China is presently the third largest room air conditioner manufacturer in the world, producing nearly 4 million units in 1994. In recent years China's room air conditioner industry has experienced explosive growth, with production increasing more than 15-fold from 1990 to 1994. Despite this rapid growth, less than 1% of Chinese households own air conditioners, although in some wealthy urban areas the saturation now tops 10%. Growth in the Chinese room air conditioner market is expected to continue over the next decade or so, driven by rising consumer purchasing power, particularly in cities and along the eastern and southern coasts. Mid-range projections are that the annual Chinese room air conditioner market will reach 5 million units in the next few years and 6 million units by 2000.

China now has approximately 100 air conditioner manufacturers, although the top ten manufacturers account for nearly 60% of the market. The consolidation of the Chinese air conditioner industry is expected to continue in the future; many experts predict only 20-30 manufacturers will remain in a few years time. Most large Chinese appliance manufacturers are government-owned enterprises, but in recent years these enterprises have been granted a lot of autonomy to make their own management decisions. In addition to Chinese-produced room air conditioners, imports, primarily from Japan, have a 10-20% share of the Chinese market. In the past few years, in an effort to reduce production costs and increase market share, many foreign companies have begun joint ventures to produce and sell room air conditioners in China, including most of the large Japanese air conditioner manufacturers and several American and Korean firms. China has also begun to export room air conditioners to other countries, and these exports are expected to grow rapidly (particularly products produced by the new joint ventures).

Chinese room air conditioners are primarily of two major types — window units and "mini-split" units. Mini-splits were originally developed in Japan and consist of an indoor wall-mounted fan/evaporator unit and an outdoor compressor/condenser combination. The two units are connected via tubes through which liquid and vapor refrigerant flow. In 1994, window units accounted for 54% of room air conditioner production and mini-splits for 40%. In the future, mini-splits are expected to increase their share of the Chinese market in a continuation of recent trends. In 1994, nearly 60% of room air conditioners were heat pumps and 40% were cooling-only models. Among window units, the most common size is 2000 Watts cooling output; among mini-splits the most common sizes are 2500 and 3500 Watts cooling output. An April 1995 survey of room air conditioner retail stores found that mini-split models produced by Chinese manufacturers were priced at an average of 1.8 Yuan per Watt (U.S. $0.22 at current exchange rates) of cooling capacity, while window unit prices averaged 1.2 Yuan per Watt ($0.14). Prices of units produced by joint ventures average approximately 10% higher while import unit prices average 40-50% higher.

Consumer surveys and discussions with industry experts indicate that the most important factor consumers use in choosing an air conditioner is perceived product quality. In the past many Chinese-produced products were of poor quality, which has made consumers quality-conscious for large purchases such as air conditioners. Other important product attributes to consumers are practicality, price, service, efficiency and noise.

Chinese test procedures for measuring air conditioner efficiency are very similar to international standards. A review of data on several hundred Chinese and imported room air conditioners found an average coefficient of performance (COP) in cooling mode (35o C outdoor temperature) of just over 2.7. However, limited data indicate that manufacturers may exaggerate efficiency ratings by an average of about 5%.

As part of this study we examined opportunities to improve the efficiency of Chinese room air conditioners including use of high-efficiency compressors, improved and larger heat exchange surfaces, and a variety of measures to improve efficiency under part-load conditions. State-of-the-art compressors on the international market are 5-13% more efficient than compressors currently used in Chinese air conditioners. Many Chinese air conditioners use rifled tubing and lanced fins, but many manufacturers do not take maximum advantage of these measures. In addition, use of slightly larger outdoor units and larger diameter tubing to connect indoor and outdoor units, and draining condensate onto the outdoor coil can improve air conditioner efficiency. Finally, moderate-cost measures to improve part-load performance, such as expansion valves, fan delay relays, and two-compressor systems, are seldom employed, in part because current rating procedures only measure efficiency at full load and do not consider part-load performance. These various measures can be cost-effectively combined to achieve full-load COPs as high as 3.5, reducing peak energy use by 20-25% compared to current average models. When savings under part-load conditions are included, energy savings of 30% or more appear feasible.

In order to begin achieving these efficiency gains and energy savings, six actions are recommended:

1. Develop and adopt a seasonal efficiency rating procedure to complement the existing Chinese steady-state rating procedure.
2. Improve the accuracy and tracking of air conditioner efficiency ratings.
3. Conduct a monitoring study to estimate operating patterns and energy use of room air conditioners in different Chinese cities.
4. Consider starting a Sino-U.S. high-efficiency room air conditioner project that would assist manufacturers in developing higher-efficiency room air conditioners for the Chinese market.
5. Initiate a labeling program to promote high-efficiency air conditioners to consumers.
6. Update the existing Chinese minimum efficiency standards for room air conditioners.
7. These recommendations are discussed in the body of the report.

China's room air conditioner industry is going through a period of dramatic growth, as air conditioners move from a luxury item to an item that many middle class households can afford. Similarly, China's room air conditioner industry has been going through a transition, from an industry dominated by state-owned enterprises to an industry in which each manufacturer, be it state-owned or joint venture, largely operates autonomously. However, production capacity has been expanding more rapidly than demand, and this combined with the entry of many Sino-foreign joint ventures is likely to lead to a major shakeout in the industry in the near future. In the face of increasing demand but excess supply it is particularly important to keep consumers' needs in mind, particularly consumer interest in high-quality products, but also including such product attributes as operating convenience, quiet operation, aesthetics and efficiency. Large, well-managed enterprises that emphasize these attributes and have good marketing abilities can prosper, but most other manufacturers will either have to exit the industry or find that their market share diminishes. In such a situation, opportunities may still exist for major companies with substantial resources to enter the Chinese market, but the market will be very competitive and thus business plans should not only rely on domestic sales but also include an export component. For projects and programs that seek to influence the Chinese room air conditioner market, project success will also probably hinge on how effectively the project or program addresses the product attributes that are utmost in consumers' minds.

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79 pp., 2003, $17.00, I952