Industry news

This year's air conditioning market in China did something almost nobody expected: it got hot outside and cold inside.

Start with the cold half. AVC's figures for the 2026 cooling year, August 2025 through July 2026, put domestic retail volume at 68.97 million units, down 14.4% year on year, with retail value at RMB 207.8 billion, down 19.2%. Both volume and value fell by double digits. Industry tracker Chinaiol paints the same picture from the production side: roughly 110 million units sold in the first half, down 6.3%, and by August domestic production schedules had dropped to 5.87 million units, a 24.1% decline steeper than July's. Record heat, and nobody was buying. The old idea that the industry lives off the weather simply stopped working.

Two forces are behind it, and they pull in opposite directions.

On demand, last year's trade-in subsidy programme pulled forward most of the replacement purchases. The Ministry of Commerce says consumer trade-ins drove RMB 1.1 trillion in related sales in the first half of 2026, but for air conditioning that means the households that were going to upgrade already did. Dealers in county and township markets are still sitting on last year's inventory, cash-strapped, and reluctant to take on more.

On cost, the picture is blunter. Copper broke RMB 105,000 per tonne at its 2026 peak, more than triple the 2020 low. Copper accounts for roughly 20% of an air conditioner's bill of materials, which adds RMB 200 to 600 per unit, and more for central systems. Then there is refrigerant. Under the Kigali Amendment's quota system, supply is capped by treaty. In the third quarter of 2026, the long-term contract price for R32 reached RMB 64,500 per tonne, another RMB 2,800 above the second quarter and the highest in a decade. Brokerage estimates suggest a 30% rise in copper shaves about 4.2 percentage points off gross margin; this year's move has taken 4 to 5 points off the table.

Under that pressure, the industry has started to split. When the new cooling year opened in August, Midea scrapped the decades-old open-season channel stocking model entirely and shifted to retail-driven planning. Gree and Haier kept the traditional approach. That divergence matters: the shift from a volume war to a value war is no longer optional.

Now the hot half.

Exports are the brightest spot. Customs data show China's air conditioner exports to the EU hit USD 3.76 billion in the first half of 2026, up 43.2% year on year and a record for the period. Household penetration in Europe has long been low, under 30% in most countries, and this summer's heatwaves triggered a concentrated release of demand. Notably, European buyers favour portable, plug-in units over split systems, and exports of those grew more than 70%.

The other growth engine is data centres. While the wider air treatment industry contracted, data centre thermal management was the one high-growth segment, reaching RMB 11 billion in the first half, up 19.2%. Carrier's second-quarter data centre orders in the Americas grew more than 300%. Trane's backlog hit USD 12.1 billion, up 70%, with seven tenths of the increase driven by AI data centres. Refrigeration has been promoted from a component business to part of the compute infrastructure itself, which is why Gree, Midea and Haier have all pushed liquid-cooling platforms this year.

For anyone building equipment for commercial kitchens or beverage service, there is a lesson buried in all this. When general-purpose air conditioning gets squeezed between input costs and channel inventory, what holds up is the product designed around one specific, difficult working condition. Commercial kitchen cooling is the clearest case. A conventional split or central unit in a heavy-grease kitchen will see its indoor coil and filters clog with oil, lose cooling capacity within months and cost a fortune to keep clean, and it cools the whole room when only the stove line needs it. That gap created a dedicated category: no indoor unit, positive-pressure ducting, condenser and compressor parked outside the kitchen, clean cold air delivered straight to the workstation by centrifugal fan. Industry research suggests this approach now accounts for roughly 35% of the segment in 2026 and keeps expanding. The same pattern shows up in frozen drinks. Slush machine demand tracks chain restaurant and convenience store expansion, with the global market at about USD 328 million in 2025 and forecast to reach USD 435 million by 2031, a 4.8% compound annual rate. Twin-cylinder models alone hold roughly 45% of the market.

Compress the year into one line: commodity products are fighting over the cost line, while scenario-specific products are breaking out on the demand side. Whoever genuinely understands what hot grease, or a cup every fifteen seconds, does to a machine still has room to raise prices and protect margin.