Chinas no more synonymous with cheap as incomes double

Written by Bloomberg | Updated: Jan 19 2012, 07:47am hrs
Chinas demand for cheap home appliances is waning as the government phases out subsidies. In response, domestic companies are entering Royal Philips Electronics market with high-end devices, including a red washing machine that sterilises shoes and can cost eight months of a familys disposable income.

Export of the fancy appliances, including three-door refrigerators, may follow if the products are successful and will mean increased Chinese competition in the expensive end of the appliance world.

Sales for white goods may drop by as much as 10% this year, Capital Securities analyst James Hu estimates. The slowdown is boosting competition in Chinas $77-billion appliance market as local brands that traditionally made cheaper products use premium lines to bolster profits.

Manufacturers are marketing swankier offerings, including Qingdao Haiers 13,999 yuan ($2,219) red washing machine, to attract Chinas increasingly affluent consumers. That may help them draw local shoppers, and eventually global ones, from overseas competitors such as Philips and Siemens (SIE).

Some domestic brands have shown strong ability to develop new, better products, said Chen Jun, a Beijing-based analyst at Boxin Capital. Its a perfect time to upgrade, as theyve made a lot of money from the favourable policies and arent worried too much about cash.

A government programme that gave shoppers as much as 400 yuan to subsidise purchases of new home appliances helped drive sales the past two years. The incentives, part of government moves to boost domestic consumption, ended December 31.

That has made premier products more important for Chinese appliance makers, which traditionally focused on cheaper offerings as foreign competitors sold more expensive items.

Chinese consumers have more to spend on discretionary items. Per-capita disposable income for households in towns and cities almost doubled to 19,109 yuan in 2010 from 2005.

Monthly disposable income of urban households in China averaged about 1,818 yuan last year, according to data from the National Bureau of Statistics.

Many Chinese consumers who have higher purchasing power used to prefer foreign brands because they think theyve got reliable quality, said Chen. Things have changed recently. Some domestic brands have shown strong ability to develop new products.

Qingdao Haiers China sales more than doubled in the two years through 2010 to 54 billion yuan. China sales at air-conditioner maker Gree Electric Appliances during the same period grew 57% to 47 billion yuan.

Chinas appliance industry is expected to grow to 862.3 billion yuan in 2016 from 485.8 billion yuan in 2011, according to estimates by London-based researcher Euromonitor International.

The business environment for the appliance industry isnt very promising this year, Zhang Tieyan, a spokeswoman for Haier Group, said in a response by e-mail. The closely held appliance maker, the biggest shareholder of Qingdao Haier, will focus on innovation and push for market share through premium products such as frost-free, three-door refrigerators, she said.

Qingdao Haiers 13,999 yuan Casarte Duplex Front-loaded Washer has a traditional washing machine and a sterilisation section below, where shoes can be disinfected. At the Shanghai store, the red machine with a touch screen was four times costlier than a more basic, white Siemens machine.

The line offers high technology for an elegant lifestyle, Zhang said.

Business is quieter for low-end products, as most people who want to buy have done so, said Gu Mingfei, a Haier sales representative at a Shanghai store. For the high end, a few hundred yuan of subsidy doesnt matter to buyers. They would pay more attention to its quality, design.

The bigger ambitions of Chinese brands will mean more

competition for foreign brands

such as Philips locally and eventually overseas.