This article is based on a GCiS multi-client report: China Heat Pumps Market Research Report.
The overall heat pump market is growing very quickly in China, although a closer look into the market creases reveals that foreign suppliers are not engaging in some of the hottest segments, particularly air source water heaters in southern China. Commoditization by Chinese manufactures has been a common business plan, and it seems to be paying off for large domestic appliance firms.
Chinese domestic manufacturers are capitalizing on the growing demand for air source heat pump water heaters. Although heat pump technology can be used as a building’s central temperature control HVAC system, the application of this technology in home, villa and apartment-use water heaters is a fast growing market which domestic companies are primed and capable of supplying. Foreign companies only account for 3% of these revenues, and there is no sign of them making headway in a market which is really heating up.
Heat Pumps: Different Applications, Different Sub-Markets
A heat pump is like an air conditioner which can run both ways—it can cool and heat using the same refrigeration system—or, they can purely heat water. Heat pumps are considered energy efficient because, unlike other electric heaters, the electric power they consume is only used to power the compressor and not to directly generate heat. This way, the device heats about 3-5 times more efficiently than do electric coil appliances (toasters, hair driers, space heaters, electric water heaters). Because these devices do not burn fossil-fuels and are more efficient heaters, they have been deemed a green technology, and the government is offering subsidies for construction companies encouraging them to spend a little more for a heat pump rather than a traditional coal/gas water heater. .
The Air Source Heat Pump China Market Layout
According to the recently published China Heat Pump Market Report by GCiS, the entire China domestic heat pump market is valued at RMB 9 Bn, with air source heat pumps (ASHP) accounting for about 42% of the total market. Of this RMB 3.8 Bn generated from all air source heat pumps sold, about 68% of them were from heat pump water heater sales, and 29% from heat pump temperature control sales. However, of the major wholly owned foreign enterprises in the market (including Mcquay, Hikom, Daikin, York, Trane, Phnix, Carrier, and Climaveneta) only Phnix sells air source heat pump water heaters. Who is meeting the demand? Joint ventures and domestic companies. They supply 97% of ASHP water heater demand in the China market (see figure below).
Built to Commoditize
There are several attributes of both the product and suppliers that can explain the current market layout. Firstly, the product is relatively simple and easy to mass produce, especially by companies that already manufacture products using refrigeration cycle components, such as refrigerators and air conditioners. Secondly, large domestic players already have established distribution systems. Finally, on the demand side, customers are purchasing more efficient appliances, particularly in southern China. The market grew by an impressive 33% last year.
These air source heat pump water heaters are a growing market, but most of the market share has been grabbed by domestic suppliers; in particular, Tsinghua Tongfang, Gree and Midea collectively holding slightly less than one fifth of the ASHP market. The nature of these companies allows fast and easy expansion into these side markets, and they already have a mature and established distribution network.
Sales to the southern, central and eastern regions of China account for about 77% of all air source heat pumps sold by output. Midea, a major Chinese home appliance manufacturer, has recognized the potential here and has responded by expanding capacity (or shifting capacity since they make many products that use refrigeration cycles) to almost 150,000 units. Their production output is at 40%, and since they sell a collective 95% of their ASHP water heaters to the south, central and eastern regions, they are primed to grab market share as the market grows.
China has a well documented history of being able to take products and making them cheaper and more attractive to consumers, and it seems they are doing well in making a heat pump water heater a viable alternative to classic coal or gas water boilers. The commoditization of these products by consumers and the swift response by domestic power-houses has left many foreign players out of the southern China heat pump race.