Source: China Appliance magazine under CHEAA
As of late August 2026, data from ChinaIoL.com show that during the recently concluded 2026 cooling year (August 2025–July 2026), China’s residential air conditioner production totaled 187 million units, down 10.9% year on year. Sales totaled 188 million units, also down 10.9%. Domestic shipments fell 11.7% to 98.29 million units, while exports declined 10.0% to 89.41 million units.
Just one cooling year earlier, China’s residential air conditioner market had set a new record, with total sales reaching 210 million units. Data from AVC also showed that global residential air conditioner shipments totaled approximately 200 million units during the 2026 cooling year, down 9.4% year on year.
Within a single year, the industry went from substantial growth in scale and record highs to large-scale declines across the board. The 2026 cooling year was arguably one of the most difficult year in the history of China’s air conditioner industry.
With domestic demand remaining weak, manufacturers began scaling back production schedules from the start of the cooling year, and the trend persisted throughout the year.
In the 2025 cooling year, strong stimulus from a 20% government subsidy for eligible trade-in categories, combined with low-priced models, drove up domestic air conditioner shipments. This pulled forward demand from subsequent years and pushed the year-on-year comparison base to a historical high.
In 2026, the government subsidy was scaled back, with the subsidy rate falling from 20% to 15%. For manufacturers, this squeezed profit margins. For consumers, the clear increase in the cost of purchasing an air conditioner extended the decision-making cycle.
Weather conditions added to the pressure. China did not experience widespread extreme heat this summer. Price competition consequently intensified, and the result was a broad decline in both retail sales and shipments.
Another major challenge for manufacturers came from rising costs. Since 2025, prices for key raw materials, including copper, refrigerants, rebar and ABS plastic, have risen successively, with copper and refrigerant prices remaining elevated.
At the beginning of 2026, major air conditioner manufacturers issued a series of price increase notices in an effort to pass higher costs down the supply chain. However, with end-market demand remaining weak and channel inventories high, the increases proved difficult to implement. Retail prices remained under pressure amid intense competition, leaving manufacturers to absorb much of the increase in raw-material costs. Industry profitability consequently declined significantly.
The dynamics in overseas markets were strikingly similar to those in China. High temperatures and inventory replenishment over the previous two years had led overseas distributors to stock large quantities of Chinese air conditioners. During the 2026 cooling year, overseas markets also entered an inventory reduction cycle, with inventory levels significantly above historical averages.
At the same time, the trade environment continued to deteriorate. In late July, the United States imposed additional tariffs of 10% to 12.5% on 60 countries and regions under Section 301. Although 25 states subsequently called for the measures to be halted, the uncertainty surrounding trade policy had already had a tangible impact on export orders.
Europe was the only notable bright spot during the cooling year. In the summer of 2026, several parts of Europe experienced extreme heat. In a market where air conditioner penetration in households remains below 30%, demand surged, with portable and mobile air conditioners, which are relatively easy to install, seeing particularly strong growth.
However, the short-term surge in European demand needs to be viewed in context. On the one hand, the low level of air conditioner penetration provided a low base for comparison. On the other, much of the additional demand was for portable and mobile units, with only limited spillover to demand for split air conditioners. According to data from China’s General Administration of Customs, overall exports of residential air conditioners to Europe still declined by more than 16% during the 2026 cooling year. As the seasonal boost gradually fades, export growth to the European market could come under renewed pressure.
Behind the combined pressure of demand brought forward in the domestic market, weak overseas demand and sharply higher raw-material costs lies a deeper structural issue: excess capacity. New entrants drawn in by expectations of sustained hot weather and export growth, together with capacity expansion projects that have come online in recent years, are now adding to the pressure facing the industry.
Another concern is the slowdown in innovation. Over the past year, both the pace and intensity of innovation in the residential air conditioner industry have weakened. Significant resources and management attention have been consumed by inventory reduction and intense price competition. Although products featuring AI-powered airflow control, smart voice interaction and fresh-air and air-quality functions have stood out, the overall pace of product iteration has clearly slowed.
The longer-term cost of slower innovation could be significant. If sustained price competition continues to absorb companies’ resources and attention, the air conditioner industry risks weakening its competitiveness for the next cycle at a time when AI is beginning to reshape the value proposition of consumer products.
For an industry with annual production and sales approaching 200 million units, the question is where China’s air conditioner industry goes from here. Several potential directions are emerging from the challenges of the past year.
First, the industry needs to return to a replacement-driven model. With hot weather, low prices and the property market no longer serving as the primary growth drivers, the core demand in China’s air conditioner market is increasingly centered on replacement. Consumers’ replacement priorities are also becoming clearer: they are unlikely to replace an existing unit without a clear need, but when they do, they are looking for products that meet their functional needs, aesthetic preferences and price expectations. User-focused technological innovation that encourages replacement is therefore the key sustainable source of growth in the domestic market.
Second, innovation needs to regain momentum. AI-powered airflow control, healthy-air management, improvements in energy efficiency and the transition to more environmentally friendly refrigerants are reshaping the value proposition of air conditioners. Companies that can move beyond intense price competition and redirect resources toward research and development will be better positioned to establish stronger pricing power in the next cycle.
Third, the traditional model of pushing inventory into channels has reached its limits during this cooling year. Establishing an inventory management system guided by actual end-market demand is now an urgent priority for channel transformation.
Fourth, companies need to pursue higher-quality global expansion. The surge in demand in Europe demonstrates that structural opportunities remain in the global air conditioner market. Moving from competing for OEM orders toward a more integrated overseas strategy encompassing localized production, regional product customization and independent brand operations will be an important route for Chinese air conditioner manufacturers seeking to navigate trade barriers.