Digital camera makers see China as the world's last untapped goldmine

When translator Yu Xiaofei of Beijing wanted to buy a new digital camera, she set her sights on the best from Japan.

"My photographer friends told me either Canon or Olympus would be top quality," said the 30-year-old, showing off a black Canon Powershot G5 she bought for 5,150 yuan (US$622) at a bustling electronics flea market in the capital.

Young, well-heeled professionals like Yu are the reason China is no longer just a manufacturing base for the likes of Sony Corp, Canon Inc and Olympus Corp, but also a market on the cusp of explosive growth.

Most of China's 1.3 billion people can't afford digital cameras, but analysts say there is a pool of some 400 million potential customers living in Beijing, Shanghai, Guangzhou and other large cities near the coast.

Not surprisingly, key players in the US$15 billion worldwide digital camera market are gearing up to tap what China has to offer, eager to find new customers as growth rates in Japan and other more mature markets begin to slow.

"China is probably the only untapped big market remaining with real growth potential," said Makoto Kimura, managing director and head of digital camera operations at Nikon Corp, the world's sixth-best selling digital camera brand.

Sales in the Chinese market doubled last year to 1.4 million units -- still relatively tiny in absolute terms. Shipments reached 15.6 million units in Western Europe and 8.5 million in Japan, according to research firm International Data Corp (IDC).

IDC expects digital camera shipments in China to rise 65 percent to 2.32 million units this year and climb steadily to 6.5 million in 2008.

bullish outlook

Canon is more bullish, predicting 3 million units this year and 15 million by 2008, overtaking Japan. Canon has forecast it will sell 15.2 million digital cameras worldwide this year.

One reason for Canon's optimism over China is the Beijing Olympics in 2008 and the Shanghai World Expo in 2010, which analysts have singled out as events likely to boost digital camera sales.

"By 2008, China will join Europe and the United States as one of the world's top three digital camera markets," said Takashi Oshiyama, head of Canon's digital imaging business group.

A bold statement, but such a development would not be unprecedented in the world of electronics. Mobile phones and personal computers are just a few of the products where shipments in China now outstrip those in Japan.

Even so, camera makers acknowledge that there are still many obstacles to overcome.

Canon's Oshiyama pointed to the country's shaky financial system and also expressed worries about the lack of warehouses or a network of big electronics chains such as US-based Best Buy that are willing to take on inventory in bulk.

Moreover, China's distribution network is underdeveloped, with top shipping companies such as FedEx Corp still in the process of adding major cities to their routes. But none of this alters Canon's bullish view.

"The infrastructure is not yet ready," Oshiyama said. "But there is no other country in the world that has 1.3 billion people and an economy growing faster than seven percent a year."

Some analysts are less optimistic about China's market, however, saying the lack of convenient digital printing services and the growing popularity of camera-equipped mobile phones could hinder the industry's expansion.

"Camera phones are a potential inhibitor of growth," said IDC China analyst Charles Jiang. "There are not enough digital printing stores to satisfy most digital camera users and the cost of buying a printer to print photos is very high."