Competition for consumers' wallets is hot

Sichuan Changhong sells roughly one fifth of all televisions sets bought in China but must grapple with an increasingly saturated market.

Prices on some products would be cut by as much as 40%, the firm said in a statement published in the official stock market journal, Shanghai Securities News.

The price cuts will centre on upmarket rear-projection TVs in the hope of boosting demand among middle income households, most of whom already own a television.

Transformation

"Our target customers will be ordinary families with yearly incomes of more than 20,000 yuan ($2,416; �1,553)," said Changhong executive president Wang Fengchao.

That translates into a monthly income of 1,666 yuan, close to the average urban wage.

Sichuan Changhong was once a military telecoms factory but with the arrival of economic reforms in the 1980s it transformed itself into one of China's best known brands for household goods.

The firm now churns out televisions, air conditioners and has recently moved into making PCs.

It has commercial alliances with Microsoft, to develop digital television set-top boxes, and Japanese electronics giant Toshiba, which supplies it with colour television tubes.

Growth challenge

It made 11.2 million television sets in 2002, capturing 17% of the domestic market, though it has lost market share for colour televisions since the late 1990s.

Sichuan Changhong has resorted to price cuts to expand the domestic market before, in the late 1990s, though with patchy results.

The firm's strategy is to increase the proportion of high-end rear projection and plasma screen sets in its sales.

Analyst Gu Qing of Haitong Securities said the price of fancier televisions remain "high, compared to cheap ordinary televisions in the overall market".

But she questioned whether Sichuan Changhong could meet its target of selling 500,00 of them this year, more than doubling last year's sales of 200,000.

China's industrial output is growing at record levels as many inefficient state enterprises continue to receive state funds to expand their production lines. For some, the upshot is pressure on prices and hence profits.

Investors greeted Sichuan Changhong's price cut plan by sending the shares 3.8% higher in a falling market.