The hot sales of air conditioners in the last three consecutive years not only fueled major industry players’ confidence in expanding production, but also led to an influx of new entrants who were ambitious to gain some ground in the sector. In this context, financial year 2018 (Aug 2017-July 2018) of air conditioner sector ended with an all-time high outputs and sales, as well as a hefty inventory of more than 45 million units, indicating a worsening retail market down the road.

Performance of air conditioner sector in FY 2018

According to, the shipments of household air conditioners came to 152 million units in FY 2018, a year-on-year growth of 13.51%, of which domestic shipments rose by 18.8% year-on-year to 97.51 million units while overseas shipments grew by 5.3% year-on-year to 55.15 million units. In terms of retailing, retail sales volume of household air conditioners posted 60.26 million units, up by 9.7% year-on-year, and retail sales value 211.56 billion Yuan, up by 12.8% year-on-year.

These record-setting figures unveil the exacerbating landscape of air conditioner market which intensifies with the sagging housing market in top-tier and second tier cities, rising debts of residents and the overdraft of the consumer demands in the past three years. Entering 2018, retail sales of household air conditioners has been going down with retail sales value up by 7.5% year-on-year to 141.8 billion Yuan and sales volume up by 4% year-on-year to 41.39 million units from Jan to July 2018, clearly slower compared to last year, according to All View Cloud. What’s more, China Appliance reporter has confirmed by a number of sources that, household air conditioners sold through projects in FY 2018 came to around 15 million units affected by the freezing up of real estate property market.

Based on statistics at hand and our interviews with major industry players, China Appliance reporter believes that, the 20 million units of inventory at the beginning of FY 2018 will rise to more than 45 million units as of the end of FY 2018.

Also at the peak is the production capacity of major air conditioner makers. With Gree expanding to more than 55 million units, Midea 44 million units, Haier 22 million units, Aux 18 million units, TCL 13 million units and Changhong 8 million units, plus the unchanged capacity of Hisense, Chigo and Galanz, as well as the capacity of new entrants such as MBO and Viomi, our reporter believes that the total production capacity of China’s household air conditioner sector has reached 220 million units, a year-on-year rise of 20%.

Dividing market landscape

The intensified production expansion of industry players coupled with an influx of new entrants upset the market landscape in FY 2018, which surprisingly leads to an increased market share of top 5 brands at 90% with a year-on-year growth of 8 percentage points, indicating a more dividing market landscape with some brands elbowed out.

Top five market expanders are Aux, Haier, Midea, Gree and TCL. The unexpected landscape, with the leading positions of Gree and Midea unchanged, Aux following close after and TCL standing out from third-tier brands, indicates that some brands such as Hisense, Chigo, Galanz and Skyworth are losing ground. Of brands emerging in FY 2018, most faces mounting pressure to survive except for several ones such as MBO and Viomi who have reached the goal of the year.

Challenges facing FY 2019

Challenges are ahead of air conditioner sector in FY 2019: high inventory, which could hardly be absorbed by the overdraft demand, and high production capacity, which could barely be boosted by the freezing housing market.

According to China Market Monitor, monthly sales volume of air conditioners in May, June and July this year have seen a growth rate of 25.5%, 18.2% and -29.2% year-on-year respectively, a plummet rarely seen in the history of air conditioner sector. Most interviewees believe that, the hot sales in the past three years has overdrawn the demands of air conditioners. As a result, the growth of air conditioners in top-tier and second-tier cities mainly comes from replacement needs, which explains why the hot weather this year fails to boost the sales as it did in the past three years.

What’s more, as personal income growth slows down and debts grow fast, Chinese residents spend more on travelling and recreation while less on durable goods including home appliances. Regarding housing market, the sales area of houses posted 771.43 million square meters, up by merely 3.3% year-on-year in H1 this year, of which the growth rate of the east of China, a key market for air conditioner sector, slid by 5.4% year-on-year.

The supply-demand contradiction is expected to go sharp in FY 2019, which means exploring third-tier to six-tier markets and central and western regions will be necessary for air conditioner makers. It is worth mentioning that, FY 2018 not only leaves air conditioner sector with high inventory, but also a rebalanced product mix. At offline channels, inverter air conditioners accounted for more than 70% of the market share in H1 2018 by retail sales volume, and products with the highest grade of energy efficiency approximate to 50% of the market by sales volume. At online channels, average price air conditioners has been driven up thanks to the rebalanced product mix.

Winter is coming. And it’s time for air conditioner makers to test their strength.