For 10 years, the most valuable household appliance in herdsman Chaolu's home in north China's Inner Mongolia was the 14-inch TV set, purchased when he earned about 4,000 yuan (US$580) a year.

"I could not bring myself to buy a new TV set, although the old one often failed to work properly. I had to support a family with very little money."

Now the old TV has been replaced by a 26-inch LCD color set.

"The new TV set looks great. Sharp images and good sound make it worth the money," says Chaolu, 33, who paid 1,950 yuan (US$285) for the set in Taipusi Banner, Xilinguole League, two days before last month's Lunar New Year holiday.

He also enjoyed a 13-percent subsidy, worth 253 yuan, from the government.

"With the money saved, I could buy more than 10kg of mutton. It looks as if the government has sent me a special gift for the Spring Festival."

Spread nationwide

China piloted the subsidy scheme for farmers buying designated brands of color TV sets, refrigerators and mobile phones in the three agricultural provinces of Shandong, Henan and Sichuan, as well as Qingdao City from December 2007 through May 2008. They totaled 197 types of appliances.

The prices were capped at 2,000 yuan for a color TV set, 2,500 yuan for a refrigerator and 1,000 yuan for a cell phone. The 13-percent subsidy was split 80-20between the central and local governments respectively. Each rural household was allowed to purchase two items from each category and could claim the subsidies at their local township government finance agencies in 15 working days.

China, the world's largest producer and exporter of household appliances, also gives a 13-percent tax rebate to household electrical appliance exporters and exports half its production every year, said Zeng Xiaoan of the Ministry of Finance (MOF).

"Now, the government will give farmers this benefit to improve their quality of life and to stimulate sluggish rural consumption," said Zeng.

The government expanded the scheme to 14 provinces, autonomous regions and municipalities and included washing machines capped at 2,000 yuan in December 2008. Covering 53 percent of the rural population, the scheme will run till 2012.

"The rebate made me resolve to spend 1,950 yuan on a new TV," said Chaolu.

On February 1, China furthered the scheme throughout the country to benefit all rural people and added four more products: motorcycles, personal computers, water heaters and air conditioners. Local governments could choose two of them according to demand.

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.

Bottlenecks

Despite all the benefits, China needs to overcome problems to truly expand rural consumption with the subsidy program, say industry officials.

"Low incomes and insecure social security services directly hamper Chinese farmers' purchasing initiative," says Zhu Changying, deputy head of Anping Town, Nanchong City, a major farm base in southwest China's Sichuan Province.

The scrapping of the 2,600-year-old agricultural tax in 2006, subsidies to farmers buying better strains of seed and farm machines, and other government measures have helped farmers in Anping Town raise their incomes. In 2008, annual net incomes in the town averaged 4,300 yuan, but farmers spent about 3,000 yuan ayear on food and production materials.

"Farmers are no longer so troubled by medical costs since the government introduced the new rural cooperative medical care project in 2003. But they do not have retirement pensions, which is why most choose to save," says Zhu.

High electricity costs also discouraged the purchase of household appliances.

Yan Youqi, 50, of Weizhuang Village, Hengshui City, Hebei Province, says "We have to think about whether we can afford the cost of running a refrigerator."

Weizhuang, with 730 residents in 194 households, had an average annual net income of 4,700 yuan in 2008, largely remitted from migrant workers.

At the village, 1 kilowatt-hour of electricity costs 0.53 yuan. It means farmers will spend 190 yuan a year running a refrigerator.

"The cost is nothing to urban residents. But we farmers have to think whether it is necessary to store so little food in refrigerators at such a cost."

Farmers have their own priorities. Jiao Changning, deputy head of Zhengjia Heyan Town, Hengshui City, says they badly need solar water heaters.

The town had only eight public baths to serve people from 64 villages. Villagers might take a shower in their own courtyards in summer days. But they had to "tolerate" the inadequacy of the baths in winter.

"As tap water systems spread, farmers could enjoy the convenience of warm water if solar water heaters were added to the subsidy list," says Jiao.

(Xinhua News Agency February 2, 2009)