By BEN DOLVEN

Huainan, China      CHINESE COMPANIES MAY be flooding the world with ever-cheaper washing machines, refrigerators and air conditioners.  But there's a source of hope for the world's appliance makers: They're gobbling up market share-in China.

Last year, foreign brands made up 420/c of China's nationwide market for fully automatic washers, up from 15% in 1999.  Companies such as %Whirlpool Corp., Korea's LG Electronics Inc. and Germany's Siemens AG have carved out a chunk of the market in China's affluent coastal cities, and now many are trying to push inland into the tougher but larger parts of the Chinese market.

To see how they do it, spend a day with a four-person team, from Whirlpool traveling around the poor, rural province of Anhui in eastern China. They're riding hip after a visit to Huainan, a city of 2.1 lion, where they lunch with the local Communist Party secretary, who asks them to, consider more investments, maybe even build a factory.  Downtown, at the Hualian Commercial store, Whirlpool has a big brightly lit display and has sold 33 washers in a month-its best performance in the province.

Whirlpool already has double-digit shares of the market in several richer provinces, including 18% in the commercial center of Shanghai. Last year, more than half of the Michigan-based

Company’s China washing machine markets--Shanghai; Beijing; Guangdong province near Hong Kong; and Chengdu, the capital of Sichuan.

But in China, more than half the total midrange and high-end washers sold each year are sold outside 26 largest cities, according to market-research company ACNielsen.  So Whirlpool is pushing farther afield.  "Every market is on our map except Tibet," says Ko-Lin Feng, the Shanghai-based commercial director of Whirlpool China.

For years, forays into China's interior, have left companies stuck in snake pits distribution hassles, uncooperative retailers, politically connected local competitors and unmet sales targets.  But there are forces changing that, among them the growth in - small-city incomes: Although the per-capita income in Hefei, the capital of Anhui, is just 800 yuan ($97) a month less than the price of Whirlpool's cheapest washer-a growing middle class has the money to buy better products.  Then there's the development of nationwide retail chains, and a perception that although nouveau riche consumption patterns in China's biggest cities are established, opportunities remain for new players to set them in places like Anhui.

For Whirlpool, China makes up only a small part of overall revenue, but the growth potential is clear. Whirlpool Asia President Garrick D’Silva points to 35% an annual revenue growth in the past three years. “ The sort of growth rates we’re seeing in China we're not seeing in our operating portfolio anywhere else in the world," he says.

The company says its China businesses have been turning operating profits since 1999, after it sold off money-losing refrigeration and home air-conditioning ventures.  The washing-machine business itself has yet to make money on Whirlpool's $60 million investment, but Mr.. D'Silva says it should break even this year. (Whirlpool also makes microwave ovens in China, mostly for export, and supplies compressors to air-conditioning makers.)

As it tackles new markets in China, Whirlpool faces a difficult dance with retailers.  The company continually struggles to convince stores that customers will go for its machines, helping the retailer grab more sales. In Anhui, its two-man sales team buses back and forth between small cities, wining and dining retailers and trying to negotiate down prices for retail space.

Still, they run into walls.  Ms. Feng shakes her head as she walks through a store in Hefei, which in return for display space is asking for a payment of 80,000 yuan ($9,674).  "We'd have to sell 100 washers a month to do this," she says.

Often they find that stores outside provincial capitals are more eager to do deals.  Whirlpool will make most of its early efforts in Anhui in cities north of Hefei, even though the largely agricultural area is less affluent.

The expansion of chain stores also provides a foothold for foreign brands.  Whirlpool has links with several retail chains.  So when Shanghai-based chain Guomei Electronics built stores in the inland cities of Xian and Zhengzhou, Whirlpool went with it.

Once the company gets its machines in stores, competition is fierce.  It vies with multinational competitors like LG and Siemens on the high end, while the bulk of Chinese sales are still taken up by homegrown giant Haier Group and lower-end Chinese brands with names like Wuxi Little Swan and Little Duck.  Competition is driving, down prices by 10% to 15% a year, squeezing profit margins.  Haier still dominates, accounting for 26% of the nationwide market. (Wirlpool's share is about 7%.)

Xie Jinhua, the sales manager in Anhui, says he'd like to hire more people, but is quickly shot down by his boss, Adele Tao, the business manager for central China.  "When we're selling 1,000 units a month," she says, "we can consider more people.

For the original article, please read The Wall Street Journal of Feb. 20, 2003 at page 10.