Investing in China’s Small Household Appliances Market
By: Jake Liddle, Dezan Shira & Associates
Word count: 734
2014 proved a hard year for China’s household appliances industry, caused by global economic
uncertainty, a slump in the country’s housing market and cuts made to household appliance
subsidies by the government. Despite this, China’s large consumer market – in particular the
rising middle class – continues to boost sales of small household appliances, which occupies a
large quantity of the country’s overall electronics market.
According to IBIS World’s 2015 Home Appliance Stores Market Research Report, Chinese home
appliance stores’ annual revenue has increased at a rate of 6.1 percent to US$176.1 billion in
the last five years. HKTDC’s China Kitchen Electrical Appliance Market Report claims that
China’s urbanization rate, which stood at 53.7 percent in 2013 and has increased annually by
more than one percent, is the main reason for the industry’s stable growth. Additionally, rural
populations are also becoming more susceptible to an evolving small appliance market, causing
China to become the world’s biggest consumer and manufacturer of electrical appliances.
Classified as encouraged in China’s Catalogue for Foreign Investment Industries, there is ample
opportunity for foreign investors in this growing market.
Consumer trends and purchasing habits
HKTDC’s survey reports that replacing older or existing broken products and improving quality
of life are the main reasons that Chinese households purchase small appliances. Changing
consumption trends, which reflects increasing disposable income of consumers, have forced
domestic electronics giants to widen their range of household appliances. Middle class
consumers, who tend to prefer more mid to high-end ranges, now look beyond price, quality and
brand of products when purchasing small appliances; the report shows that 88 percent of
respondents are now more concerned with energy efficiency, environmental protection, nontoxic materials, durability, and ease of operation of products, and are willing to pay an extra 11
percent for these functions. These are features which have become the norm in the west, where
energy efficiency and hygiene standards are highly regulated and developed. Furthermore,
middle class consumers are more trusting of foreign branded products, giving rise to ease of
integration in the existing market.
In addition, smart functions have been one of the market’s more dramatic developments, with
consumers preferring products which are compatible with smart phones or are remotely
controllable, or ones with the capability to automatically detect external factors such as heat or
pressure and adjust accordingly. However, China Trade Research’s findings indicate that a
growing proportion of consumers tend to purchase full kitchen sets, attracted by same brand
discounts, unified design and post purchase services. Furthermore, full kitchen suites with inbuilt
appliances are replacing individual standalone small appliances, providing convenience and
space-saving solutions in a market where property space is a premium.
Online shopping is becoming an important option for consumers, primarily on China’s largest ecommerce platforms, and, which are expanding their delivery
scope to more rural areas. However, market research shows that a large majority of consumers
still purchase small electrical appliances at traditional outlets such as shopping malls and
specialist electronic stores, meaning that electronics retailers are going to have to maintain a
balance between online and offline sales methods.
Domestic giants
Unsurprisingly, large domestic brands such as Haier, Midea, Hisense and Supor dominate the
Chinese small appliances market, maintaining extensive marketing campaigns, regular product
updates, distribution networks, brand reputations and tight competition in almost every part of
the country. This has resulted in smaller local companies’ profits and scope to dwindle.
IBIS World’s report remarks that the four largest electronics companies together account for 23
percent of the industry revenue in 2015, aided by the high development of the large electronic
chain outlets GOME and Suning, which dominate retail stores in bigger cities across China.
Future of the industry and opportunities for investors
As part of its 12th Five Year Plan, the Chinese Government has built over 36 million new lowincome housing units, and with more to be built in the future – combined with China’s improving
living standards – the small appliances industry is sure to make exceptional growth. Indeed, the
EMIS China Electrical Appliances Sector 2014 Report forecasts a compound annual growth rate
of 9.9 percent for the industry, and predicts electronic base prices to remain stable due to the
relatively low price of raw materials. Because of developments in consumers’ preference for
design, function and greenness over price, there are opportunities for foreign investors to expand
in the market, especially where demand exists for better energy efficiency and hygiene.
This article was first published on Insert Hyperlink.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients
through Asia’s complex regulatory environment and assisting them with all aspects of legal,
accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with
operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable
partner for business expansion in this region and beyond.
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