China’s Home Appliance Industry [PT 2]: Regulation-Driven Green Transformation

Regulators are forming green standards governing home appliances

To encourage sustainability within the household appliance industry and reduce carbon emissions, Chinese government agencies and industry associations are ramping up issuing green standards for each segment. The policies are also guiding consumers to make more sustainable purchasing choices.

For example, new industrial energy efficiency standards, which took effect from July 1, 2020, have reshuffled the Chinese air conditioning market. Specifically, the new standards divide air conditioners into five energy efficiency levels, up from only three levels previously. Moreover, the new standards are now applicable to both variable and fixed speed air conditioners, whereas the two types of appliances were subject to independent requirements under the old system. With the new system, fixed speed air conditioners that fell under the former level three energy efficiency category would no longer satisfy the lowest level under the latest requirements. Regulators have given air conditioner manufacturers a grace period of one year until July 1, 2021, to sell off their old level-three high energy-consuming products. This has prompted many air conditioning companies to launch sales promotions to clear their inventory, with a discount as high as 70%.

Although the current energy efficiency system grades air conditioners into five levels, it will shift back to three levels on January 1, 2022. In addition, after this point in time, the system will completely phase out fixed speed air conditioners. Citing Huatai Securities, along the process of implementing the new energy efficiency grading system, it will outdate 40% to 50% of existing air conditioning products. The new standards thus prompt the entire air conditioning industry to enhance energy efficiency by 14% in 2020, and by 30% by 2022.

In addition to air conditioners, the State Administration for Market Regulation (SAMR) in July 2020 published the nation’s energy efficiency criteria for flat-screen TVs and associated set-top equipment. This set of new rules not only lifts energy efficiency standards for 4K TVs but also puts forward requirements for 8K TVs. However, the introduction of new TV energy efficiency standards will not cause as much resistance to development as the air conditioning market. For example, 8K and OLED TVs, which are emerging products in the Chinese TV market, will be subject to looser energy efficiency requirements than 4K TVs. This is due to the fact that such technology relies on the development progress of the semiconductor industry to improve its energy consumption performance.

Suggestions for increasing sustainability in the home appliance industry

For accelerating green transformation of the household appliance sector, it is important for policymakers to continuously update industrial requirements and thus urge manufacturers to produce appliances that are more energy-efficient. For example, the aforementioned strengthened energy efficiency standards for the air conditioning sector set a bottom line for market players to produce energy-saving products. Moreover, the issuance of more stringent rules will force home appliance companies to innovate on aspects such as industrial design, technological upgrades, etc.

While tightening regulations on the whole industry, Chinese regulatory authorities are also encouraging market-leading firms to formulate company-specific production standards that are stricter than the national ones. As Chinese consumers have increasing brand awareness, the advantages of brand image have become more prominent.

For instance, in the first ten months of this year, Midea , Gree , and Haier Smart Home occupied 82% of the Chinese offline air conditioner market, and their combined share in the online market was 74%. The concentration of market share among leading companies also exists in the refrigerator sector, with Haier Smart Home, Midea and Hisense capturing 48% of the market. Based on the existing leadership in the market and the increasing popularity of green appliances among households, if these top companies can incorporate sustainable development into their corporate strategy, they might not only maintain competitive advantages over other close rivals but also further gain the market share of small and medium-sized companies.

Separately, from the supply side, Chinese authorities plan to continue their common practice of subsidizing households purchases of appliances. During a State Council meeting under on November 18, the Chinese government proposed to subsidize home appliance sales. Citing Changjiang Securities’ studies, when Chinese local governments offered allowances to popularize home appliances in nationwide rural areas between 2008 and 2012, the five-year compound annual growth rate of the retail sales of air conditioners, refrigerators and washing machines was 12.4%, 18.6% and 10.3%, respectively. After the subsidy policies faded out in 2013, the five-year CAGR of the three appliances fell to 9.12%, -4.29% and 4.86% from 2013 to 2017. Different from previous subsidy policies that covered the entire household appliance sector, the allowances that Premier Li Keqiang plans to initiate this time will only cover green appliances. This is all part of the effort to increase market share of more environmentally friendly products.

Reference:

https://tech.sina.com.cn/e/2020-03-25/doc-iimxxsth1557505.shtml

http://gd.people.com.cn/n2/2020/0702/c123932-34127877.html

https://t.qianzhan.com/caijing/detail/200718-b43774ed.html

http://www.js.xinhuanet.com/2020-07/03/c_1126190237.htm

https://tech.sina.com.cn/e/2020-07-30/doc-iivhvpwx8191078.shtml

http://www.cheari.com/newsdetail.html?id=132011

https://finance.sina.com.cn/tech/2020-11-17/doc-iiznctke1844492.shtml

https://pdf.dfcfw.com/pdf/H3_AP202011271433803407_1.pdf?1606500776000.pdf

https://finance.sina.com.cn/stock/stockzmt/2018-09-24/doc-ifxeuwwr7797600.shtml

https://stock.finance.sina.com.cn/stock/go.php/vReport_Show/kind/industry/rptid/659459790818/index.phtml