The Chinese government has forked out 26 billion yuan to boost consumption of energy-saving home appliances. But so far the market hasn’t reacted as hoped, reports Wang Haotong.
This summer, China launched a new round of subsidies for energy efficient home appliances, allocating 26.5 billion yuan (US$4.2 billion) to promote sales of “green” products in five categories: air conditioners, flat-screen TVs, fridges, washing machines and water heaters. This round of handouts is expected to last a year.
While many commentators have argued these subsidies are more about stimulating consumption than protecting the environment, they nonetheless tally more closely with China’s energy-conservation and emissions-reduction goals than the previous two schemes: Home Appliances for the Countryside, and the Home Appliance Replacement Plan, which encouraged people to “replace old with new”.
Peng Yu, assistant director at China Market Monitor, a research company focused on the domestic-appliance sector, said: “Stimulating consumption and energy conservation are given roughly equal weight – it’s about and half-and-half.” Officials predict these new subsidies will boost consumer demand for energy-efficient products by 450 billion yuan (US$70.8 billion), which they say will translate into energy savings of around 11.7 million tonnes of standard coal equivalent.
During the first month the energy-saving policy was in force, however, the market did not give it quite the hearty reception anticipated.
In June, technology brands like TCL Multimedia and Skyworth Digital saw sales growth slow markedly compared to the previous five months. Statistics for June from market research firm AVC suggest the energy-saving subsidies pulled sales of fridges up by 1.5%, washing machines by 1.7% and air-conditioners by 2.5%, though growth may have been driven more by the fact it was the start of the busy season than anything else. And, despite the growing numbers of people doing their shopping on the internet, 360.com is the only online company selling energy-saving brands of televisions and washing machines.
Consumers buying on price
Yi Shui is policy officer at Top10.cn, an internet platform devoted to information on energy efficient products. She said that, over the past two years, the number of people buying energy-saving domestic appliances has slid in line with the slumping property market. Moreover, the home appliance market has reached saturation: the two previous rounds of subsidies have drained consumer spending power on household gadgets. These factors may have affected market reaction to the new subsidies, Yi said.
For consumers watching their wallets, the subsidies don’t necessarily provide much of an incentive. Although the subsidised products are now cheaper than they were, energy-saving products remain more costly than their conventional counterparts. A survey of several thousand people carried out by Chinese NGO Green Beagle found price was the top concern for Chinese shoppers when it came to buying appliances for the home. Only a small number of respondents, with relatively high salaries and environmental awareness, said they would choose energy-saving appliances.
The impact of the new subsidies will also be determined by the sales practices of manufacturers and shops. So far, the signs here aren’t great. Since the producers have fairly large stocks of conventional appliances hanging around, they are naturally focusing first on clearing these, meaning the subsidised products aren’t getting much shelf space, according to reports. Domestic appliance stores often use public holidays and other celebratory events to run special offers. While they continue to do this – offering regular home appliances at bargain rates – the appeal of the subsidised products will stay weak.
Peng Yu believes that, even though the government conducted an extensive evaluation before rolling out these energy-saving subsidies, it still introduced them too quickly after the previous subsidy rounds. The industry didn’t have sufficient time to prepare. Appliance manufacturers need a certain period to get ready, whether that’s adjusting their product line or preparing distribution logistics or training their sales staff, Peng said.
China's energy saving plans
Even so, the size of these subsidies should make people sit up and take notice. No other country has injected such a large amount of money into boosting the sale of energy-saving appliances. The challenge now is how to promote this generous policy in an effective way that is in line with market rules.
First of all, China’s energy-saving domestic appliances are on the expensive side, and even with subsidies it’s difficult to attract buyers. Conrad U Brunner, the Swiss chair of Top10, said he bought an ultra-energy efficient fridge in Zurich for about US$1,000 (6,400 yuan). The subsidy was about US$200 (1,300 yuan). Subsidies for other home appliances were even higher. According to Top10, which has researched energy-saving subsidies in dozens of countries, it’s only when the subsidy reaches 20% to 30% of the original cost of the appliance that you see a clear shift in consumer choices. And that’s when manufacturers actively turn their sights to the best energy-saving technologies. China’s new subsidies average less than 10% of the appliance cost. So even once you factor in the subsidy, many energy-saving products remain much more expensive than regular appliances. The majority of Chinese consumers will still choose non-energy saving home appliances.
The finer details of these new subsidies also need attention, Top10 argued. First, it said, subsidies should be restricted to products classified as “level one” energy efficient – the highest category. But the existing subsidies cover “level two” air conditioners and washing machines. This may be partly because there are fewer level one products around. But it’s a barrier to the promotion of advanced energy-saving technologies, and therefore to energy efficiency and emissions reduction.
Second, as one of the basic aims of the subsidies is to encourage the most advanced technologies and rid the market of backward products, Top10 believes subsidies should be issued only to technologies with the greatest energy-saving potential and should not be used to support energy-consuming gadgets like plasma TVs. Third, super-size appliances – huge TVs, fridges and washing machines – should not be subsidised, it said. Even if they use the most advanced energy conservation technology, the absolute consumption of energy will still be much higher than regular-sized products carrying the equivalent energy-saving technology. The bigger the model, the greater the subsidy – this is inconsistent with the ideals of green consumerism.
China hopes its huge investment in domestic-appliance subsidies can help the government meet its binding target of cutting energy consumption per unit of GDP by 16% by 2015 compared with 2010 levels. At the same time, it marks a push to upgrade the home appliance sector. Peng Yu said that China’s white goods industry is in reform mode. In 2011, the number of colour TVs for every 100 urban households was 134 to 137. The figure for fridges and washing machines was around 100 each, and for air conditioners, it was 117 units. Today, when people buy home appliances, they are “upgrading what they already have”, Peng said. And so the industry must find ways to reduce energy consumption while improving the functionality of their products.
On July 1, a tiered electricity pricing system came into force across China, meaning those who consume the most energy now pay higher per-unit prices. The government hopes this policy will encourage consumers to buy energy-saving home appliances.
The new subsidies have been introduced during a slump in the domestic appliance market. Late last year, the gradual withdrawal of the old subsidies caused appliance manufacturers to push sales hard, and the market briefly looked very strong. But in January, the cold arrived: between January and May, the home appliance retail market only made 478 billion yuan (US$75 billion), 10% less than over the same period last year. The new subsidies have not, so far, generated the old levels of heat.
However, it’s hoped they will start to make an impact imminently. Over two months of adjustments, the internal structure of the home appliance market has gradually taken shape. Earlier this year, Peng Yu forecast that the market would start to respond in August – we will soon find out if he was right.
Wang Haotong is a Beijing-based journalist.
This article is published as part of our Green Growth project, a collaboration between chinadialogue and The Energy Foundation.
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