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Business trends

China's black market for TVs darkens big brands' sales picture

Decline accelerates to 16% in first quarter as retail prices plunge

GUANGZHOU -- Black-market televisions are undermining Chinese TV sales, pulling down prices and increasing the chances of a shakeout among the numerous brands competing in the country.

By value, TV sales in China tumbled 11% last year -- the first decline in two years. The slump only deepened in the first quarter of 2019, with a 16% on-year decline.

China is the world's largest single market for TVs. But around 40 brands are fighting over the same turf, and they also have to contend with the proliferation of cheap sets assembled from used or even faulty parts and sold along dubious "low-priced TV streets" around the nation.

"Hey, do you want this TV?" a middle-aged man called out in an old, dim arcade in Panyu, a suburb of Guangzhou in southern China. Inside his shop, several men were watching a Chinese drama on the TV he wanted to sell. It looked new, but it had no brand name.

The man said the 65-inch liquid crystal display set was of South Korean origin, and that he would let it go for 3,000 yuan ($434). That is around a third of the prices of comparable TVs made by major manufacturers.

The shop was cluttered with piles of foam containers bearing the logos of well-known companies like Samsung Electronics and China's BOE Technology Group. It turned out that some of the containers held faulty products taken from the companies' plants for sale on the black market, while others held LCD panels removed from used TVs.

A worker was inspecting the panels by shining light on them from behind, preparing to sell them to TV vendors visiting the shop.

A stroll through the arcade revealed more than 50 wholesalers of TV components, including electronic substrates and LCD panels. The surrounding area was dotted with businesses that collect parts from the arcade and assemble sets -- something akin to a black-market industrial park.

Cheap TVs made in Panyu and elsewhere appeared in large quantities on major Chinese e-commerce sites last year, stirring controversy for disrupting the market. Most carried forged logos of reputable manufacturers.

Used and faulty parts from major TV manufacturers such as BOE are traded in large quantities at shops like this one in a suburb of Guangzhou.

The Chinese government clamped down on the vendors, but a visit to Panyu shows they have simply regrouped, not disappeared. While the players may have lost their online sales channels, they continue to profit by trucking their TVs to ruling areas and selling them as off-brand products.

The black market has been a major factor behind plunging official prices over the past couple of years. Proper TV manufacturers are feeling the pain.

In 2018, Hisense's net profit fell 60% on the year, while Konka Group's net profit plunged 90%.

The government, meanwhile, is hoping the next technological leap will lead to a revival.

In March, the Ministry of Industry and Information Technology announced an "Ultra HD Video Industry Development Action Plan," aimed at speeding up the development of infrastructure and programming for higher-resolution sets. Specifically, the plan calls for increasing investment in equipment related to 8K TVs and launching test broadcasting in time for the 2022 Winter Olympic Games in Beijing.

State-run Central China Television and other major stations created specialized channels for 4K programming at the government's behest. And Beijing is considering a similar top-down strategy for 8K technology.

The government, which is determined to maintain China's position as a competitive TV manufacturing base, expects the market for ultra-HD sets and related businesses to grow to more than 4 trillion yuan by 2022.

But the TV manufacturers themselves see critical days ahead. Li Dongsheng, chief executive of TCL, said, "In the next five years, the ultrahigh-definition video industry will enter an important strategic period."

That period may well include a round of industry reorganization.

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