Hefei, the capital of eastern China’s Anhui province, is emerging as a key production base for white goods. Chen Jing of the China Securities News casts an eye over the key players and the city’s pull for the industry

Guangdong Midea Electric Appliances Co, a white goods maker from Foshan, Guangdong province, recently launched a US$158.23 million (RMB1.17 billion), 566,667 square meter fridge, freezer, and washing machine industrial park in the Gaoxin district of Hefei, the capital of eastern China’s Anhui province. It is also due to begin construction on a 10 million unit annual capacity compressor plant covering 266,667 square meters in the district.

Meanwhile, Gree Appliances from Zhuhai, also in Guangdong province, has raised US$155.52 million (RMB1.15 billion) to build an air conditioner plant in Hefei. The plant is expected to produce 15 million air conditioners each year.

Analysts said Hefei’s geographical advantages and its strong foundation in home appliance production were likely to attract even more white goods makers to the city. It was slated to become China’s third largest home appliance center, behind Shunde district, in Guangdong’s Foshan city, and Qingdao, in Shandong province.

Shunde and Qingdao dominate China’s map of white goods production bases, with the two centers sharing a significant slice of the global market. However, as competition becomes stiffer and profit margins narrow, white goods producers have started to move to the hinterland to reduce costs. Hefei, which connects central and western China, has emerged as the ideal location.

“If you control Hefei then you’ll control the market,” said Fang Hongbo, CEO of Midea Group, adding that it was Hefei’s strength in location and infrastructure that gave it the edge. While his words may be overstated, they give a good indication of Midea’s expansion strategy.

Hefei is surrounded by the Yangtze River Delta region and central China, containing many of China’s most economically advanced provinces and cities. Among the major cities in the region are Shanghai, Nanjing, Hangzhou, Suzhou, and Wuhan. From Shunde in the south and Qingdao in the north, this lucrative market can be difficult to reach.

Zhu Jianghong, chairman of Gree Appliances, said the group chose Hefei as a production base due to its geographical advantages. Statistics show eastern China buys millions of Gree’s air conditioners every year, but these must first be shipped from Zhuhai, which costs the company at least US$135.24 million (RMB1 billion) a year. The Hefei plant is within 500 kilometers of regional cities boasting a population in excess of 200 million people.

According to a September survey by Fortune magazine, Hefei was ranked 7th in the list of the least expensive cities for doing business in China. The manufacturing and service sectors make up over 80% of its economy and its nine special economic zones host companies from throughout the world. Its hardware and software capacity is comparable to any coastal city, and it has already attracted almost all of China’s white goods brands, including Haier, Midea, Galanz, Kelon, Meiling, Heifei Sanyo, Changhong and Gree.

Midea Group CEO Fang Hongbo said Hefei will be one its the most important operating platforms in eastern China, and its largest production base outside Shunde. The group plans to invest a further US$135.24 million (RMB1 billion) in Hefei between 2007 and 2010 to improve operational efficiency and boost product quality. By 2010, its revenues from refrigerators and washing machines produced in Hefei are expected to hit US$2.03 million (RMB15 billion). It is also expected to earn US$1.62 billion (RMB12 billion) in revenue from other white goods produced in the city by 2010, by which point it will employ more than 10,000 people locally.

Another refrigerator giant, Changhong-Meiling, is also speeding up its investment in Hefei. The Changhong-Meiling Industrial Park, which is scheduled to be completed in 2008, will be capable of rolling out four million refrigerators every year, making it Asia’s single largest refrigerator production base. Changhong has also pledged to merge its air conditioner-related assets with Meiling in order to use the latter as a pillar to take Changhong Group’s white goods division public.

Hefei’s statistics bureau has forecast that annual output from the city’s white goods industry will be worth US$4.06 billion (RMB30 billion) following the launch this year of the Midea and Changhong projects.

Within Anhui province, Hefei, Wuhu, and Chuzhou have formed a “golden triangle” for the white goods industry, with Midea and Hitachi having production bases in Wuhu, and Siemens and Konka operating out of Chuzhou.

This article first appeared in Chinese in the China Securities News on November 26, 2007. The China Perspective takes no responsibility for the accuracy of the original article.