Energy-efficiency May Be Key to China’s Electronics and Appliance Market

Date: June 17, 2014

Energy-efficiency May Be Key to China’s Electronics and Appliance Market

The global market for consumer electronics is expected to reach an estimated US$1,210 billion by 2017, with a compound annual growth rate of between 6-7% over the next several years, according to various reports by Research and Rising consumer incomes, more interconnected lifestyles, and the desire for energy-efficient products will be the key factors driving the world’s electronics and household appliance markets.   

What is new is that the industry is now entering a stage of “convergence,” where different streams of digital-based audio, video, and information technologies are merging, with the result that the hurdles to entry across various markets and industries are beginning to disappear. This can best be seen in consumer devices such as home appliances, entertainment products, and computer peripherals, and is exemplified in the growing popularity of smart homes.  

The latest “Global Consumer Electronics Market Forecast 2018” predicts that the hottest markets will be the US and China, which together account for more than 37% of the global industry. The forecast notes that China has now surpassed the US to become the industry leader, with demand driven by technological development, rising income levels, and a large consumer base.

Euromonitor predicts that the product replacement cycle in China should shorten as upgrades among Chinese consumers accelerate. Rural sales of consumer electronics are also set to grow faster than urban sales, due to the narrowing of the income gap between urban and rural residents. In 2013, Chinese consumers continued to trade up across a wide spectrum of electronic products, led by home audio and cinema systems, smartphones, LCD and HD TVs, and the latest hi-fi and DVD products.

A similar trend was seen in China’s appliances market, where a combination of central government subsidies and aggressive promotion by the industry helped offset a decline in consumer confidence due to the slowing economy. With Chinese consumers chasing higher standards of living, product upgrades were one of the crucial factors driving sales last year. Some of the biggest appliance sale items included consumers trading up to automatic/front-loading washing machines, 3-door fridge-freezers, and inverter air conditioners.

Another interesting trend that should continue is the growing popularity of appliances for home-cooked food. With food safety still a major concern, Chinese consumers are being drawn to such items as food processors, hand blenders, hand mixers and bread-making machines, all of which saw buoyant growth in 2013.

Much of the market stimulus over the past five years, however, has been the result of Chinese government campaigns and subsidies. For example, in 2008, Beijing launched the “household appliances go rural” program that gave rural residents a 13% subsidy toward the price of color TVs, refrigerators, mobile phones, and washing machines. That program ended in January 2013. Another program, which lasted from 2009-2011, offered a 10% subsidy for trade-ins on home appliances. The most recent program, which was in place for only one year and ended in June 2013, offered consumers a subsidy of between US$11-US$65 on purchases of energy-efficient home items. The program stimulated consumer spending to the tune of US$41 billion on over 65 million energy-efficient home appliances at a cost to the government of US$2 billion.

According to China’s Ministry of Finance, the latest program was a huge success, as it expanded sharply the market for energy-efficient home appliances across the country. For example, the market share of energy-efficient flat-panel TVs reached 93% of all flat panel sets sold in China. The share of green air conditioners, refrigerators, and washing machines reached 53%, 57%, and 46% of the total market, respectively.

Analysts credit the program for shoring up domestic consumption in line with the Chinese government’s 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 to develop more green products. The big question facing the industry now is how to induce consumers to spend on electronics and home appliances without government support.

With China’s current 12th Five Year Plan calling for a 40-45% reduction in the country’s energy intensity from 2005 levels by 2020, industry insiders say the answer is not more government subsidies to consumers, but product innovation and quality improvement from the industry. They say this is the only way to develop a mature domestic market in China, one where consumers are able to compare technologies, price, and savings from using energy-efficient products. With the government having helped raise awareness among consumers, it’s now up to domestic and foreign firms to satisfy the growing demand.

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