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Financial crisis forces IT makers towards China's countryside
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11:27, January 27, 2009

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As the global financial crisis takes hold on China's economy, eroding domestic and international demand, the government is hoping to boost consumption and help the crisis-hit IT industry by subsidizing computer purchases by rural households that have thus far been sidelined in the expansion of new technologies.

The government is rolling out a 13-percent subsidy for farmers who buy home appliances from Feb. 1 in a nationwide expansion of a pilot policy in 12 provinces last year. It will also expand the range of eligible products from basic home appliances like TVs and refrigerators to air conditioners, motorcycles and computers.

"The subsidy policy is important to support domestic computer makers in particular in the midst of the financial crisis," says Liu Jie, vice president of Lenovo, the world's fourth largest PC maker.

Based on the present rural PC market, Lenovo estimates the policy will stimulate about 10 billion yuan (1.46 billion U.S. dollars) in sales, 5 percent up on the total market volume.

Liu Rengang, chief marketing officer of Chinese PC maker Founder, says the company has entered the prefecture and county-level market, and will extend its reach into townships and villages this year. Although the rural market accounts for a tiny share of its total sales, Liu believes the increase will be the largest.

International brands like Dell and Hewlett-Packard are also eyeing the rural market. Zhang Yongli, vice president of HP China, was quoted earlier last month in the National Business Daily, announcing her company's entry to the county and township-level market.

In a bid to meet the lower-end customers who are the majority in rural areas, all of the big PC brands provide low-price models below 4,000 yuan.

The subsidy policy came as the government announced a series of economic stimulus policies to boost domestic consumption when its foreign trade volume decreased for two months in a row at the end of last year.

The package of projects is worth of 4 trillion yuan (584 billion U.S. dollars), and includes 10 methods to help industries and to encourage consumption and raise living standards in rural areas.

With more people and companies cutting spending, major IT products makers have suffered a great slump in sales.

The start of the year should be the big selling season, but Beijing's Zhongguancun, the weathervane of the country's IT market, is much quieter now, with fewer customers and lighter traffic. Many electronics dealers have lost up to 30 percent of sales since the previous month, driving some out of business.

Lenovo announced it was to cut 2,500 jobs, about 11 percent of its global workforce. The statement did not say which of its international operations would see job cuts, but a company spokesman said the China operations would be unaffected. As early as last fall, HP announced it would cut 24,600 jobs.

"Consumer electronics products, in particular personal computers, are not regarded as a necessity," says Liu, "so IT products makers are vulnerable in times of crisis."

So rural areas are an undeveloped market that can help ease the hardship. The China Internet Network Information Center (CNNIC) said earlier this month that the number of Internet users in China jumped almost 42 percent to 298 million by the end of 2008 from the previous year, making it the world's largest Internet population.

However, only 84.6 million - less than one third of the total -are from rural areas, where more than 800 million people of the country's 1.3 billion people live.

While urban residents have enjoyed the convenience of Internet, most farmers are still unfamiliar with computers, and many do not even know how to switch on a computer.

However, the rural market is growing fast with the number of Internet users in 2008 up 60 percent. In better off rural coastal areas, computers are viewed as a necessity when young people get married. Internet cafes have spread from cities to villages and townships and become indispensable for young people.

"Most students and young people can use computers," says Yan Shunli, a Lenovo sales manager in east China's Shandong Province. "Some farmers use computers to find or release market information."

Yan says that due to the popularity of notebook PCs and the economic downturn, the desktop PC market will probably drop in 2008, but he forecasts a 17-percent increase in the township and village-level market in Shandong.

The expansion of telephones, the Internet, and other information technologies into rural areas will give farmers more opportunities to compete in the information age.

Yan says PC makers used to drive caravans to village markets, peddling computers as if they sold vegetables.

"We have confidence that with the supportive policy, we will see through the crisis," says Liu Rengang, of Founder.

Industry insiders say manufacturers face specific challenges in the countryside.

PC makers face a diverse rural market around the country, says Liu. Unlike basic home appliances, such as washing machines and motorcycles, computers are not necessary in everyday life. In China's less-developed west, farmers have little need of computers. Liu says Founder will start to focus on relatively well-off eastern areas.

As rural areas lag behind of cities in terms of infrastructure and education, farmers are more in need of training on how to utilize PCs, and of coordinated Internet services providers building a network with more extensive reach.

"We are prepared to have to invest in order to make a profit," said a statement from Lenovo.

The financial crisis raises other challenges in the rural market. Many export-oriented factories in eastern coastal areas have gone bust, so millions of unemployed migrant workers are returning to their hometowns. Earning a crust takes priority over buying a computer.

"These returning migrant workers are potential customers," says Yan Shunli. "They have to make a living. Computers can broaden their options, by for instance, allowing them to set up their own businesses, selling local specialties online."

Source: Xinhua

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