(Yicai Global) Aug. 24 -- Chinese air conditioner giant Gree Electric Appliances has stopped supplying products to northern China's Hebei province after its regional wholesaler joined hands with its Dutch competitor Philips, according to insiders.

Gree terminated deliveries to Xu Zifa, the former general agent of Gree products in Hebei, about two months ago, two senior sources close to the Zhuhai-based company said to Yicai Global yesterday. Gree has now started preparing a new sales company in Hebei, though it has yet to confirm that.

Last November, Yicai Global reported that Xu bought a controlling stake in Zhipu Supply Chain Management, which is licensed to make Philips AC units in China, and signed a deal with the local government to invest CNY10 billion (USD1.5 billion) in an AC and compressor plant in Anhui province to have a annual capacity of 5 million units. So Xu went from being an important Gree insider to a direct competitor.

The wholesaler’s switch led to "losses on both sides," one source said, adding that Xu must have foreseen today's situation. Other Gree dealers may follow suit and join his side, the person added. 

In fact, a number of disgruntled former Gree executives have already joined Xu’s side, including Huang Hui, former executive president, and Hu Wenfeng, former assistant to the president.

Unhappy about the actions Xu and his allies took in recent months, Gree has asked its dealers to choose sides once and for all during the peak AC unit sales period this summer besides stopping product deliveries to regions dominated by Xu’s network.

But no matter how much chaos caused by the realignment, the quality and the quantity of Philips AC units will not reach the level of Gree’s products in the foreseeable future, the insider added.

One of the important reasons behind Xu’s betrayal of Gree is the changing business landscape for Gree and its regional dealers, especially large ones.

With the help of the internet and social media, Gree has shrunk its dependence on regional dealers in recent years, after being able to sell its products directly to retailers online, taking a huge chunk out of regional dealers’ profits.

Inventories worth up to CNY30 billion (USD4.4 billion) were kept by Gree’s distributors under in the old system, but since the firm opened up e-commerce channels, those stocks have disappeared, Chairwoman and President Dong Mingzhu said in May.

Gree’s online AC sales make up 28 percent of all its domestic sales as of this month, according to industry researcher All View Cloud.

Editors: Tang Shihua, Emmi Laine, Xiao Yi