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Mobile Phone Glut Looms
Although China's mobile phone production sector is facing the danger of overcapacity, government officials and company executives believe a vicious price war can be avoided.

"Overcapacity may exist temporarily, but businesses will run according to the rules of the market economy and will not seek a price war to sell their products at the cost of heavy losses of profits," said Zhou Zixue, head of the Department of Economic System Reform and Economic Operation with the Ministry of Information Industry (MII).

Statistics show the production capacity of the 36 mobile-phone manufacturers in China will reach 250 million units this year, about a half the world's total.

Only 100 million units were produced last year and sales hit 118 million, according to Zhou.

This year's sales are expected to reach 170 million handsets, which means 80 million units of idle capacity. Some analysts do foresee a price war.

"We cannot expect that all the idle capacity will be consumed by overseas markets and it is almost sure that a price war will occur in May or June, which may lead to heavy losses," said Lu Renbo, an expert with the Development and Research Center under the State Council.

MII's Zhou disagrees, however: "It would be foolish for any maker to produce at full capacity, but then leave the units in the warehouses or sell at very low prices."

He added domestic manufacturers had matured through their competition with foreign makers and their design advantages and big sales networks will help them win the competition and expand their market shares.

According to statistics from MII, the market share of domestic makers reached 35 percent in October and the figure stayed above 30 percent in the last two months of the year.

Domestic firm Ningbo Bird Co Ltd ranked third in the market only after international giants Motorola and Nokia.

Industrial experts predict that domestic mobile-phone companies might take half the market this year.

Zhou's opinion was echoed by Hu Houzhi, deputy general manager of the mobile phone sales and marketing division of Beijing Capitel Co Ltd, one of the biggest domestic players in the market.

"Although newcomers keep coming into the market, they come for profits, not losses. So a price war is not the only way to take market share," Hu said.

Hu said he believes that technology and sales networks will be the two main factors determining future competition.

He said his company spent 784 million yuan (US$95 million) last year for research on CDMA (code division multiple access) and multimedia messaging service phones, which are critical to Capitel's success this year.

At the same time, the business organized a sales team of 3,600 people that covers almost all counties in the country to tap the potential in medium and small-sized cities and towns.

Capitel aims to sell 5 million mobile phones this year, up from last year's 1.5 million units, Hu said.

Hu also revealed that Capitel is talking with some African and Asian countries about building production bases to expand its overseas market.

(China Daily January 27, 2003)

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