China has grown to be the world's third largest electrical electronics market as well as the market with the fastest growth. During the period of 2000-2005, the nationwide power shortage not only resulted in the great progress of the domestic power industry but also directly stimulated the demands for power equipment thanks to the dramatic increase of investment in power.

In the first half of 2006, driven by the strong market demands, the production value of the transformer industry has risen by 19% and the sales rate has improved month by month since early 2006. The average sales rate of the first five months rose to 96.49%.

The profits of the transformer industry remain at a high level and show a slight growth from 2005. According to the statistics of 6 listed transformer enterprises, the average profit margin was 23% in the first half of 2006, up by 2.1% from the year earlier.

The installing capacity reached about 638 million KW by the end of 2006 but the growth rate will slow down after the year of 2007. Fortunately, the extremely depressive market demands which occurred in 2001 will not come again for the growth of newly-increased installing capacity will no doubt lead to a sharp rise in the demands of power-generating equipment. Currently, the ratio of power-generating equipment to transmission & transformation equipment is 1:12 (around 1:8/1:9 in previous two years), according to which, it is estimated the domestic transformer market capacity is approximately RMB 70 billion.

However, the costs of the transformer industry are rising. The transformer industry is a competitive industry, so a slight overcapacity is helpful in market competition, but it seems that the supply-over-demand problem in production capacity is getting increasingly serious, which is reflected here by homogenous products, scattered resource supply and vicious market competition. For instance, for the power transformer enterprises alone, the number has already exceeded 1000 while their technology level is rather low. What’s more, they also fight with each other to capture resources and users, which results in a rise in product cost.

Generally speaking, the supply of transformers is far more than the demand worldwide. As China has such a huge transformer market and cheap & skilled labour force, plus the proviso on tendering and bidding for big projects as well as the favourable taxation policies, foreign-owned companies, driven by profit, have swarmed into China since the 1990s. Recently, foreign-owned companies have taken action for the merger and acquisition towards third-tier Chinese transformer enterprises and it is estimated that the merger & reorganization wave in the transformer industry will turn more and more violent in the future.