Source: CHEAA

Home appliance industry saw revenue of 1.6 trillion Yuan for year 2019, up by 4.31% year-on-year, and profit of 133.86 billion Yuan, up by 11.89% year-on-year, according to National Bureau of Statistics.

With most categories slowing down in growth, some maintained a strong growing momentum. For instance, the revenue and profit of air conditioners were up by 1.77% and 10.84% respectively, refrigerating appliances up by 6.80% and 13.5% respectively, kitchen appliances up by 7.71% and 20.04% respectively, cleaning appliances up by 6.32% and down by 0.78% respectively, and beauty and health care (personal care) appliances up by 8.30% and 20.88% respectively.

1. Overall industry performance for 2019

 (1) Manufacturing

The annual outputs of refrigerators, freezers and air conditioners rose at a steady pace. For December 2019, air conditioner sector saw a monthly output of 12.91 million units, up by 11.5% year-on-year and an estimated aggregate output of 150 million units, up by 6.5% year-on-year; refrigerator sector a monthly output of 6.83 million units, up by 15.1% year-on-year and an estimated aggregate output of 76 million units, up by 8% year-on-year; washing machine sector a monthly output of 6.09 million units, down by 2.1% respectively and an estimated aggregate output of 65 million units, the same level as the previous year.

Considering the influence of Spring Festival in late January, most enterprises actively stepped up production in December, which drove up the monthly output of some categories including air conditioners and refrigerators significantly, as we learn from enterprises. However, washing machine sector saw a slowdown in production in December due to uncertainties in export situation, though still managed a steady growth in yearly performance. Range hood sector experienced a rebound with annual output of 36 million units, up by 8.7% year-on-year from the low base of 2018.

 (2) Retailing

China's home appliance retailing remained sluggish last year with a fall in the combined annual retail sales value, despite slight growths in some products. The total retail sales value of home appliances (3C products excluded) on Chinese market came to 892 billion Yuan in 2019, down by 3.88% year-on-year, according to China Market Monitor. Category wise, refrigerator sector saw annual sales volume of 33.77 million units, up by 6.65% year-on-year, and sales value of 94.7 billion Yuan, up by 0.95% year-on-year; air conditioner sector volume of 61.8 million units, up by 4.32%, and value of 200.9 billion Yuan, down by 3.63%; freezer sector volume of 7.67 million units, up by 6.38% and value of 10.6 billion Yuan, up by 2.91%; washing machine sector volume of 38.44 million units, up by 4.21% and value of 71.1 billion Yuan, down by 0.59%; range hood sector volume of 17.09 million units, down by 0.81% and value of 38.3 billion Yuan, down by 3.94%.

Despite the broad sluggishness, some emerging sectors still managed robust growth, with clothes drying machines up by 49% in retail sales, beauty and health care appliances up by 45.96% and integrated stoves up by more than 50% to 16 billion Yuan.

With a wide coverage of online retailing and optimized online services offered by e-commerce platforms in logistics, delivery, installation and after sales, the integration of online and offline sales speeds up with more and more home appliance makers joining hands with e-commerce platforms to boost online sales. Statistics from China Market Monitor showed that, online sales accounted for nearly 40% of home appliance sales last year, up by 6 percentage year-on-year. Statistics from All View Cloud showed that, transaction value of refrigerators, freezers, air conditioners and washing machines during the Double 11 shopping festival (Singles’ Day) last year grew by 23.4%, 43%, 42% and 16.6% respectively.

 (3) Exports

Aggregate export value of home appliances from China for 2019 grew by 3.3% year-on-year to 70.92 billion US dollars, indicating a 6.6% slowdown in growth compared to last year, while the aggregate import value grew by 2.4% year-on-year to 4.62 billion US dollars, creating a surplus of 66.3 billion US dollars, a year-on-year rise of 3.4% in dollar terms (5% in RMB terms).

Exports of large appliances remained the previous trend of “volume up and value down” in 2019, with exports volume up by 2.08% to 221 million units and value down by 1.01% to 25.721 billion US dollars. The fall in export value had been slowing down. Portable appliances kept the “double-up” trend with export volume up by 4.67% to 2.6 billion units and value up by 6.24% to 32.4 billion US dollars, accounting for a bigger share of total home appliance exports. Parts grew slow in exports with export value at 12.79 billion US dollars, up by 5.4% year-on-year.

China’s home appliance exports to most countries rose in 2019, but to the US remained a negative growth with export value plunging to 15.24 billion US dollars by 7.4%, the biggest drop in years, accounting for 21.5% of China’s total home appliance exports, down from the 24% in 2018. The EU acted as the main engine of China’s home appliance export growth in the past year, with accumulated export value up by 8.5% to 16.32 billion US dollars, accounting for an increased share of 23% in 2019 compared to the 21.9% the year before. Exports to the core countries of the EU grew by 8.1% by value. Exports to Japan remained steady. It’s worth noting that, exports to the ASEAN continued to go up, posting a double-digit growth by value starting September 2019 and an annual growth of 17.6%, making it the only economy with a double-digit growth of home appliance exports from China. Besides, exports to the BRICS differ from country to country, while to West Asia and North Africa picked up.

2. Forecast on 2020

Most home appliance makers postponed production resumption for around two weeks this year considering the novel coronavirus influence. But it doesn’t seem likely for them to return to the same production capacity they had before Spring Festival in short time with a hard-hit supply chain and restrictions posed on transportation amid the outbreak. It’s foreseeable that the production and operation in the first quarter would suffer. In-store sales of home appliances during the coronavirus outbreak was almost zero, and for industry players, the first half of the year will be very challenging, as China Household Electrical Appliances Association (CHEAA) learned from enterprises.

For domestic market, CHEAA believes the impact of the outbreak will not last long for two reasons: 1. The two months after Spring Festival have usually been regarded as a slack season of home appliance sales in recent years as e-commerce expands coverage and new promotion festivals outshine the old ones in sales, which means the sales of these two months will not significantly affect the yearly figure even with the outbreak impact factored in. 2. The production and sales are expected to resume gradually, as most regions of China (Hubei province excluded) are expected to contain the outbreak in late March (but risks rising from production resumption should also be closely watched).

The fallout of the outbreak is going to last for the short term and the medium term based on the experience we learned from SARS in 2003 when Chinese government carried out broad stimulus policies to boost economy and consumer demands. The stimulus policies, if carried out, will unleash the pent-up consumption demands, and drive up a rebound.

In the long term, the traditional growth driver of China's home appliance industry is getting weak in 2020, a year that marks a critical point when China shifts its focus to the quality of economic growth and China’s supply-side reform continues to step up. At this point, consumers’ new demands for traditional white goods slow down the growth, posting lackluster domestic sales figures in 2019 as the real estate market grew at a slower pace. The outbreak is expected to affect the income of residents and therefore take a toll on the market. As the penetration of traditional white goods grow, replacement needs rise to become the major driver of market growth, while products with differentiated features, products developed to address consumer pain points and emerging appliances that improves people’s life act as the other driving force.

Healthcare products and smart products see increased demands during the outbreak. It could be a future trend of industry development and consumption upgrade.

In terms of exports, orders placed before Spring Festival could face delayed delivery or cancelation due to postponed production resumption throughout the supply chain. The breach of contract, coupled with other factors such as rental, tax, cost of equipment for epidemic prevention and control and logistics, will pose pressure on the operation of enterprises, particularly SMEs, and therefore, affect the exports of home appliances. Beyond that, China's home appliance industry is more of a labor-concentrated one despite the significant progress made in smart manufacturing in recent years. Thus the restrictions on people movement could lead to a shortage of work force for enterprises, particularly those based in Hubei province, which could also deter the exports of China-made home appliances.

As to international trade, exports from China experienced more stringent inspection and custom clearance procedures due to the outbreak. Plus, with key overseas exhibitions scheduled in the first half of 2020 canceled or delayed, enterprises lose the opportunity to display new products and get new orders.

What’s worse, as the covid-19 spread globally, the world economy is going to suffer a hit this year, which could also make an impact on the overseas orders.

In the long term, global economy will see increased downward risks after two years of steady growth and most countries could see a slowdown in growth. The export growth of home appliances from China is forecasted to slow down (it would be challenging to maintain the growth level of last year). We should also note that, a transformation of internationalization strategy and building global brands are what enterprises shall prioritize at the moment, as the expansion of global market shall not be heavily reliant on product exports.