China's digital camera market is expected to experience a banner year -- with record sales growth -- this year.

But it could be a tough year for Chinese manufacturers, as their larger foreign counterparts aggressively eat into their already small shares of the market, a researcher said.

"My most optimistic prediction is, domestic makers may hold less than 10 per cent, combined, of the digital market at the end of this year," said Guo Chang, an analyst with Beijing-based data tracking firm CCW Research.

"And it may be even worse."

Chinese mainland manufacturers, together with producers in Taiwan Province, held less than 15 per cent of the market last year, the analyst estimated.

According to CCW, digital camera shipments last year in China totalled 892,000 units, up 125.3 per cent year-on-year.

Sales amounted to 2.59 billion yuan (US$312 million) in 2002, up 43.9 per cent compared with the previous year.

This year's shipments are expected to almost double, to near 1.7 million units, but the high-flying days will be gone during 2005-06, CCW said.

The firm estimates growth in shipments will stand at around 30-40 per cent during that period.

As a result, this year will be a major turning point, competitively, for the market, Guo noted.

Some smaller domestic players might be squeezed out of the market as a result of aggressive price cuts by major foreign manufacturers such as Sony and Cannon.

The average price of a digital camera last year dropped to 2,955 yuan (US$356), or 35 per cent, from 4,545 yuan (US$548) the previous year. That was the steepest descent during the past several years, CCW said.

That was due largely to the decline of component costs, and to foreign makers' decision to shift their high-end production lines to China, Guo noted.

Besides, with the increase of their sales volumes, manufacturers have benefited from the "economy of scale," he said.

The market is becoming increasingly crowded and competitive: There are more than 40 makers in the digital camera market.

Those manufacturers last year launched more than 130 new models.

"Last year, foreign makers, in particular the Japanese makers, took the initiative to cut prices, which have largely squeezed domestic makers, which traditionally focused on the low-end and mid-range market segments," Guo said.

"They are continuing to cut prices ... which will be 'do-or-die' year for domestic makers."

Foreign manufacturers are starting to cut prices of 4-5 megapixel digital cameras, which are deemed to be high-end products.

Such moves are designed to make room for the 6 and 8 megapixel cameras set to be unveiled, industry watchers said.

Behind the plight of domestic makers is their lack of core technologies, Guo said.

Chinese mainland makers are largely digital camera OEM (original equipment manufacturer) suppliers.

Digital camera makers are unlikely to copy the path domestic handset makers have taken, Guo said.

Chinese handset makers initially served as OEM suppliers for foreign makers, but gradually benefited from the technology transfer from their foreign partners.

In China, handset makers are not allowed to make and sell mobile phones in the country without a licence.

As most of the licences are granted to domestic makers, unlicensed foreign players must seek partnerships with licensed domestic makers, which makes the technology transfer possible.

Also, part of domestic handset makers' success is their focus on sales channels and users in small cities and towns inclined to buy low-priced handsets.

Now, domestic makers control more than 30 per cent, combined, of the market. The Ministry of Information Industry (MII) even said the figure is approximately 60 per cent.

But the scenario is different in the digital camera market, where there are no licensing limitations, Guo noted.

And the penetration of digital cameras in small cities and towns is unlikely to increase substantially in the foreseeable future.

Domestic makers are unlikely to see a major turnaround without substantial government policy support or large-scale investment in research and development, the analyst said.

"I expect leading domestic makers, like Lenovo, Founder and Tsinghua Unisplendor, will not want to make such large-scale investments, as it will take too long to reap the returns," he said.

"The best way for them, probably, may be co-operating with foreign vendors like Casio and Matsushita, which have some technologies but are not doing well on the Chinese market."

The analyst also suggested domestic makers should look to the accessory market, which promises much growth potential.

"The rapid growth of the digital camera market will result in a sales boom of accessories, like batteries and storage products, which have been largely ignored," he said.

Guo estimated the size of the accessory market will be worth more than 500 million yuan (US$60.2 million), while that of the digital filming and printing market will b