China's Gree May Build U.S. Air-Conditioner Factory to Challenge Carrier

Gree Electric Appliances Inc., China’s largest air-conditioner maker, may build a U.S. plant to raise its international profile and compete against United Technologies Corp.’s Carrier unit.

Gree, which made the cooling units for some stadiums in this year’s World Cup soccer tournament in South Africa, makes its products in China, Brazil, Pakistan and Vietnam. It’s conducting studies and may set up a factory in the U.S. within three years as sales rise, Gree President Dong Mingzhu said.

“Many Chinese companies are afraid of setting up factories in the U.S.,” Dong, 56, said in a Nov. 28 interview at the company’s headquarters in the southern Chinese city of Zhuhai. “As a company with high-end technology, we think it’s worth exploring if we want to become a global company.”

Former leader Deng Xiaoping’s abandonment of hard-line communism for market reforms in 1978 fueled more than three decades of export-led, 10 percent annual growth that turned China into the world’s largest exporter. Now, Chinese companies are expanding overseas to tap new markets as competition intensifies at home.

“If Gree wishes to continue its growth, they will have to expand into markets outside China,” said Chen Jun, a Beijing- based analyst at research company All View Consulting. “Countries in North America and Europe will generate higher profit when their economies recover from recession.”

Outside China

Haier Group Corp., the Qingdao, China-based maker of washing machines and refrigerators, set up a factory in South Carolina in 1999. The closely held appliance maker bought 20 percent of New Zealand’s Fisher & Paykel Appliances Holdings Ltd. last year and has said demand in Japan, its third-biggest market, will help sustain earnings expansion.

Gree fell 1.1 percent to 17.78 yuan at the 3 p.m. close in Shenzhen, after earlier gaining as much as 2 percent. The stock has declined 7.8 percent this year, compared with a 13 percent drop for the benchmark Shanghai Composite Index.

GD Midea Holding Co., a Foshan, southern China-based maker of household appliances, has gained 5.4 percent in the same period, while Qingdao Haier Co., a Shanghai-traded unit of Haier Group, advanced 3 percent.

U.S. sales for Gree have risen an average 20 percent over the past five years, Dong said in Zhuhai, a city in Guangdong province, the manufacturing hub that’s adjacent to Hong Kong.

‘Certain Level’

“Demand in the United States has reached a certain level,” said Dong, named among China’s 40 most influential people in 2009 by Businessweek. “Although manufacturing costs are relatively high in the U.S., especially labor costs, we believe there are other favorable factors, such as policy and infrastructure.”

Gree’s sales have expanded for five consecutive quarters, surging 81 percent in the three months ended September, according to data compiled by Bloomberg. Sales had declined for three quarters through June 2009.

Overseas sales accounted for 15 percent of total revenue in 2009, compared with 24 percent in the previous year, according to Bloomberg data.

In the U.S., Gree will compete against Carrier, the world’s largest maker of air conditioners with 2009 sales of $11.4 billion. Osaka-based Daikin Industries Ltd., the world’s second- largest air-conditioner maker, got more than 60 percent of its sales last fiscal year from outside Japan, with the Americas region accounting for 11 percent of total revenue.

Largest Distributor

Gree, which sold shares to the public in Shenzhen in 1996, is the biggest distributor of air conditioners in China with 27.5 percent of the market, according to research by Euromonitor International. It’s followed by GD Midea with 21 percent and Haier with 11.1 percent.

Third-quarter net income surged 73 percent from a year earlier to 1.32 billion yuan ($198 million) at Gree, boosted by government subsidies to consumers and increased exports, the company said Oct. 21. Sales reached 44.2 billion yuan in the first nine months, exceeding the total for 2009.

Fourth-quarter results would be “even better,” said Dong, who joined Gree in 1990 as a sales manager, without elaborating. Sales of central air conditioners, used mainly in commercial and office buildings and which provide wider margins than household models, may account for 50 percent of total sales in three to four years from the current 15 percent, she said.

“I think Gree will see its name shine not just in China, but also globally in five years,” said Dong.

--Michael Wei. Editors: Chua Kong Ho, Frank Longid, Lena Lee.

To contact the Bloomberg News staff on this story: Michael Wei in Beijing at mwei13@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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