China's Huge Tv Industry Faces a 2008 Deadline

CHINA'S HUGE TV INDUSTRY FACES A 2008 DEADLINE

On a bitterly cold January day this year, the countdown read 1289 days, 3 hours, 32

minutes, and 33 seconds on the gigantic clock that looms over Beijing's Tiananmen

Square, blocking the view of the Museum of the Chinese Revolution. The clock, a short

walk across the square's gray paving stones from the portrait of Chairman Mao that's

hanging over the entrance to the Forbidden City, ticks off the seconds until the opening

ceremony of the 2008 Beijing Olympic Games [see photo, "Countdown"]. At that moment,

in every corner of the world and all over China itself, Olympics fans will be watching

events unfold in crisp high-definition television, thanks to a state-of-the-art digital TV

infrastructure the Chinese government is now furiously assembling.

Throughout Beijing, an Olympics-related frisson is palpable, as rickety taxicabs are

replaced with shiny new models, their drivers listen to English-language lessons on tape,

and construction crews tear down block after block of crumbling brick buildings to make

way for gleaming towers of glass and steel. But nowhere is the pressure of that ticking

clock felt more intensely than in the television industry.

Elsewhere in the world, plans for the transition to digital TV are being thrashed out among

telecommunications authorities, nudged along by politicians who want decisions to be

made. In China, there are feuding ministries, too, striving to negotiate details of a local

digital broadcasting standard. But those in the consumer electronics industry do not

underestimate the government's power. Nobody doubts that the deadline will be met.

The stakes are huge. It's not just about showing China's high-tech face to the world--it's

also about getting a piece of the local market for television receivers, already the world's

largest, with some 40 million new TV sets sold to Chinese consumers annually. Most of

China's 350 million households already have at least one TV set, generally a basic analog

one made by a domestic manufacturer. It is an article of faith among TV makers that a

sizable fraction of the country's big and burgeoning middle class will soon be buying more

sophisticated receivers as fast as they can get them. And the high-end market, according

to Anne Stevenson-Yang, managing director of the U.S. Information Technology Office in

Beijing, "is bigger than most people would think," with sets being installed everywhere

from karaoke bars to subway cars.

The competition for the hearts and minds of the Chinese consumer pits multinationals like

Matsushita Electric Industrial Co., in Osaka, and LG Electronics Inc., in Seoul--by various

measures Japan's and South Korea's leading or second-leading consumer electronics

companies--against each other. But also in the fray are home-grown Chinese TV

manufacturers such as Sichuan Changhong Electric Co., in Mianyang, and TCL

International Holdings Ltd., in Hong Kong, which are big exporters as well [see photo, "On

the Shelf"].

Matsushita, probably more than any other top consumer electronics company, has

worked steadily for decades to build a formidable presence in China. LG Electronics, with

big ambitions and the advantage of the cultural affinities many Chinese feel toward Korea,

is a worthy challenger.

When Matsushita and LG aren't fending off each other, they'll have all they can do

meeting the indigenous Chinese competition. Until the beginning of 2004, Sichuan

Changhong, a maker of those ultracheap DVD players that line the shelves in Wal-Mart

stores, was generally described as the world's largest television maker. But late in 2003,

TCL bought the television operations of France's Thomson SA, in Boulogne--and with it

the storied RCA brand that Thomson acquired from Fairfield, Conn.-based General Electric Co. 15 years ago.

THE WORLD TELEVISION MARKET IS HUGE: 2004 unit sales numbered nearly 150

million, and the aggregate value of those sets, in terms of what distributors paid

manufacturers, was US $48 billion, according to Gartner Inc., in Stamford, Conn. Gartner

estimates that China supplied about 50 million of those sets, but the China Securities

Journal puts the number higher, at 73 million units. Nobody knows exactly what is

happening in this large and fast-evolving market, but it seems clear that China makes

between one-third and one-half of the world's televisions and buys close to a third of them

itself.

Matsushita began selling televisions in China, pushing the Panasonic brand it is best

known for worldwide, not long after the reformist leader Deng Xiaoping invited the

company to help modernize the country's consumer electronics industries [see sidebar,

"Matsushita: First