Time to cool off

Dong Mingzhu: combative figure

One of the fiercest rivalries in business history was between two inventors, Thomas Edison and Nikola Tesla. It wasn’t a dispute for the faint-hearted: to prove that his direct-current electrical system was safer, Edison rounded up stray animals and electrocuted them in front of journalists with Tesla’s rival alternating-current system.

Gree Electric, China’s largest air conditioner (AC) maker, more recently looked to discredit its smaller rival Aux Group.

In a complaint to the State Administration for Industry and Commerce, the Zhuhai-based giant last month accused its Ningbo competitor of producing shoddy products. At least eight of its models failed to comply with regulatory standards, Gree alleged.

“A lot of shoppers have told us that Aux Group’s ACs are cheap, and yet they consume a colossal amount of electricity. The test results from our laboratory show that there’s a huge discrepancy between the marketing claims and the actual efficiency of its products,” Gree alleged in a statement, noting that their own findings were consistent with those by a third party.

“Making and selling products as such not only seriously hurts consumer rights, but also significantly undermines our country’s environmental policies, as well as fair market competition,” Gree added.

Aux Group dismissed the accusations and posted test certificates obtained by the eight models on its weibo account. “Between 2016 and 2019, Aux Group had 19 product types being randomly sampled for a total of 29 assessments. All examined products are 100% qualified.”

In a separate post Aux Group claimed that Gree was trying to divert attention from its own performance. Sales of Gree’s ACs made through online channels fell 12% in the first quarter, the post noted citing local data firm AVC, compared to a 56% increase for Aux Group.

There were other reasons for the grandstanding, it said: “Gree is slandering us in the run-up to the 618 Promotion. Such practice is blatantly anti-competitive.”

(Similar in style to Alibaba’s Singles’ Day, the 618 sales campaign is run by rival e-commerce giant JD.com to commemorate its founding date: June 18, 1998).

The 618 sales season ended with Aux Group slipping from best-selling online brand to third place, behind Midea and Gree. But Gree wasn’t in much of a mood to celebrate, following a 6% decline in the value of its Shenzhen-listed shares, or a loss of nearly Rmb19 billion ($2.75 billion) in its market capitalisation.

This was partly because news of the row drew attention to some of its challenges. Gree draws a big portion of its income from supplying air conditioning units to new homes and apartments. But restrictions on sales in many urban property markets have dampened demand for Gree’s goods, which has fed through into flat profits.

Gree’s distributors are feeling the heat as well, with an increasing share of inventory being pledged for bank loans, reports Capital Week (a publication linked to the China Stock Exchange Council). At least 1.5 million units have been secured for financing at one of its biggest distributors, it says.

Aux Group, which targets lower-income customers, has been more adept at selling online, where the most price-sensitive shoppers congregate. Growth in the AC market is also becoming more reliant on online sales, which grew 27% year-on-year in the first four months (versus a decline of 9% in offline sales).

That may explain why Gree triggered the war of words with Aux Group. It also hints at why Gree’s boss Dong Mingzhu has urged her staff to launch their own e-commerce platforms marketing Gree’s products (see WiC445).

However, it’s not that first time that Gree and Aux Group have crossed swords: 163.com says that Gree sued its peer at least 15 times for intellectual property theft between 2015 and 2017.

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