Source: CHEAA
Faced with pressing challenges including weak domestic demands, skyrocketing raw material prices and international shipping costs, the supply chain disorder, the Yuan appreciation and the fallout of Covid-19 last year, China’s home appliance industry rose to difficulties and forged ahead with strong resilience, making a sharp growth of annual revenue of which export value touched the 100 billion USD milestone. The industry will keep its high-quality development path towards the goal of being a leader of technological innovation of global home appliance industry.
A steady growth was made thanks to the rise of new categories despite the adverse condition
Performance of China’s home appliance industry in the past year can be summarized as follows:
(1) The revenue grew fast. The annual revenue of China’s home appliance industry came to 1.73 trillion Yuan, up 15.5% YoY. The low growth base formed by the performance for the same period 2020 coupled with the strong export performance this year contributed to the fast growth rate.
(2) The profit grew slower than the revenue. The annual profit of the industry stood at 121.8 billion Yuan, up 4.5% YoY. A number of factors including raw material prices, shipping and exchange rates dragged the industry’s profit.
(3) The growth of domestic market was lackluster in growth. But there were highlights too. High-quality traditional home appliances gained traction, while new categories such as tumble dryer, integrated stove, dishwasher, smart wet dry vacuum cleaner and robotic vacuum rose fast.
(4) Export performance was strong. With a complete industrial chain, China’s home appliance industry still received a large influx of overseas orders due to its role as a substitute for closed overseas factories amid coronavirus when global demand rallied. The export value of home appliances from China hit 100 billion USD milestone at 104.4 billion USD, up 24.7% YoY, according to customs data.
China’s home appliance industry faces pressure
China well contains Covid-19 in general while Covid-19 spreads globally, but sporadic outbreaks of scattered infections still affected domestic economic recovery. China’s annual Central Economic Work Conference 2021 cautioned that, China’s economic development is facing pressure from demand contraction, supply shocks and weakening expectations. Home appliance industry is no exception.
Demand contraction: After a restorative growth in Q1, the industry came under pressure entering the second half of 2021 due to weak domestic demand. The combined retail sales value of the industry came to 760.3 billion Yuan in 2021, up 3.6% YoY, but down 7.4% compared with 2019, according to All View Cloud. Currently, repeated outbreaks and regular pandemic control measures dent the confidence of consumers and affect their purchasing behavior.
Supply shocks: The pandemic-caused supply chain disorder, skyrocketing raw material prices and shipping prices, partial power outages and the Yuan appreciation squeezed the profit margins of most home appliance enterprises. It is learned that the rising trend of raw material prices has been slowing down recently.
Weakening expectations: Domestic economic growth, especially consumption growth, has been slowing since Q3 2021. This, coupled with a decline of overseas orders as overseas factories resume production along with global economic recovery, led to a decline in export value month after month. There will be some uncertainties in overseas demand in 2022 after two years of fast growth.
Covid-19 hit industries hard in the past two years, resulting in the struggling operation of SMEs, a decline of people’s income and consumption, weakened consumer confidence and mounting pressure on consumption-driven domestic market. At the beginning of 2022, the fallout of Covid-19 still exists. Despite the optimistic prediction of WHO Director-General and some epidemic control experts that the pandemic will end in 2022, there still are uncertainties. The industry must get ready for all the possible difficulties ahead.
The annual Central Economic Work Conference 2022 mapped out priorities for the economic work in 2022. The economic work next year should stabilize the macroeconomy, ensure stability on the six fronts and security in the six areas, roll out a new round of tax cuts and fee reductions to support market entities, deepen reform in key areas, stimulate the vitality of market players and their internal driving force, and use market mechanism to drive enterprises to step up innovation investment. To implement the spirit of the meeting, National Development and Reform Commission released a Notice on Promoting Consumption in the Near Future which supports home appliance enterprises and furniture enterprises to launch Exchange Old for New activities and publicize standards on safe service life of home appliances, and encourages reasonable replacements of old home appliances. Ministry of Industry and Information Technology released Guidelines on Accelerating the Construction of Modern Light Industry System (Draft) which promotes home appliance industry to make key technical breakthroughs, product innovations and upgrades, digital transformations and encourages the green consumption of home appliance industry. We believe that pressure faced by home appliance industry will be eased as the policies that prioritize stability while pursue progress mentioned at Central Economic Work Conference get implemented.
When it comes to industry development in 2022, we believe there are several things to be noted. (1) Given the fast growth of wet dry vacuum cleaners in 2021, it’s safe to say that new categories and technologies could offer a strong driving force to market demand even when the industry is under downward pressure. Enterprises should step up their technical innovations and tap into consumer demands and pain points to spur industry vitality. (2) Hitting the 100 billion USD milestone in 2021, export value of home appliances has been at historic highs for two consecutive years. Under mounting downward pressure, it doesn’t seem likely for the industry to keep the fast export growth in 2022. Enterprises should be more cautious in their deployments. (3) A “dual circulation” development pattern (an economic development pattern that takes domestic development as the mainstay with domestic and international development reinforcing each other) should be emphasized. The booming domestic demand in the past few years attracted some export-oriented enterprises to turn their focus to domestic market. But it’s worth noting that China’s home appliance industry, a huge-size industry catering to global demand, cannot grow sustainably if it only depends on any single market. That’s why a “dual circulation” development pattern should be adopted.
A bright future lies in innovation
We must face the difficulties squarely while staying confident. In the long run, China's strong economic resilience and fundamentals that underpin long-term growth will remain unchanged. China’s 14th Five-Year Plan is expected to witness deepened technological reform and industry transformation, profound technology-driven transformation of traditional manufacturing industry, accelerated innovation of enterprises and tiered and personalized consumption market. Home appliance industry is expected to embrace new opportunities.
(1) Technological innovation will strengthen the competitiveness of China’s home appliance industry and it is the only way for the industry to achieve high-quality development. China’s home appliance industry has been stepping up fundamental research and original innovation to establish an innovation system based on the demand of global users, improving the collaborative innovation capability throughout the industrial chain to make breakthroughs in core technologies, key technologies, weak points and choke points.
(2) New categories will be developed to meet consumers’ rising demands for stylish, smart, comfortable and healthy products. Mid and long-term progress made in China’s urbanization, the accelerated implementation of China’s common prosperity policy and the widened coverage of social welfare including endowment insurance and medical insurance will fuel the rise of consumption. It is believed that personalized, high-quality, stylish, comfortable, smart and healthy new products and solutions based on technical innovations and consumer research will rise fast and become a main driving force of consumption market.
(3) China’s home appliance industry will embrace new opportunities in global expansion. The pandemic and the complicated global trade environment will add uncertainties to China’s economic development and impact global industrial chain and supply chain. But improved technical innovation capability, complete industrial chain and supply chain, leading experience in smart and digital transformation and tech-powered insight into consumption trends will contribute to the global expansion of domestic brands.
(4) China’s home appliance industrial chain will shift to a green and low-carbon pattern. China have included carbon peaking and carbon neutralization into its ecological civilization construction. Home appliance industry will shift to a green and low-carbon pattern in its industry structure, product mix and service through the following efforts: on one hand, the industry will refine its green manufacturing system and achieve whole-process energy conservation and emission reduction through technical innovation and management innovation; on the other hand, it will expand the effective supply of green, low-carbon products through innovation and publicize the green, low-carbon consumption philosophy to promote a green lifestyle.
(5) Home appliance industry will accelerate its digital transformation and elevate its smart manufacturing capability. It is going to achieve a full upgrade of management, efficiency and quality through a deep integration of new technologies such as 5G, AI, big data and edge computing, which is also a target of the industry during the 14th Five-Year Period. Currently, home appliance enterprises are accelerating their smart manufacturing upgrades.
China Household Electrical Appliances Association proposed an overall development goal of the industry in its Guidelines for China’s Home Appliance Industry Development during the 14th Five-Year Plan Period, which is to be a leader of technological innovation of global home appliance industry as of year 2025 through a continued improvement of its global competitiveness, innovation capability and influence. We believe that, with strong confidence, the goal can be reached through an innovation-driven transformation.