China offers discounted appliances to prime its economy

McClatchy NewspapersDecember 10, 2008 

LANTIAN, China — A broad smile broke across Zeng Yalan's face as she perused the price tags on washing machines in a store in this farming town in northern China.

"The price is good. It's cheap," she pronounced.

China's leaders hope that millions of rural residents such as Zeng will open their wallets and buy appliances in coming months, stimulating consumption and keeping the factories of white goods manufacturers humming at a time when global markets are in collapse and domestic sales growth has skidded.

The government rolled out a program earlier this month called "Delivering Appliances to the Countryside" that offers a 13 percent subsidy to farmers who dip into their savings to buy refrigerators, color television sets, washing machines and even cell phones. China's leaders see it as a way for rural households to begin to catch up with their urban counterparts while priming an economic engine that's slowing for the first time in more than a decade.

As the U.S. recession deepens and the world economy sputters, China is trying to cushion the impact on its export-dependent economy with a $590 billion stimulus package and by coaxing its citizens to spend, keeping domestic factories from shutting down. Many Chinese are accustomed only to saving, however. They stash away an average of 45 percent of their earnings as a precaution for illness or other personal calamity.

"To get the economy going, we need households to contribute (and) consumption to be boosted," said Jing Ulrich, the Hong Kong-based head of China equities for JP Morgan, an investment bank. "If these programs are successful, we think households in China will end up saving less and spending more."

China has set huge goals, saying that it expects rural families to buy 480 million appliances over the four-year life of the appliance program, which began Dec. 1.

By Western standards, China's big appliance makers produce goods at startlingly low prices. The cheapest refrigerator listed in the new program, after the rebate, is about $137 and washing machine, about $60. Color TVs can be had for about $82.

The central government and, to a lesser degree, the provincial governments pay for the 13 percent rebates. Manufacturers are delighted with the subsidies, which have boosted their prospects. Stock prices for major companies, such as Haier, have surged on the Hong Kong stock exchange this month.

"Nowadays, the appliance makers are focusing on these smaller places," said Zhang Gang, the 33-year-old co-owner of the Jingwei Appliance Store in this farming town in Shaanxi province at the gateway to China's remote northwest. "They think the potential demand is high."

Nearly all rural homes, no matter how poor, already have color TVs, but they often lack other appliances that many urban Chinese take for granted.

"What they most want is a refrigerator and a washing machine," Zhang said.

According to the National Bureau of Statistics, for every 100 rural households last year, there were 94 color television sets, 26 refrigerators and 46 washing machines. For each 100 urban households, there were 138 color televisions, 95 refrigerators and 97 washing machines.

A major reason for the disparity is a gap in income. Average per-capita rural income last year stood at $609, less than a third of what the average urban resident earns.

Nearly 800 million of China's 1.3 billion citizens are registered as living in rural areas.

Some 90 producers have been selected to take part in the appliance program, including such large domestic companies as Haier, Skyworth, Hisense, Midea, TCL and Konka. Foreign companies include South Korea's Samsung and Siemens of Germany.

China is the world's leading exporter of color television sets, refrigerators and washing machines. Appliance exports surged an average of 25 percent a year for a decade before skidding to less than 10 percent growth for the first three quarters of this year.

Authorities ordered that all appliances eligible for the rebate be more energy efficient than their peers in the market, hoping to keep down energy consumption in rural areas.

Analysts for foreign banks said that the subsidy program could help revive appliance makers whose factories have stalled from slowing exports. A test subsidy program in three provinces late last year generated a 40 percent increase in appliance unit sales, Citicorp said in a research report Dec. 3.

Home appliances, especially refrigerators, can change rural people's lives dramatically.

"They make food safer," said Zhang Wei, the other co-owner of the Jingwei Appliance Store. Once farmers have refrigerators, "they can consume products they couldn't eat in the past because they would go bad, like meats, eggs and milk."

Even with such changes in the offing, many rural people head straight to the television sections of appliance stores, transfixed by the newest flat-screen TVs.

"We have a very old television set," Zeng said, weighing whether to buy a washing machine or replace her family's television.

"What we sell most here are washing machines and color TVs," said another store owner, Gao Xiangyang, an affable 45-year-old merchant who said he wasn't sure how much the subsidy program would boost sales.

While the national media have trumpeted the program, many rural people have yet to hear about the reduced prices or are confused about how to obtain the rebates, which are available only within 30 days after purchase.

"People still aren't that familiar with the subsidies," Zhang said, adding that a local television channel had just started to promote the program. Once rural residents learn of the rebates, he added, "the sales should increase dramatically."

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McClatchy Newspapers 2008

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