Home appliance market sluggish as subsidy expired
Life for the television industry dramatically changed on June 1 when the one-year subsidy program for energy-efficient home appliances expired.
Li Haiyan is a saleslady in the TV section of a Dazhong Electronics store in Beijing. At 3 pm on June 5, Li was napping on the shop's sofa instead of servicing customers. There was a simple explanation for this: Customers were few and far between, and she hadn't sold a single TV set in three days.
Sluggish sales in June were in sharp contrast with sales from the previous month, when Li sold over 200 TV sets.
"In May, there were lots of customers every day," Li said. "I was busy every minute. Although exhausted, I was happy. Now, I'm lucky to sell one set all day."
Life for the television industry dramatically changed on June 1 when the one-year subsidy program for energy-efficient home appliances expired and, as a result, prices were suddenly hiked. A flat-panel TV that was sold at 9,799 yuan ($1,598) before June 1 is now being sold at 10,199 yuan ($1,663)—without a government subsidy of 400 yuan ($65.24).
"If customers don't need those products badly, they won't be willing to pay an additional several hundred yuan. They'd rather wait for the price to drop," said Li.
Designed to drive domestic consumption and cut carbon emissions, the subsidy program for energy-efficient home appliances was rolled out by the Chinese government on June 1, 2012. The program covers five categories of first-grade energy-saving appliances, including air conditioners, flat-panel TVs, refrigerators, washing machines and water heaters. The program offered subsidies ranging from 70 to 400 yuan ($11.4 to $65.2).
Xu Dongsheng, secretary general of the China Household Electrical Appliances Association, said that the end of the program means the home appliance market will be forced to readjust as the market was over-tapped in the past year. How to induce consumers to spend on home appliances without government support has become a challenge for many industry players.
Goals achieved
In a bid to water down the impact from the 2008 financial crisis, the Chinese government pinned its hopes on expanding domestic consumption as a driving force for economic recovery, and it saw household appliances and a means to do so.
In 2008, the central government launched a campaign called "household appliances go rural," in which rural residents received a 13-percent subsidy toward the price of color TVs, refrigerators, mobile phones and washing machines. The program ended on Jan 31, 2013.
In May 2009, the State Council offered subsidies to trade-in home appliances, including TVs, refrigerators, washing machines, air conditioners and computers. The subsidy was 10 percent of the retail price of new appliances. That program ended on December 31, 2011.
The subsidy program for energy-efficient home items is the third of its kind from the Central Government. According to the Ministry of Finance, the program accomplished its goals. During the year, a total of 12.2 billion yuan ($2 billion) was allocated to subsidize 65 million-plus energy-efficient home items. Chinese consumers spent 250 billion yuan ($40.78 billion).
Because of the program, Dazhong Electronics' sales revenue surged 40 percent year-on-year, much higher than the company expected. Xu said that the program not only boosted sales, but also played a vital role in helping the home appliance sector shift from producing low-end to high-end goods.
"The market share of energy-efficient air conditioners and washing machines has increased markedly. Meanwhile, the upstream parts industry has transformed into a more energy-efficient one. The financial subsidy reduced the cost of producing energy-efficient products for companies and reduced the price for consumers to buy them," said Xu.
During the one-year program, sales of energy-efficient home appliances increased from the 1.6 million units in June 2012 to an average 7 million units each month in 2013. The market for energy-efficient home appliances is expanding sharply. Among the total, the market share of energy-efficient flat-panel TVs among all flat-panel sets has reached as high as 93 percent, while the share for green air conditioners, refrigerators and washing machines are 53 percent, 57 percent and 46 percent, respectively, according to the Ministry of Finance.
Xu said that the price for air conditioners with first-grade energy efficiency is generally 30-40 percent higher than second- and third-grade products. People are willing to buy first-grade models simply because the price after a subsidy is competitive to less energy-efficient products, said Xu.
"If the price is similar, people are more willing to buy more energy-efficient products," he said.
The one-year campaign did shore up domestic consumption in line with government plans to reshape the country's economy while guiding consumers toward more environment-friendly products. It also encouraged home appliance makers to be innovative and develop more green products, Xu said.
The future
With the subsidy program now over, companies could face a more sluggish market. Shen Danyang, spokesman for Ministry of Commerce, said that the Central Government isn't planning to roll out another similar subsidy any time soon. Local governments, on the other hand, are more inclined to shore up consumer spending through subsidies and some are mulling over such plans. In May, local authorities in southwest China's Chongqing said the metropolitan city will continue the subsidy until the end of the year.
Consumers hope the subsidies continue so they can spend less on essential items. For retailers, subsidies are an opportunity to boost sales. Home appliance makers, on the contrary, are opposed to subsidies.
"During special times, it's necessary for the government to subsidize the industry to boost consumption. But now, it's not necessary and not the right thing to do," said Zhang Bo, General Manager of the Beijing Branch of Gree Electronic Appliances Inc., one of the leading industrial players.
"Regular subsidies can't always be effective. Like product promotions, consumers won't think of them as meaningful if they occur everyday. They become numb toward those promotions. After all, the home appliance market is driven by demand, not subsidies," said Zhang. "Subsidies can't create demand."
At the beginning of May, the China Household Electrical Appliances Association handed a document to several government ministries, including the Ministry of Finance, suggesting the Central Government put an end to subsidy programs. According to the document, companies would be forced to create products that comply with government subsidies rather than create products according to market and consumer demand.
Xu said household goods are durable consumer goods. Customers won't buy two of the same product simply because of a subsidy.
China's support for energy-efficient home appliances won't change. If the government is worried about market confidence because of a lack of subsidies, it can set up a fund to reward companies that have invented new technologies. This will encourage companies to invent new green product types and cultivate a future market, he added.
Lu Renbo, Deputy Secretary General of the China Electronics Chamber of Commerce, echoed Xu's viewpoint, adding that government support can only boost the market to a certain extent, but product innovation and quality improvement rely on the concerted efforts of companies.
"Only in this way can the market develop properly," said Lu.
Some industrial watchers say the biggest achievement of the government's most recent subsidy was the increased awareness by consumers of energy-efficient products.
For smaller home appliance makers, however, they worry about their post-subsidy future.
"Without subsidies, some consumers will turn to cheaper but more energy-consuming home appliances," said Lu. "I hope that the government can establish a long-term plan conducive to the healthy development of energy-efficient appliances."
Sluggish sales in June were in sharp contrast with sales from the previous month, when Li sold over 200 TV sets.
"In May, there were lots of customers every day," Li said. "I was busy every minute. Although exhausted, I was happy. Now, I'm lucky to sell one set all day."
Life for the television industry dramatically changed on June 1 when the one-year subsidy program for energy-efficient home appliances expired and, as a result, prices were suddenly hiked. A flat-panel TV that was sold at 9,799 yuan ($1,598) before June 1 is now being sold at 10,199 yuan ($1,663)—without a government subsidy of 400 yuan ($65.24).
"If customers don't need those products badly, they won't be willing to pay an additional several hundred yuan. They'd rather wait for the price to drop," said Li.
Designed to drive domestic consumption and cut carbon emissions, the subsidy program for energy-efficient home appliances was rolled out by the Chinese government on June 1, 2012. The program covers five categories of first-grade energy-saving appliances, including air conditioners, flat-panel TVs, refrigerators, washing machines and water heaters. The program offered subsidies ranging from 70 to 400 yuan ($11.4 to $65.2).
Xu Dongsheng, secretary general of the China Household Electrical Appliances Association, said that the end of the program means the home appliance market will be forced to readjust as the market was over-tapped in the past year. How to induce consumers to spend on home appliances without government support has become a challenge for many industry players.
Goals achieved
In a bid to water down the impact from the 2008 financial crisis, the Chinese government pinned its hopes on expanding domestic consumption as a driving force for economic recovery, and it saw household appliances and a means to do so.
In 2008, the central government launched a campaign called "household appliances go rural," in which rural residents received a 13-percent subsidy toward the price of color TVs, refrigerators, mobile phones and washing machines. The program ended on Jan 31, 2013.
In May 2009, the State Council offered subsidies to trade-in home appliances, including TVs, refrigerators, washing machines, air conditioners and computers. The subsidy was 10 percent of the retail price of new appliances. That program ended on December 31, 2011.
The subsidy program for energy-efficient home items is the third of its kind from the Central Government. According to the Ministry of Finance, the program accomplished its goals. During the year, a total of 12.2 billion yuan ($2 billion) was allocated to subsidize 65 million-plus energy-efficient home items. Chinese consumers spent 250 billion yuan ($40.78 billion).
Because of the program, Dazhong Electronics' sales revenue surged 40 percent year-on-year, much higher than the company expected. Xu said that the program not only boosted sales, but also played a vital role in helping the home appliance sector shift from producing low-end to high-end goods.
"The market share of energy-efficient air conditioners and washing machines has increased markedly. Meanwhile, the upstream parts industry has transformed into a more energy-efficient one. The financial subsidy reduced the cost of producing energy-efficient products for companies and reduced the price for consumers to buy them," said Xu.
During the one-year program, sales of energy-efficient home appliances increased from the 1.6 million units in June 2012 to an average 7 million units each month in 2013. The market for energy-efficient home appliances is expanding sharply. Among the total, the market share of energy-efficient flat-panel TVs among all flat-panel sets has reached as high as 93 percent, while the share for green air conditioners, refrigerators and washing machines are 53 percent, 57 percent and 46 percent, respectively, according to the Ministry of Finance.
Xu said that the price for air conditioners with first-grade energy efficiency is generally 30-40 percent higher than second- and third-grade products. People are willing to buy first-grade models simply because the price after a subsidy is competitive to less energy-efficient products, said Xu.
"If the price is similar, people are more willing to buy more energy-efficient products," he said.
The one-year campaign did shore up domestic consumption in line with government plans to reshape the country's economy while guiding consumers toward more environment-friendly products. It also encouraged home appliance makers to be innovative and develop more green products, Xu said.
The future
With the subsidy program now over, companies could face a more sluggish market. Shen Danyang, spokesman for Ministry of Commerce, said that the Central Government isn't planning to roll out another similar subsidy any time soon. Local governments, on the other hand, are more inclined to shore up consumer spending through subsidies and some are mulling over such plans. In May, local authorities in southwest China's Chongqing said the metropolitan city will continue the subsidy until the end of the year.
Consumers hope the subsidies continue so they can spend less on essential items. For retailers, subsidies are an opportunity to boost sales. Home appliance makers, on the contrary, are opposed to subsidies.
"During special times, it's necessary for the government to subsidize the industry to boost consumption. But now, it's not necessary and not the right thing to do," said Zhang Bo, General Manager of the Beijing Branch of Gree Electronic Appliances Inc., one of the leading industrial players.
"Regular subsidies can't always be effective. Like product promotions, consumers won't think of them as meaningful if they occur everyday. They become numb toward those promotions. After all, the home appliance market is driven by demand, not subsidies," said Zhang. "Subsidies can't create demand."
At the beginning of May, the China Household Electrical Appliances Association handed a document to several government ministries, including the Ministry of Finance, suggesting the Central Government put an end to subsidy programs. According to the document, companies would be forced to create products that comply with government subsidies rather than create products according to market and consumer demand.
Xu said household goods are durable consumer goods. Customers won't buy two of the same product simply because of a subsidy.
China's support for energy-efficient home appliances won't change. If the government is worried about market confidence because of a lack of subsidies, it can set up a fund to reward companies that have invented new technologies. This will encourage companies to invent new green product types and cultivate a future market, he added.
Lu Renbo, Deputy Secretary General of the China Electronics Chamber of Commerce, echoed Xu's viewpoint, adding that government support can only boost the market to a certain extent, but product innovation and quality improvement rely on the concerted efforts of companies.
"Only in this way can the market develop properly," said Lu.
Some industrial watchers say the biggest achievement of the government's most recent subsidy was the increased awareness by consumers of energy-efficient products.
For smaller home appliance makers, however, they worry about their post-subsidy future.
"Without subsidies, some consumers will turn to cheaper but more energy-consuming home appliances," said Lu. "I hope that the government can establish a long-term plan conducive to the healthy development of energy-efficient appliances."
