China boosts rural consumption with household appliance subsidy program
Special
Report:Global Financial
Crisis
by Xinhua Writer Wu Qi
BEIJING, Feb. 1 (Xinhua) -- For 10 years, the most valuable household
appliance in herdsman Chaolu's home in north China's Inner Mongolia was the
14-inch TV set, purchased when he earned about 4,000 yuan (580 U.S. dollars) a
year.
"I could not bring myself to buy a new TV set, although the old one often
failed to work properly. I had to support a family with very little money."
Now the old TV has been replaced by a 26-inch LCD color set.
"The new TV set looks great. Sharp images and good sound make it worth the
money," says Chaolu, 33, who paid 1,950 yuan (285 U.S. dollars) for the set in
Taipusi Banner, Xilinguole League, two days before last month's Lunar New Year
holiday.
He also enjoyed a 13-percent subsidy, worth 253 yuan, from the government.
"With the money saved, I could buy more than 10kg of mutton. It looks as if
the government has sent me a special gift for the Spring Festival."
SPREAD
NATIONWIDE
China piloted the subsidy scheme for farmers buying 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 from December
2007 through May 2008. They totaled 197 types of appliances.
The prices were capped at 2,000 yuan for a color TV set, 2,500 yuan for a
refrigerator and 1,000 yuan for a cell phone. The 13-percent subsidy was split
80-20between the central and local governments respectively. Each rural
household was allowed to purchase two items from each category and could claim
the subsidies at their local township government finance agencies in 15 working
days.
China, the world's largest producer and exporter of household appliances,
also gives a 13-percent tax rebate to household electrical appliance exporters
and exports half its production every year, said Zeng Xiaoan of the Ministry of
Finance (MOF).
"Now, the government will give farmers this benefit to improve their
quality of life and to stimulate sluggish rural consumption," said Zeng.
The government expanded the scheme to 14 provinces, autonomous regions and
municipalities and included washing machines capped at 2,000 yuan in December
2008. Covering 53 percent of the rural population, the scheme will run till
2012.
"The rebate made me resolve to spend 1,950 yuan on a new TV," said Chaolu.
On February 1, China furthered the scheme throughout the country to benefit
all rural people and added four more products: motorcycles, personal computers,
water heaters and air conditioners. Local governments could choose two of them
according to demand.
POTENTIAL
Huge foreign investment and fast-growing exports have long been major
contributors to China's economic development. With the effects of the global
financial crisis spreading throughout the world, the government is looking to
tap domestic consumption, especially in unexploited rural markets.
China's countryside has lagged behind urban areas in sales of home
appliances, such as TVs, refrigerators and washing machines.
Per capita net income for the 800 million rural residents surged by 8
percent in 2008 to hit 4,761 yuan.
"Demand for color TVs in rural areas could touch 100 million units over the
next decade, and demand for refrigerators 145 million, as China has 210 million
rural households," says Sun Yiding, a spokesman for Gome, China's leading
electrical appliance retailer.
China has more than 50,000 townships and the number of rural households
accounts for 68 percent of the total families.
"The household appliance purchase subsidy program could help stimulate
rural consumption amounting to 920 billion yuan, drive up growth of retail sales
of consumer goods in rural areas by 2.5 percentage points, and realize household
appliance sales of 480 million units," says Fu Ziying, Vice Minister of
Commerce.
The scheme could help steer household appliance manufacturers to rural
areas.
"The subsidies give rural residents great incentives to buy. They also
provide appliance makers excellent opportunities to make breakthroughs in rural
areas," says Wang Zhen, a Guotai Junan Securities analyst.
Huo Dufang, chairman of the China Household Electric Appliance Association,
says, "China's home appliance industry faces a severe situation this year with
production, sales and export slowing. The rural market provides new
opportunities."
Frestech, the country's leading refrigerator producer, saw output of
refrigerators and freezers reach 3.5 million units in the first 11 months last
year, up more than 20 percent from the same period in 2007.
"As one of the first group of manufacturers to provide appliances to rural
areas under the subsidy scheme, our sales in Henan, Sichuan and Shandong
provinces advanced 40 percent in 2008," says Wang Jianhua, general manager of
Frestech.
According to the China National Electronics Import and Export Corp. last
November, 155 domestic and foreign companies applied to be on the list of the
scheme's official providers. Some 122 were included.
Panasonic, Midea, TCL and 33 other brands were on the washing machine list,
with Samsung, Nokia, Motorola and 14 other brands getting a share of the big
mobile phone market in the rural regions.
Ten domestic leading manufacturers including Hisense, Konka and Haier were
on the color TV set list, while Meiling, Haier, Siemens and a further 37 brands
were on the refrigerator list. Another 19 companies won the bid for chest
freezers.
Zhu Lijun, an analyst from China Galaxy Securities, estimates the policy
could promote growth of the refrigerator sector by 20 percent, the washing
machine sector by 19.5 percent, and color TV sector by 14 percent, but will have
little effect on the mobile phone sector.
BOTTLENECKS
Despite all the benefits, China needs to overcome problems to truly expand
rural consumption with the subsidy program, say industry officials.
"Low incomes and insecure social security services directly hamper Chinese
farmers' purchasing initiative," says Zhu Changying, deputy head of Anping Town,
Nanchong City, a major farm base in southwest China's Sichuan Province.
The scrapping of the 2,600-year-old agricultural tax in 2006, subsidies to
farmers buying better strains of seed and farm machines, and other government
measures have helped farmers in Anping Town raise their incomes. In 2008, annual
net incomes in the town averaged 4,300 yuan, but farmers spent about 3,000 yuan
ayear on food and production materials.
"Farmers are no longer so troubled by medical costs since the government
introduced the new rural cooperative medical care project in 2003. But they do
not have retirement pensions, which is why most choose to save," says Zhu.
High electricity costs also discouraged the purchase of household
appliances.
Yan Youqi, 50, of Weizhuang Village, Hengshui City, Hebei Province, says
"We have to think about whether we can afford the cost of running a
refrigerator."
Weizhuang, with 730 residents in 194 households, had an average annual net
income of 4,700 yuan in 2008, largely remitted from migrant workers.
At the village, 1 kilowatt-hour of electricity costs 0.53 yuan. It means
farmers will spend 190 yuan a year running a refrigerator.
"The cost is nothing to urban residents. But we farmers have to think
whether it is necessary to store so little food in refrigerators at such a
cost."
Farmers have their own priorities. Jiao Changning, deputy head of Zhengjia
Heyan Town, Hengshui City, says they badly need solar water heaters.
The town had only eight public baths to serve people from 64 villages.
Villagers might take a shower in their own courtyards in summer days. But they
had to "tolerate" the inadequacy of the baths in winter.
"As tap water systems spread, farmers could enjoy the convenience of warm
water if solar water heaters were added to the subsidy list," says Jiao.
