Farmers go on buying spree with appliance subsidy 

Updated: 2008-01-21 10:01

Special presents

For farmers living in rural areas, the rebate offer was considered a surprise and a special present from the government with the Spring Festival, the country's most important traditional holiday, approaching.

The Ministry of Finance declared last month it would offer farmers a 13 percent subsidy on the prices of home appliances. This was done to stimulate sluggish rural consumption and improve their life quality.

Huge foreign direct investment and fast-growing exports have long been major contributors to China's economic development. As the negative impact of the US subprime mortgage crisis overshadows the global economy, the Chinese government has started to attach more importance to tapping the domestic consumption, especially in the unexploited rural markets.

China's Minister of Agriculture Sun Zhengcai said recently in a report to the country's top legislature that per capita net income for the 900 million rural residents was expected to surge by seven percent to stand at 4,000 yuan in 2007.

"The urban market for household appliances has been saturated. Continuous price wars in cities are tragic. It is the time for us to cast eyes to the rural markets, where farmers want high quality products," said an expert with China Agricultural University on Sunday who preferred to remain anonymous.

"China has more than 50,000 townships and the number of rural households account for 68 percent of the total families. As of this month, the rural areas have a total purchasing power of 250 billion yuan for home appliance.

Such potential spending power was obviously not lost on the government as its subsidy offer touched the pulse of the market.

A pilot program to test this was initiated in three major agricultural provinces of eastern Shandong, central Henan and southwestern Sichuan. Color TV sets, refrigerators and mobile phones were the three categories of appliances on the preferential policy list and each rural household could purchase two items from each category.

In the pilot, China had signed cooperative agreements with 15 leading household appliance makers, including Haier, Hisense and Changhong.

The three listed manufacturers all saw their share index rise recently. The government's subsidy policy was considered to be the direct driving force behind the booming business.

"The government subsidies give rural residents great incentives to buy and it also provides appliance makers excellent opportunities to make breakthroughs in rural areas," said Wang Zhen, a Guotai Junan Securities analyst.

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