and Swiss watches in the top grade occupy 85% of the Chinese market in the 500-1,000 yuan range.

Among middle-grade watches, Swiss, Japanese and Taiwanese watches hold absolute advantages of competition.

Regarding low-grade mechanical watches, Chinese watches maintain the rural market with prices between 60 yuan and 70 yuan.

But there is hope for local manufacturers engaged in various aspects of watchmaking.

The movements of mechanical watches are labor-intensive products and China enjoys exceptional advantages in this area.

Japan's Citizen Watch Co. and Seiko Corp. have reduced their production of movements, while Switzerland only produces high-grade movements. Middle- and low-grade movements are mainly produced in China, He and Li said.

With the imminent WTO membership for China, local manufacturers are finally organizing an end to their industry-wide war and jointly meeting foreign competition head-on.

Last year, Shanghai Clocks and Watches Co. and Hangzhou Wristwatches Co. deliberately approximated each other's price for watch movements for watches with day and date calendars. The alliance proved successful.

In June, 10 major movement producers, including Shanghai Clocks and Watches, Hangzhou Wristwatches, Guangzhou Timepieces & Pens and Tianjin Hai'ou Watch Plant, formed an alliance under which they would avoid price competition, cut down production in areas where large stockpiles threatened and avoid vicious cuts that would mean products being sold at below cost.