In 2015, China home appliance industry has witnessed a fall in major indicators, with prime operating income down by 0.4% year-on-year, export value down by 2.7% year-on-year, and production and export value of large appliances down by 3% and 4% year-on-year respectively, as a result of factors such as the weak recovery of global economy, exchange rate fluctuation, a slow growth of domestic economy, stagnation of housing market, consumption overdraft posed by earlier stimulus policies, etc. China home appliance industry, with some falling indicators, has secured strong performance in general in 2015. The performance for 2016 are as follows:
1. Performance of China home appliance industry for H1, 2016
1.1 Domestic market
Large appliance segment, with a continued negative growth in the first half of 2016, saw its drop in sales clearly narrowed from the first quarter of 2016, a period when refrigerators, freezers and air conditioners suffered a two-digit fall in retail sales. According to statistics from China Market Monitor Co., Ltd (CMM), in the first half of 2016, drop in retail sales of refrigerators and air conditioners climbed to -3% and -7% respectively, and drop in washers and freezers picked up too. Growth rate of retail sales and sales volume of kitchen appliances and bathroom products saw a rise.
Amid weak market demand in general, online market remains strong with a continued growth in sales of large appliances and kitchen appliances. Statistics from All View Cloud (AVC) suggest that most products delivered a year-on-year two-digit growth in online sales.
A variety of products witnessed a continued downward trend in output in the first half of 2016 amid weak market demand and high inventory. According to statistics from National Bureau of Statistics (NBS) on the output of home appliances in H1 2016, large appliances witnessed a fall in refrigerators, freezers and air conditioners and a growth in washing machines and microwave ovens, kitchen appliances saw a growth in range hoods, ranges, electric water heaters and gas water heaters and a decline in solar water heaters while portable appliances experienced a growth in electric cookers and electric cleaners and a fall in electric fans, water dispensers and electric bake ware.
1.3 Economic indicators slightly improved but inventory remained high
With product mix optimized and raw materials at low price, prime operating income and total profit in the first half ramped up from the first quarter, with the former increasing 2.15% year-on-year to 704.1 billion Yuan, and the latter increasing 15.27% year-on-year (outpacing the growth rate of Q1 by 2.72%) to 45.2 billion Yuan. Alongside that, return on sales increased 0.77% year-on-year to 6.42%. Since May 2015, the growth rate of prime operating income has been at around 2% for 13 consecutive months.
Losses of home appliance industry in the first half of 2016 registered 1.7 billion Yuan, barely changed from the same period last year. Bad weather and geographic disasters in large area of China in the second quarter worsens the performance of air conditioner and refrigeration industry.
While capital for finished products fell from a high level, accounts receivable has been hovering at a high level, reflecting a severe situation in distribution channels posed by high inventory. In June, capital for finished products in home appliance industry posted 62.38 billion Yuan, a 6% year-on-year drop, and accounts receivable posted 141.9 billion Yuan, 9.4% higher than the same period last year.
In the first half of 2016, accumulated export value of China's home appliance industry registered 28.84 billion US dollars while import value slid by 0.3% to 1.66 billion US dollars. Trade value totaled 30.5 billion US dollars, down by 0.2% and trade surplus posted 27.2 billion US dollars, down by 0.2%.
Exports of most large appliances rebounded in the first half of 2016, with total export volume of 98.9 million units, an increase of 8.6% and exports of 12.78 billion US dollars, an increase of 3.5%, of which the export volume and exports of air conditioners climbed by 19.7% and 7.6% respectively. Small home appliances didn't see much improvement in export in the first half of 2016, with total export volume of 998 million units, down by 0.9%, and exports of 11.2 billion US dollars, down by 4.8%, of which electric fans stood out with a surge of 20% in export volume and 10% in exports. Parts and accessories saw a 11% increase in export volume and a 1.4% increase in exports which worth 4.86 billion US dollars, of which the export volume and exports of compressors grew by 17.7% and 3% respectively.
In the first half of 2016, exports to Asia, Europe and North America registered 11.1 billion, 6.8 billion and 7.1 billion US dollars respectively, all a record high or second best. Falling markets mainly came from Latin America. In the first half of 2016, exports to Latin America posted 1.9 billion US dollars, a decrease of 22%, shrinking to the level before 2011.
For the same period, exports to the EU, EU core countries, ASEAN continued to grow, with an increase of 5.9%, 4.5% and 10.7% respectively; exports to West Asia and North Africa remained flat; exports to the United States, Australia, Canada and Japan fell by 2% to 3%. The biggest plunge came from BRIC countries, exports to which plummeted by 14%, 34% lower than the record high set in 2013.
2. Measures adopted in economy-rebalancing
Innovation has grown to be a fresh approach that home appliance enterprises use to cope with downward pressure. Measures adopted by home appliance industry in rebalancing economy are as follows: (1) Put unprecedentedly large investment in R&D to improve innovation capacity; (2) Integrate innovation resources throughout global industry chain, boosting industry integration and cross-boundary collaboration; (3) Increase the supply of high-performance products, making it a new growth pole; (4) Put in place Made-in-China 2025 Initiative, and update the industry towards automation and smartization; (5) Explore innovative ways of operation.
3. Factors behind the performance in H1 2016
3.1 Residential housing market
Commercial residential housing market has maintained a growth trend for 13 consecutive months since its rebound in April 2015. The first five months of year 2016 saw an accumulated sales of 42,900 square meters, a year-on-year rise of 34.2%. Meanwhile, efforts in reducing inventory produce strong results. Since March this year, commercial residential housing areas for sale have fallen by 7.5 million square meters per month on average.
3.2 Price of bulk stock
From the end of last year to early this year, price of bulk stock have plunged to the lowest of recent years. In the first quarter of 2016, it started to pick up. Though drives up procurement cost, it could contribute to a slow rise in product price.
3.3 Exchange rate
The value of RMB against currencies of most emerging countries is going upward, posing increased pressure on exportation.
4. Trends and predictions for 2016
Predictions on China home appliance industry in the forthcoming 2016 go as follows: (1) Weak market demand is expected to continue, and domestic and international market are to face continued downward pressure, amid a surplus in housing market, high inventory and slow recovery of global economy. (2) While consumers continue to demonstrate their desire for high-end, stylish, personalized and diversified products, industry players are expected to step up their efforts in technology innovation to grip this consumption upgrade. (3) Digitalization and smartization are expected to put forward home appliance industry to upgrade from mass production to mass customization. (4) China home appliance industry is expected to change from an export-reliant trade mode to a new mode.