It took China's manufacturers 20 years to begin trusting ac variable-speed drives, but since then most Chinese iron and steel firms have switched to ac drives because they're more reliable, easier to maintain, better automated, and more energy efficient. These and other multiplying applications eventually caused skyrocketing growth and have now given China's ac drive sector a majority of the nation's overall electrical variable-speed drive market (see chart). AC drives are expected to gain an even greater share over the next five years.

Besides early reliability concerns, high prices for ac drives also slowed their initial acceptance in China. However, intense competition from dc drives inspired ac drive manufacturers to cut prices so smaller end-users could afford them.

In China, the most-used ac drives are in the 2.2-22 kW range. Nearly all ac drive manufacturers serving China have a presence in this market segment, which makes it crowded and even more competitive than other segments. As a result, prices in the 2.2-22 kW range have decreased for the past five years and the segment's revenues have also slowed over the past two years.

Ten years ago, three Japan-based companies, Fuji Electric, Mitsubishi Electric, and Sanken, dominated China's ac drive market. However, in a dramatic shift over the past decade, their market shares have been seriously eroded by U.S. and European competitors, such as Siemens and ABB.

Sanken, for example, lost its market leadership position because it reportedly focused too much on low-end application fields, such as widely used average industrial pumps and blowers, and missed opportunities in China's precision control and automation sectors.

Meanwhile, ABB found its ac drive products were priced far above Japanese competitors when it first entered China's market. To overcome this obstacle, ABB opted for a localization strategy and set up a China-based manufacturing venture, Beijing ABB Electrical Drive Co. Most of ABB's ac drives are now priced comparably to their Japanese counterparts. Fuji and Mitsubishi have not yet established local manufacturing facilities, and still rely on exports from Japan.

Besides ABB and Siemens' gains, it's expected that several other suppliers will also secure more of China's ac drive market in the future because of their strong R&D, marketing, and distribution capabilities. These include Danfoss, Lenze, Schneider Electric, and Yaskawa.

The pace of China's ac drive market is determined by how fast the nation's larger economy grows. To curb soaring inflation, China's government recently established a tightened monetary policy that slowed gross domestic product (GDP) and reduced infrastructure investment. Growth was also hindered by 1997's Asian financial crisis.

However, with inflation coming under control, China's government is expected to spur development by loosening some monetary controls over the next two years. This is expected to increase industrial investment and perhaps ignite the ac drive market, which is expected to grow 15% per year in the future, reaching US $960 million in 2005.

To succeed in this future, ac drive manufacturers serving China will have to produce more customized solutions, such as motor and drive packages, and set up more cost-effective sales and distribution systems. Perhaps most importantly, ac drive companies will likely have to set up manufacturing, R&D, and/or marketing capabilities in China to deliver competitive prices and needed support services.

For more information, contact Beijing Consultech at +86 10-65872446; fax: +86 10-65872443.