left corner left corner
China Daily Website

Doubts emerge over subsidies sales boost

Updated: 2012-06-04 08:02
By He Wei in Shanghai ( China Daily)

 Doubts emerge over subsidies sales boost

The State Council announced last month that the government will allocate 26.5 billion yuan ($4.2 billion) to subsidize the purchase of household electrical appliances for a year. It is part of the government's new stimulus policies, aimed at giving a shot in the arm to national economic growth, which has been slowing since last year. Xie Zhengjun / For China Daily

But retailers insist discounts will create rise in demand for appliances

A new wave of subsidies for energy-saving appliances is expected to roll out nationwide after a similar program mostly ended one year ago.

But the market is unsure whether the policy can boost spending in the sector that has just experienced its lowest point in months.

The State Council , China's cabinet, announced on May 16 that the government will allocate 26.5 billion yuan ($4.2 billion) to subsidize the purchase of household electrical appliances for a year.

These include air conditioners, flat-panel television sets, refrigerators, washing machines and water heaters that meet energy-saving standards, according to a statement released after an executive meeting of the State Council presided over by Premier Wen Jiabao.

A rule, jointly released by the Ministry of Finance, the National Development and Reform Commission and the Ministry of Industry and Information Technology on May 28, gave the details, showing people will be subsidized 100 to 400 yuan from the State for their purchase of an energy-saving air conditioner or an energy-saving flat-panel TV for a year starting from June 1.

Other energy-saving white goods will also be included by the State's subsidy policy, although the details have not been unveiled, according to a Beijing News report.

Aside from home appliances, the government will earmark another 2.2 billion yuan to promote the purchase of energy-efficient light bulbs and light-emitting diodes and 6 billion yuan for the buying of vehicles with engine sizes below 1.6 liters.

The new subsidy plan for the purchase of energy-saving home appliances marks an important move by the government to stabilize growth, expand domestic demand and improve energy savings and emission reductions, Minister of Finance Xie Xuren said at a national meeting on a fiscal budget for energy savings and emission reductions.

It was also a critical part of China's implementation of proactive fiscal policies this year, he said.

While details of the plan are yet to be unveiled, it is apparent that compared with the previous such endeavor, the government has expanded the subsidy portfolio and spared more budgets, said Xie Jiyong, an analyst with Capital Securities Corp in Shanghai.

Last time the subsidy applied exclusively to green air conditioners but now five categories of goods enjoy the preferential policy, he said.

Moreover, "the government-funded expenditures have jumped fivefold, compared with the previous incentive that totaled 10 billion yuan over two years", he added. He predicts the policy will raise nationwide home appliances sales by 20 percent.

Three complementary subsidy projects comprise the country's home appliance subsidy pillar that is aimed at spurring domestic consumption and curbing pollution.

In addition to the energy-saving appliances subsidy, the home appliance replacement scheme, which ran through 2009 to 2011, recycled used white goods and entitled buyers in nine provinces and cities to subsidies worth 10 percent of the retail price of televisions, refrigerators, washing machines, air conditioners and computers.

A third related policy, called "home appliances going to the countryside" and set to expire by early next year, guaranteed a 13 percent rebate offered by the government to boost consumption of big-ticket items among the 737 million farmers who live outside the cities.

After the first two subsidy programs came to an end, sales of home appliances in the first quarter of 2011 dipped 0.53 percent year-on-year, air conditioners sales fell 3.2 percent and electrical heaters sank 24.8 percent, according to data from the Ministry of Commerce.

The announcement of the new wave of subsidies boosted the stock market. The next trading day after the announcement, shares in washing machine maker Hefei Rongshida Sanyo Electric Co surged 7.8 percent to 9.17 yuan. Stocks in white goods maker GD Midea Holding Co added 1.8 percent to close at 13.89 yuan.

Suning Appliance Co, the biggest home appliance retailer by market value, also gained 1.7 percent to 9.87 yuan, after its president Jin Ming said the policy will boost its sales.

"The new policy is likely to create 300 billion yuan in home appliances sales and is encouraging to retailers such as Suning," he said.

To answer the government's call, Jin said that, since January, 80 percent of Suning's procurement and sales of televisions and water heaters are rated level one or level two in terms of energy efficiency. Forty percent of air conditioners also meet that standard.

Moreover, 40 percent of Suning's sales in the last two years were under the home appliances replacement scheme, which prompted 70 billion yuan in sales.

According to Haitong Securities Co, the 26.5 billion yuan under the renewed policy equals a 12 percent subsidy on ex-works prices and an 8 percent rebate on the retail price.

The household appliance stimulus has boosted expectations that similar packages will follow to stimulate the economy and consumption, said Wu Kan, a Shanghai fund manager at Dazhong Insurance Co, which oversees $285 million. "The policy tone has shifted to maintaining economic growth."

Some believe the policy will have a limited effect on turning around the whole sector because people bought goods they anticipated they would need under the previous programs.

Spurred by the series of rebate policies, China's home appliance market rocketed to 494.2 million units in 2011, according to statistics from market research firm Euromonitor International.

Figures provided by Gome Electrical Appliances Holding Ltd show that the sales volumes of appliances under the home-appliance replacement scheme increased by more than 200 percent month-on-month in December.

"Sales of home appliances will still largely depend on the macroeconomic environment and property sales", Essence Securities wrote in a note in May. "Leading manufacturers are expected to benefit more from the new subsidy program."

Xie from Capital Securities Corp agreed. He believes refrigerators and washing machines lack the momentum for further growth because so many homes already have them or they are beyond the ability of some to buy them.

He predicts sales of air conditioners will increase most from the new policy because devices with new technology that helps lower waste gas emissions and is in accordance with the new policy that targets subsidiing energy-efficient products is now more prevalent.

"Based on our observations, the policy will subsidize constant-speed air conditioners that are rated level one in terms of energy saving, as well as level one and level two if they are inverter-aided. It will be stricter than a pilot program run in Beijing that rebated level two and above air conditioners, no matter what technology they apply," he said.

As market watchers warned the incentives may not necessarily drive up demand right away, salesmen expressed similar concerns.

"Not all washing machines will be included in the policy of giving subsidies to customers, even if they buy energy-efficient ones," said Zhao Yan, a veteran saleswoman at a Gome outlet in Shanghai.

Even if the policy has yet to be implemented, "to my knowledge, some foreign brands are not going to benefit from the program," she said, without revealing how she knew.

Zhao, 47, has been in the appliances sales industry for eight years. She was pessimistic about the scheme because the stagnant real estate market will fail to lift new demand.

"There is no need to buy new electrical appliances if people cannot afford new apartments. Besides, the whole economy is not as good as before," she said.

The policy of giving subsidies to customers doesn't seem to help to raise her sales figures.

"In the past few years, the situation was better. However, now fewer customers come to shop and today I didn't sell even one washing machine," said Zhao, whose monthly income is 1,450 yuan after pension payments.

The scheme has a limited effect in boosting sales for Japanese electronic appliance vendors, which suffered severe losses in the past year, said analysts.

Sony Corp flagged a record $6.4 billion annual net loss, double its earlier forecast and giving it a fourth straight year of red ink.

Similarly, consumer electronics and liquid crystal display screen maker Sharp Corp also increased its full-year net loss forecast to $4.7 billion from $3.6 billion.

Panasonic turned down interview requests on the upcoming policy. Calls to the public relations department of Hitachi went unanswered.

Japanese vendors only occupy a low single-digit percentage of China's white goods market. According to Euromonitor, Panasonic was the only Japanese company to be ranked among the top 10 vendors in 2011 with just a 3.3 percent market share.

For the air conditioner segment, Panasonic, Hitachi and Daikin each accounted for less than 1 percent of market share, Xie said.

Deng Jin contributed to this story.

Doubts emerge over subsidies sales boost

(China Daily 06/04/2012 page13)