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| Manufacturers Pin Hopes On Rural Families |
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| 2009-02-06 11:35 www.iciba.com |
Shi Xiaoping, who works at Xinxing Electrical Appliances store in the south-western Chinese farming town of Haiyuan, is surprisingly upbeat for someone whose job it is to sell washing machines and fridges to sugar cane farmers, many of whom have just lost half of their harvest in the worst floods in decades.
But Ms Shi, like hundreds of other retailers and electronics makers across China, is expecting to benefit from a government-backed project that aims to kick-start sales in rural areas of the country by offering television sets, washing machines, refrigerators and mobile phones at controlled prices with an additional 13 per cent rebate.
The scheme means Ms Shi can offer Panasonic washing machines for at least 25 per cent less than she did a few months ago. “Maybe this can give us better sales in an otherwise very difficult year,” she says.
The Home Appliances to the Countryside scheme – which has been running in 12 Chinese provinces since December but officially launched countrywide on February 1 – is part of Beijing's plan to fight the global recession by stimulating domestic manufacturing.
According to government figures released yesterday, more than 20m rural migrant workers in China have lost their jobs and have returned home as a result of the global economic crisis.
But while some analysts are sceptical about how much Chinese farmers can do to pull the electronics industry out of a severe global slump, big domestic electrical appliances makers are bullish.
TCL, a Chinese supplier of electrical and electronics goods, said one quarter of its production over the past month was earmarked for the home appliances programme. Changhong, an electrical appliances maker in Sichuan, estimates it can generate Rmb8bn ($1.2bn, €900m, £800m) from the programme this year – more than the Rmb7.2bn in total revenues it achieved in the third quarter last year.
Panda Electronics, which makes TVs and mobile phones, expects overall revenues to rise by at least 20 per cent this year although export orders are down 60 per cent year on year. “Home appliances to the countryside will account for at least half of domestic sales,” says one executive.
Analysts caution that while Chinese TV makers may benefit, the measures are unlikely to help other manufacturers of liquid crystal display flat panels.
The Chinese government has set a Rmb2,000 retail price ceiling for TV sets under the programme. This means that panels for larger-size flat-screen TV sets, which carry higher margins, are automatically excluded.
In the white goods segment, the programme looks set to help large Chinese manufacturers break into a market so far dominated by local niche players.
“Rural areas account for 90 per cent of our sales,” says Gu Yixin, a manager at Jiangsu Baixue, a white goods maker in eastern China.
“Originally the big brands couldn't offer prices suitable for the rural population, but now with the government subsidy, they can. This creates a bit of pressure for those like us, who have always done well in rural distribution.”
Haier, which has been seen as a possible bidder for General Electric's appliance unit, expects to create Rmb18bn, more than 50 per cent of its rural sales this year, through the programme.
Retailers warn that the expansion of the programme to ever more product categories and places has encouraged cut-throat competition.
“For us, it is very difficult to convince buyers because smaller outlets next door offer lower-quality goods at ever cheaper prices and just claim that they can also do this with the Ministry of Finance rebate,” says Wang Yi, sales manager at an electrical goods store in the rural town of Lintong, who sells fridges made by Changling, a state-owned company.
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