China’s no more synonymous with cheap as incomes double

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SummaryChina’s demand for cheap home appliances is waning as the government phases out subsidies. In response...

China’s 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 family’s 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 China’s $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 Haier’s 13,999 yuan ($2,219) red washing machine, to attract China’s 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. “It’s a perfect time to upgrade, as they’ve made a lot of money from the favourable policies and aren’t 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 they’ve got reliable quality,” said Chen. “Things have changed recently. Some domestic brands have shown strong ability to develop new

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