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China’s slowing economy sparks retail price war

Employees of a Suning appliance shop puts up sales promotional posters outside a mall in Beijing, China, Wednesday, Aug. 15, 2012.

Alexander F. Yuan/AP

China's major appliance retailers have launched an online price war in a battle for market share as sales of household white goods and electronics products are blasted by what may be the country's slowest year of economic growth since 1999.

A property sector slowdown is a particular problem for retailers including GOME, as stalling new home sales eat into demand for new washing machines and stereo systems.

Online seller 360buy.com, also known as Jingdong Mall, took aim this week at brick-and-mortar appliances giant Suning by announcing competitive price cuts on Weibo, the Chinese equivalent of Twitter.

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Cut-throat online offers courting China's bargain-conscious shoppers have pressured margins, especially in the wealthiest cities, for companies like Suning which offer a nearly identical line-up of appliance and electronics brands.

"If people are holding off buying a home, that could affect sales in certain sectors – home appliances, home decoration to some extent, furniture," said Ben Cavender, a consumer goods analyst at China Market Research Group in Shanghai.

Some potential home buyers are postponing purchases in the expectation that the government will loosen real estate restrictions. Other bargain-hunters might hope that Beijing will once again introduce rebates on consumer goods to stimulate an economy that grew at its weakest pace in more than three years in the second quarter, he said.

Deflation in raw-material prices is also starting to pinch sales prices for manufacturers and retailers. China's producer price index dropped 2.9 per cent on year in July, while consumer inflation eased to a 30-month low of 1.8 per cent.

To keep track of the price cuts, eTao.com, a rival e-commerce site run by online giant Alibaba, has begun awarding gold, silver and bronze medals to the websites offering the lowest prices for each item.

Some disappointed online bargain hunters have found that despite the battling claims, prices online are down by only about 10 per cent, according to Chinese media which has been following the price war avidly.

But the damage is real for the retailers.

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Suning's net profit fell 29.5 per cent to 1.74 billion yuan $273.34-million (U.S.) in the first half of this year, as the slowing economy hit store sales.

GOME, which is due to report earnings before the end of this month, warned that it would post a net loss for the first half due to a drop in sales and losses attributable to its e-commerce business.

The online battles have also wounded appliance manufacturers like Haier, which retaliated on Wednesday with a declaration, again through Weibo, that it would no longer supply 360buy.com. The announcement helped staunch a plunge in its share price that day to the lowest level in four months.

Oddly in China, brick-and-mortar stores often refuse to match the prices offered on their own websites, betting that customers will be willing to pay more for shorter delivery and better after-sales service at the physical stores.

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