Source: Department of Information Consultancy of CHEAA
China will lower tariffs on some imported consumer goods as a way of further opening up to the world, in a bid to push the industry to elevate their product quality through industrial upgrading while meet the increasingly diversified consumption demands of people, the State Council decided at an executive meeting chaired by Premier Li Keqiang on May 30th, 2018. According to the meeting, average tariffs on some imported home appliances including washing machines and refrigerators will be slashed to 8% from the previous 20.5% since July 1st 2018. On May 31th 2018, a list of involved products including 71 categories of home appliances was released.
How badly could these moves, which are expected to lower the prices of imported home appliances, affect China’s home appliance industry? Our conclusion is there will be little overall impact on the industry but might put high-end products under some pressure.
China’s home appliance imports
Forty years after China’s reform and opening up in 1978, this country has evolved into the largest manufacturer as well as exporter of the world, capable of supplying products throughout the industry chain. And home appliance industry has become one of the most market-oriented, and most competitive industries of this fast-growing economy. According to the estimation of CHEAA, 55% of refrigerators & freezers of the world were manufactured in China in 2016, the percentage was 80%, 51% and 80% respectively for air conditioners, washers and microwave ovens, and 75% and 80% respectively for refrigerator use compressors and air conditioner use ones. With an absolute advantage worldwide, some categories of portable appliances from China accounted for a hefty 90% globally, meaning China’s home appliance industry depends little on imports.
After 1993, the value of imported home appliances experience a fall first, then started to rise and reached an all-time high at more than 4 billion US dollars in 2017.
The proportion import value takes in total trade (imports plus exports) value has been going down in home appliances, with the highest at 58.8% in 1993 and the lowest at 5.4% in 2013, a year after which the proportion started to rally yet never went beyond 7%.
Since China’s reform and opening-up in 1978, imported home appliances of China have mostly been parts, accounting for more than 80% by value during 2001-2008, a period considered as the peak time of home appliance imports. Sliding in the past 10 years, the figure never fell below 50%. In 2017, it posted 52.4%.
China imports home appliances mainly from the core EU countries, South Korea and Japan.
Possible impacts of China’s move of lowering tariffs
The involved home appliances account for 48% of all home appliance imports (including parts) of China. According to CHEAA’s analysis based on data from China’s General Administration of Customs, some 80% of home appliance imports (excluding parts) come from 16 categories by value including air conditioners, refrigerators, freezers, washing machines, electric ovens, dishwashers, grills, and fan heaters, electric vacuum cleaners, standing fans, air purifiers, hair dryers, pump-driven coffee makers, electric cookers, food processors and electric shavers. Tariff rates for some of these categories were slashed again this time after a cut in November 2017.
According to CHEAA’s estimation, average tariff for imported home appliances falls to 8% from the previous 25% with the average price (average price of imported home appliances plus tariffs) down by 13.6%. The biggest price plunges occur in freezers, pump-driven coffee makers and electric shavers, plummeting by 16.9%, 18.9% and 16.9% respectively, while that of air conditioners, refrigerators, electric ovens, grills, air purifiers, electric cookers and electric shavers all exceed 5%. However, the price change at the end markets will not be as much after distribution.
As domestic brands put continued efforts in improving their competitiveness, the market share taken by foreign brands is going down. As of April 2018, the market share of foreign brands posted less than 30% by retail sales volume in sectors including air conditioners at 8.1%, refrigerators at 17.1% and washing machines at 29%, according to China Market Monitor. But the actual proportions were believed to be even smaller since statistics of China Market Monitor, which include China-made foreign brands as foreign ones, mainly come from key channels in top-tier and second-tier cities.
From the perspective of market competition, this tariff cut could be an invitation to high-end foreign brands who haven’t made a presence in China. On the bright side, it could drive domestic brands to further improve their technology, R&D and marketing, and could bring benefits to consumers by diversifying product choices and lowering prices.