1. Performance of China’s home appliance industry from Jan to Oct 2017
1.1 Economic indicators
China’s home appliance industry has seen its economic indicators continuously going up in 2017 thanks to its efforts in technology upgrading and product mix rebalancing. The main operating revenue from Jan to Oct posted 1.36 trillion RMB, a year-on-year rise of 18.1%, and profit for the same period 93.11 billion RMB, a year-on-year rise of 11.9%. The slower growth rate of profit mainly resulted from a continued price rise of raw materials since the second half of 2016.
1.2 Domestic sales
(1) Overall performance of retail market
Statistics from China Market Monitor suggested that domestic retail market of home appliances saw exciting performance from Jan to Oct 2017, with a rise in both sales value and volume of categories spanning refrigerators, air conditioners, freezers, washing machines, hoods, ranges, sterilizers, water heaters and microwave ovens. The retail sales value of most categories grew faster than that of sales volume. Refrigerators, air conditioners and washing machines reversed its negative growth in both value and volume in last year. Air conditioner sector stood out with a year-on-year surge of 26.7% in sales volume and 32.2% in sales value from Jan to Oct 2017.
(2) Online market
For the same period, according to statistics from All View Cloud, categories including air conditioners, refrigerators, washing machines, hoods, gas ranges, sterilizers, water heaters, cookers, pressure cookers, induction cooktops, air purifiers and water purifiers saw a double-digit growth of online sales. Particularly, online sales volume and value of air conditioners posted a year-on-year growth rate of 105.1% and 124% respectively, of hoods 99% and 92% respectively, and of gas ranges 94% and 70% respectively. Sales value of air purifiers and water purifiers have grown by 91% and 50% year-on-year respectively.
Most categories expanded their outputs in 2017. Refrigerator sector reversed its two-year long sliding trend. Air conditioner sector made a historic high. Washing machine sector stayed steady. Microwave oven sector and electric cooker sector maintained the fast-growing momentum. Hoods, vacuum cleaners, electric fans, electric ovens & grills and water dispensers saw optimistic performance. Water heater sector experienced a slower growth rate after a spike in Q2. Solar-powered water heater sector shrank its output.
What’s worth noticing is that gas water heater sector is expected to further expand powered by policies including energy conservation and emission reduction, west-to-east gas transmission project and coal-to-gas project.
According to statistics from General Administration of Customs, for the first half of 2017, aggregate export value of home appliance industry has grown by 7.7% year-on-year to post 31.05 billion US dollars, of which the first quarter saw a year-on-year rise of 5.9% while the second quarter 8.8%. The aggregate export value from Jan to Oct registered 51.559 billion US dollars, a year-on-year rise of 8.4%, a record high, and aggregate import value posted 3.355 billion US dollars, a year-on-year rise of 22.2%, leading to a trade surplus of 48.2 billion US dollars, a year-on-year rise of 7.6%.
Export of large appliances is rising. Aggregate export volume and value of large appliances from Jan to Oct posted 0.17 billion units, a year-on-year rise of 11.3%, and 20.12 billion US dollars, a year-on-year rise of 5.2%. All categories of large appliances, except for washing machines affected by the anti-dumping sanction of DOC, have maintained a growth in both export value and volume.
As to portable appliances, the aggregate export volume and value from Jan to Oct posted 1.93 billion units, a year-on-year rise of 7.6%, and 22.32 billion US dollars, a year-on-year rise of 8.1%. Thanks to the recovery growth of kitchen appliances and vacuum cleaners and the steady rise of indoor comfort products, export of portable appliances is rising. Of kitchen appliances, ovens & grills saw the biggest growth rate and coffee makers the least. Vacuum cleaners saw its export value grew faster than volume by 6% mainly because of a spike in export of cordless vacuum cleaners.
Export of parts and accessories grew fast, with an aggregate export value of 9.11 billion US dollars, a year-on-year rise of 17.2%, of which that of refrigeration compressors grew year-on-year by 3.6% to 2.25 billion US dollars and that of air conditioner parts 31.5% to 3.52 billion US dollars.
Exports to Asia and Europe have reached a historic best from Jan to Oct with a year-on-year rise of 8.6% and 9.8% respectively, up by 7.3% and 3.3% from last year’s growth rates respectively. Exports to Europe grew by 9.8% to take up 24.9% of all exports of China’s home appliance industry, up by 0.3% from last year, while exports to North America grew by 5.1% year-on-year to account for 24.9%, down by 0.8% from last year. Exports to Latin America have grown by 20.1% year-on-year, up from last year’s -17.3%. Exports to Africa continuously went down. Exports to the 65 countries along the route of China’s Road and Belt Initiative have grown fast by 10.6% year-on-year to 14.26 billion US dollars, accounting for 27.7% of China’s all home appliance exports, up by 0.6%.
2. Industry transformation and upgrading
2.1 An increased investment in R&D
China’s home appliance enterprises have stepped up investment in R&D. Based on annual reports of 26 Chinese home appliance enterprises, the aggregate R&D investment posted 19.39 billion Yuan, a year-on-year rise of 5.7%. The R&D investment took up 3.3% of a company’s total investment on average.
Chinese home appliance makers have been actively deploying their global R&D resources, establishing open platforms and mechanisms to attract global talents and resources. To date, Haier owns 10 open R&D centers across the world, Midea 17 R&D centers located in 8 countries and Gree 7 R&D academies and 52 R&D institutes.
These efforts prompt technological innovations and breakthroughs, allowing China’s home appliance industry to lead the global technological trends and clearly improving the industry’s bargaining power.
2.2 Consumption-led supply
Domestically, an acceleration of urbanization and an increased per capita disposable income are driving a structural change in consumption. As the young generations (born after 1985 or 1990) become the main force of consumption, high-end, smart, health-friendly, energy efficient and stylish products are gaining popularity.
Statistics from China Market Monitor shows that, from Jan to Sept 2017, large-capacity refrigerators with three doors, multiple doors and side-by-side doors, large-capacity full-automatic tumble washing machines, and hoods with powerful suction saw a continuously increased market share. What’s more, emerging categories such as smart toilet seats, dishwashers and built-in kitchen appliances enter a stage of growth after the introductory stage, with great market potential ready to be unleashed.
As to exportation, large-capacity refrigerators, full-automatic tumble washing machines and cordless vacuum cleaners grew fast.
Frequency conversion technology expanded its application. Statistics from China Market Monitor suggested that, from Jan to Oct 2017, inverter air conditioners, inverter washing machines and inverter refrigerators accounted for 67%, 55% and 43% of its category by retail sales volume.
2.3. A trend in smartization
Smartness has become a selling point of most home appliances. With Wi-Fi-capable products becoming commonplace, smart appliances are evolving from individual products to established scenarios with interconnected products. According to China Market Monitor, retail sales value of smart white appliances posted 44.3 billion RMB in 2016, accounting for 14.9% of its category. The figure is estimated to grow by 60% year-on-year to account for 24% in 2017. However, there are a number of issues to be addressed, such as non-unified standards, unsatisfying user experience, hardly-friendly operations, etc. At a stage of early exploration, both business mode and hardware of smart appliances need more breakthroughs. In March 2017, China Household Electrical Appliances Association released its standard Cloud to Cloud Interconnection for Smart Household Appliances. Being first of the industry, this standard paved the way for further development of smart appliances.
Manufacturing wise, enterprises are stepping up their efforts in smart plant establishment and process improving. Standard bearers grow particularly fast in this field.
2.4. Global strategies
Amid China’s economic “new normal”, domestic demand for home appliances weakens. At this stage, home appliance enterprises start to explore their global strategies. Through mergers and acquisitions, brand authorization and channel cooperation, they take over the brand influence, technologies, channels and manufacturing capacities of renowned international enterprises, and through establishing overseas facilities, brand marketing, overseas e-commerce operations and overseas exhibitions, they effectively improve their brand recognition, reputation and integrity abroad. Based on half-year reports of 10 listed companies, we can see that, their aggregate overseas operating revenue posted 121.88 billion Yuan in the first half of 2017, a year-on-year rise of 71.6%, of which Haier and Midea took up 99.7% with a total overseas revenue of 90.55 billion Yuan.
Enterprises have changed from a manufacturing-led production to a consumption-led production, featuring flexible manufacturing, customization and personalization. Channel wise, they offer both bricks and clicks. While online channels see continuous rising sales, in-store channels are transforming to an O2O mode. As to supply chain, they put more weight on their information sharing and interactions between clients and suppliers.
3. Influencing factors
3.1. Increased per capita disposable income drives up consumption need.
3.2. Sales area of commodity houses continues to go down under the government’s tightening grip on real estate market.
3.3. Price of bulk stock bounces back to a high level, putting mounting cost pressure on enterprises while pushing them to rebalance their product mix and optimize management.
3.4. The US dollar is going weak while the RMB going strong at a steady pace.
4. Outlook on the 4th quarter and year 2018
Prime operating revenue of China’s home appliance industry is expected to reach 1.6 trillion RMB in 2017, and exportation is expected to secure a small increase with a slight fall in growth rate year-on-year.
4.1 Domestic sales
Looking at the coming 2018, consumers’ new demand for traditional large appliances is expected to see a slower growth, while replacement demand become the main driver of the market growth. Powered by consumption upgrading and the rising trend of smartization, China’s home appliance industry is set to continue its efforts in technology upgrading and product mix rebalancing to further improve its competitiveness and let its voice be heard.
As global economy continues to recover in the coming 2018, China’s home appliance industry is expected to see rising performance, yet it’s still urgent to transform to a new global strategy amid risks posed by global trade protectionism, capacity transfers of multinational corporation, and pressures coming from overseas brands, channels and services.