Potential

Huge foreign investment and fast-growing exports have long been major contributors to China's economic development. With the effects of the global financial crisis spreading throughout the world, the government is looking to tap domestic consumption, especially in unexploited rural markets.

China's countryside has lagged behind urban areas in sales of home appliances, such as TVs, refrigerators and washing machines.

Per capita net income for the 800 million rural residents surged by 8 percent in 2008 to hit 4,761 yuan.

"Demand for color TVs in rural areas could touch 100 million units over the next decade, and demand for refrigerators 145 million, as China has 210 million rural households," says Sun Yiding, a spokesman for Gome, China's leading electrical appliance retailer.

China has more than 50,000 townships and the number of rural households accounts for 68 percent of the total families.

"The household appliance purchase subsidy program could help stimulate rural consumption amounting to 920 billion yuan, drive up growth of retail sales of consumer goods in rural areas by 2.5 percentage points, and realize household appliance sales of 480 million units," says Fu Ziying, Vice Minister of Commerce.

Manufacturers

The scheme could help steer household appliance manufacturers to rural areas.

"The subsidies give rural residents great incentives to buy. They also provide appliance makers excellent opportunities to make breakthroughs in rural areas," says Wang Zhen, a Guotai Junan Securities analyst.

Huo Dufang, chairman of the China Household Electric Appliance Association, says, "China's home appliance industry faces a severe situation this year with production, sales and export slowing. The rural market provides new opportunities."

Frestech, the country's leading refrigerator producer, saw output of refrigerators and freezers reach 3.5 million units in the first 11 months last year, up more than 20 percent from the same period in 2007.

"As one of the first group of manufacturers to provide appliances to rural areas under the subsidy scheme, our sales in Henan, Sichuan and Shandong provinces advanced 40 percent in 2008," says Wang Jianhua, general manager of Frestech.

According to the China National Electronics Import and Export Corp. last November, 155 domestic and foreign companies applied to be on the list of the scheme's official providers. Some 122 were included.

Panasonic, Midea, TCL and 33 other brands were on the washing machine list, with Samsung, Nokia, Motorola and 14 other brands getting a share of the big mobile phone market in the rural regions.

Ten domestic leading manufacturers including Hisense, Konka and Haier were on the color TV set list, while Meiling, Haier, Siemens and a further 37 brands were on the refrigerator list. Another 19 companies won the bid for chest freezers.

Zhu Lijun, an analyst from China Galaxy Securities, estimates the policy could promote growth of the refrigerator sector by 20 percent, the washing machine sector by 19.5 percent, and color TV sector by 14 percent, but will have little effect on the mobile phone sector.