Four months after China expanded its "home appliances to the countryside," program nationwide, appliance manufacturers are seeing signs of hope as the subsidy program stirred up sales in the countryside and partly offset the impact of plunging exports.
China, the world's largest producer and exporter of household electric appliances, is home to more than 120,000 household-appliance makers of various sizes. But since late last year, the industry, like the country's other export-oriented sectors, slid into crisis amid slumping demand following the global economic downturn.
Figures from the Ministry of Commerce showed that China's export of household appliances and electronic products last year were worth about 72.5 billion U.S. dollars, a year-on-year increase of 3 percent, much less than double-digit growth achieved in years before 2008.
For the color TV sets, the export dived from 20.3 percent year on year from the second quarter last year to merely 0.6 percent in the fourth quarter. In the first quarter of this year, China's export value of color TV sets came to 1.67 billion U.S. dollars, declined by 18.4 percent at an annualized rate.
"Owing to falling overseas demand, China's household appliance industry is facing very tough times," said Mei Xinyu, a researcher at the Ministry of Finance (MOF). As one of China's key industries-- which employs a large number of workers, including migrant workers -- it was imperative to help appliance manufacturers tide over the current difficulties, he said.
According to an industry report jointly released late last month by the National Bureau of Statistics and the Beijing-based Economic Daily, more than 1.4 million people work in China's home appliances industry.
Under the strategy of boosting domestic demand to secure economic growth, China on Dec. 1 expanded the subsidy plan from the original three provinces to 12 provinces and provincial-level regions.
In December 2007, China launched the subsidy plan, called "home appliances to the countryside" plan, under which the government provided a 13-percent subsidy to farmers who buy designated brands of color TV sets, refrigerators and mobile phones in the three agricultural provinces of Shandong, Henan and Sichuan, as well as Qingdao City.
The subsidy program was nationally adopted as of Feb. 1. It was running alongside other campaigns, such as "automobiles to the countryside", to boost domestic consumption at a time when foreign demand for China's exports is slumping.
Nine kinds of household appliances are included in the expanded subsidy program -- color TV sets, refrigerators or freezers, mobile phones, washing machines, computers, water heaters, air conditioners, microwave ovens and electro magnetic cookers.
Each rural household was allowed to purchase two items from each category and could claim the subsidies at their township government finance agencies in 15 working days.
The MOF said in March that the 2009 budget from the central government for this subsidy program was 20 billion yuan (2.93 billion U.S. dollars), which would help increase household appliances sales by more than 100 billion yuan.
Premier Wen Jiabao said during his inspection tour in January to China's largest household appliance maker Haier that the subsidy program would last at least for five years. The policy could help boost household appliances sales by at least 500 billion yuan.
Industry analysts said the "home appliances to the countryside" campaign came after several years of rapid income growth among Chinese farmers. Many have the need to buy household appliances.
The scrapping of the 2,600-year-old agricultural tax in 2006, subsidies to farmers for purchasing better strains of seed and farm machines, and other government measures had been helping Chinese farmers raise their income. In 2008, the per capita net income of about 800 million rural residents surged by 8 percent to hit 4,761 yuan.
China had also stepped up efforts to build a better social security system for farmers. The New Rural Cooperative Medical Care System, introduced in 2003, has now covered part of the medical cost. The burden of school tuitions for rural kids also had been eased.
With more than 180 million families, China's countryside has lagged far behind urban areas in sales of home appliances. And analysts said one percentage point of increase in appliance ownership there could mean at least 1.8 million items of home appliances in sales.
Fu Ziying, Vice Minister of Commerce, said last November that the subsidy program could help stimulate rural consumption amounting to 920 billion yuan and realize household appliance sales of 480 million units in the coming four years.
Any manufacturer couldn't afford to lose such a huge market, especially in the current economic winter. Chinese home-appliance makers tried every possible means to gain a piece of cake.
Qingdao-based Haier Group, also the world's fourth largest white-goods manufacturer, was taking the lead.
Haier's CEO Zhang Ruimin told Xinhua-run Economic Information Daily earlier this month that his company was capitalizing on the subsidy program and working to develop goods meeting the special needs of farmers.
"Haier has set up more than 6,000 retail outlets in more than 2,000 counties nationwide. We are striving to provide the best service to rural customers. In addition, we are trying to help farmers obtain the 13-percent rebate as soon as possible," he said.
Sun Kunpeng, chief of Haier's public relations department, said Haier expected the rural market to help drive future growth of China's household-appliance industry and partly offset the impact of negative business factors, such as falling overseas demand.
According to Sun, Haier's sales in the countryside jumped more than 50 percent so far this year. But he declined to give any other figures, citing commercial secrets.
Xinfei Group, another major white-goods maker based in central Henan Province, also cashed in on the subsidy program.
It was like a catalyst to release the potential of the rural household appliances market, which helped Xinfei achieve growth despite the financial crisis, said Li Mingsheng, the company's spokesman.
According to Li, Xinfei sold up to 600,000 units of home appliances in rural areas in the first four months, accounting for54.4 percent of the company's total sales. For the first time, the rural market outperformed the urban market for Xinfei.
Statistics provided by the Henan Commerce Department showed that the local farmers had bought nearly 1 million units of household appliances in the period from Jan. 1 to May 24.
Refrigerator was the most popular purchase choice, with a sales volume of 426,000 units as of May 24, accounting for 45 percent of the total appliance sales in Henan.
Nationwide, refrigerator was also the best-selling product. Huo Dufang, chairman of the China Household Electric Appliance Association, said sale volume of refrigerators in rural areas had jumped from about 10,000 units each day from the beginning of this year to current 70,000 or 80,000 units at best each day.
"It is a significant figure. The subsidy program has become a major reason behind the recovery of China's refrigerator industry since February," she told an industry forum on May 21.
Xu Dongsheng, deputy secretary of the China Household Electric Appliance Association, also said the industry had passed the worst times and was witnessing some evident signs of recovery, which should be partly credited to the "home appliances to the countryside" program.
The Ministry of Commerce said Chinese farmers had bought more than 7.6 million units of household appliances in the first four months and sales had been jumping on a monthly basis.
In April alone, farmers bought nearly 4.9 million units of appliances, about 3.3 times of the March figure, which stood at 1.49 million units.
Booming sales of household appliances contributed to the fast growth of retail sales in the countryside in the first four months.
NBS figures showed that retail sales in rural areas in the first four months reached 1.26 trillion yuan, an increase of 16.9 percent year on year. For the first time since 2001, the growth was 2.9 percentage points higher than that in the urban areas.