The Chinese government’s recent introduction of a substantial subsidy program for home appliances is set to invigorate the domestic television market, according to leading industry analysts Omdia and DSCC. Both firms predict a significant short-term surge in TV sales, particularly in the fourth quarter of 2024 and into early 2025, as consumers capitalize on the financial incentives to purchase energy-efficient models.
Under the new program, consumers are eligible for discounts ranging from 15% to 20% off the purchase price of qualifying home appliances. The subsidies are tied to the China Energy Label system:
- Label 1 Products: The most energy-efficient rating qualifies for a 20% subsidy.
- Label 2 Products: Slightly less efficient products are eligible for a 15% subsidy.
The program covers eight categories of home appliances, including televisions, refrigerators, washing machines, and air conditioners. By incentivizing the purchase of higher-rated energy-efficient products, the government aims to promote environmental sustainability alongside economic stimulation.
Omdia reports that the central government has allocated ¥300 billion (approximately $42 billion) to fund the subsidy program, which is scheduled to run from the second half of 2024 through the first half of 2025. DSCC adds that CNY 150 billion ($21.4 billion) in special national bond funds have been issued to support the initiative. This significant investment underscores the government’s commitment to bolstering consumer spending and revitalizing key domestic industries.
Analysts anticipate that the subsidies will trigger a wave of consumer purchases, especially during major shopping events like the upcoming “Double 11” (November 11th) festival and national holidays. Larger-sized and premium-specification televisions are projected to be in high demand. These models not only meet the stringent energy efficiency standards but also offer greater absolute savings due to their higher price points.
In response to the anticipated surge in demand, leading TV manufacturers such as Hisense, TCL, Skyworth, Konka, Changhong, and Xiaomi are increasing their production schedules and panel purchase forecasts for Q4 2024. Hisense, for example, has raised its fourth-quarter sales target from 2.5 million to 3 million units. TCL and Xiaomi have similarly adjusted their sales projections upward.
To meet the energy efficiency criteria without undergoing extensive redesigns, manufacturers are making technological adjustments to existing models. Techniques include the incorporation of dual brightness enhancement films (DBEFs) to reduce power consumption.
The Chinese TV market has experienced a significant decline over recent years, dropping from 60 million units sold in 2018 to below 40 million units in 2023. Both Omdia and DSCC agree that the subsidy program could stabilize the market, potentially increasing demand by 1.5 to 2 million units. This boost could bring annual shipments back up to around 40 million units, halting the downward trend.
While the short-term effects are promising, analysts caution about the sustainability of this demand. There is concern that the subsidies might simply accelerate future purchases, leading consumers to buy now rather than later, which could result in a slump once the program concludes.
Moreover, the program is expected to primarily benefit middle to higher-income consumers who have the means to invest in larger, more energy-efficient TVs. Lower-income consumers may remain hesitant to spend due to broader economic uncertainties, potentially limiting the program’s overall impact on the economy.
The increased production is likely to stabilize panel prices, which had been on a decline due to oversupply and weak demand. This stabilization could improve profitability for panel manufacturers, providing a much-needed respite in a challenging market environment.
Both Omdia and DSCC project that with the subsidy in place, the Chinese TV market will stabilize at just under 40 million units in annual shipments. Without the government’s intervention, the market was expected to continue its decline, emphasizing the significance of the subsidy program.
The consensus among industry experts is that the Chinese government’s subsidy program will provide a significant, albeit temporary, boost to the domestic TV market. Manufacturers are gearing up for increased production, and consumers are poised to take advantage of the financial incentives.
However, uncertainty remains regarding the program’s long-term effects on consumer behavior and market dynamics. The possibility that the subsidy is merely pulling future demand forward raises questions about the market’s sustainability once the program ends.
A Comparison of China’s Subsidies to the Rest of the World
In 2022, China stood out as the largest contributor to global fuel subsidies, allocating more than $2.2 trillion to support this sector. This substantial investment places China ahead of other major contributors such as the United States, which provided $757 billion, Russia with $421 billion, India at $346 billion, and Japan contributing $310 billion. China’s significant expenditure underscores its influential role in shaping global subsidy patterns, particularly in the energy sector.
The nature of subsidies varies across countries, reflecting different economic strategies and priorities. In China, direct subsidies and tax incentives each account for approximately 0.38% of the nation’s GDP. A notable aspect of China’s approach is the provision of below-market credit to state-owned enterprises, which constitutes about 0.52% of GDP. This form of financial support is a major mechanism through which the Chinese government bolsters key industries. In contrast, the United States and France place a greater emphasis on research and development (R&D), primarily through R&D tax incentives and direct government support for R&D activities. Germany’s subsidy structure is somewhat akin to China’s, with below-market credits and tax incentives being the most significant elements of their support programs.
Globally, the manufacturing sector is a primary focus of subsidy programs, accounting for about 25% of the total. This is followed by services related to professional, scientific, and technical activities, with a strong emphasis on R&D, as well as the agriculture and fishing industries. In China, subsidies are particularly prominent in industries such as electronics, vehicles, and machinery, highlighting the government’s intent to strengthen sectors deemed crucial for economic growth and technological advancement.
The implementation of subsidies also differs among regions. In both China and the United States, a significant majority of subsidies—90% and 82% respectively—are administered at the sub-national level, involving state or local governments. In the European Union, about 60% of subsidies take the form of financial grants, reflecting a direct approach to providing financial support. Conversely, the United States predominantly uses tax incentives as the main form of subsidy, indicating a preference for indirect financial assistance through the tax system.
In the last four years, there has been a notable increase in total fuel subsidies globally, with all regions except North America experiencing significant rises. Europe, in particular, has seen its subsidies almost double due to the subsidization of natural gas and electricity in response to the war in Ukraine. This surge reflects efforts to mitigate the economic impact of energy supply disruptions and to support consumers and industries facing higher energy costs.
China’s focus is on maintaining growth and technological development. These subsidies are going to help its display industry at a time when it is poised to gain even more market share globally in all segments of the market. But, subsidies are not unique to China, and they may not have long term consequences other than to buy time for the country’s industries to weather market downturns. That’s not a bad thing. The future will take care of itself.
