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China Subsidy for Rat-Proof Refrigerators Feeds Appliance Boom

A truck delivers appliances in rural Hebei Province
A truck delivers appliances in rural Hebei Province, China, on March 15, 2010. Photographer: Nelson Ching/Bloomberg

Yang Shibo, a 50-year-old farmer in China’s Shandong Province, bought a refrigerator to keep vermin away from his family’s meat and vegetables. The government eased his purchase by knocking 13 percent off the price.

“We see a lot of rats running around, they run around on the ceilings, they eat our food,” Yang, who grows peanuts, said as he swatted flies in his kitchen. “We didn’t have a fridge before. It’s much more convenient now.”

Farmers are benefitting from more than 15 billion yuan ($2.23 billion) in subsidies this year for appliance purchases by rural residents as the government tries to boost domestic consumption and ease a reliance on infrastructure spending and exports. That more than doubled first-quarter profit at Qingdao Haier Co., part of China’s biggest appliance maker. TCL Multimedia Technology Holdings Ltd., part of China’s biggest consumer-electronics maker, said net profit rose 69 percent.

Farmers using subsidies bought 41.7 billion yuan in household appliances during the first four months of this year, a 510 percent increase from a year ago, the government said.

Manufacturers shipped about 163 billion yuan worth of products under the program last year.

Sales Surge

“The subsidy program has imposed a remarkable growth in household-appliance sales,” said Zhu Jianfang, a Beijing-based economist at Citic Securities Co. Ltd. “This is one of the policies that is driving consumption growth in China.”

Local governments reimburse farmers for televisions, refrigerators, washing machines and computers. The Ministry of Commerce started a provincial subsidy program in 2007 and expanded it nationwide in February 2009.

Farmers bought 20.8 million household appliances with subsidies from January through April, a 370 percent increase from a year earlier, the Ministry of Commerce said May 7. The top-selling brand in April was Haier.

Qingdao Haier, the Qingdao-based air-conditioner and refrigerator unit of Haier Group Corp., said April 29 that first-quarter net income rose to 358.4 million yuan from 138.2 million yuan a year earlier. Sales rose 45 percent to 13.3 billion yuan.

‘Rodent-Proof’ Fridge

Haier Group targets rural customers with refrigerators featuring metal plates to cover holes on the back and thicker, “bite-proof” wiring, Philip Carmichael, president of Asia Pacific operations, said in Hong Kong.

“When you plug in a refrigerator in the countryside and the compressor goes on, that’s like a beacon for rodents to build their nests,” Carmichael said. “That’s what makes us think about making it rodent-proof.”

Those features helped convince Yang, who bought Haier’s 1,600 yuan, two-door model.

Refrigerators were the top subsidized purchase in 2009, with sales of 32 billion yuan, Commerce Ministry data showed.

TCL Multimedia, the Hong Kong-listed arm of TCL Corp., said first-quarter net income was HK$44 million ($5.66 million), a 69 percent increase from a year earlier. Sales of liquid-crystal display televisions rose 61 percent to 1.93 million.

The company said 43 percent of those sales involved subsidies. Its 65-inch (165-centimeter) flat-screen TV sells for 39,959 yuan at a Suning Appliance Co. outlet in Langfang, Hebei.

Bigger TVs

“Rural customers always go big on sizes,” said Li Lu, deputy general manager of TCL Multimedia’s China unit. “They even asked us to widen the plastic borders because it makes the TVs look bigger and helps showcase wealth.”

Suning, China’s biggest electronics retailer by market value, applies the subsidies to retail prices and files for reimbursement. Monthly sales in Langfang are up 10 percent to an average 4 million yuan since the program started, store manager Li Hongjie said.

Yet some farmers still can’t afford to participate. Wei Yanhua, 60, who earns 4,200 yuan growing corn in Hebei, is saving to cement her courtyard.

“I can barely feed my family of nine, let alone spend a few thousand yuan to buy a new television set,” she said.

Mark Williams, senior China economist for Capital Economics Ltd. in London, called the subsidies “a short-term fix.” The government instead should boost employment and incomes to ensure long-term economic growth, he said.

“What China needs really is not these short-lived schemes, but a more fundamental look at how it can boost consumer spending over the long term,” he said.

Rural Living Standards

The government wants to raise rural living standards after state-run China Daily reported the income gap with urban areas grew to its widest ever last year. Almost 16 percent of Chinese live on less than $1.25 a day, according to the UN Human Development Report.

China paid about 7.54 billion yuan in subsidies in 2009, and this year may pay 15.2 billion yuan, Finance Ministry data showed. Each rural household can buy two products in a category, the government said.

This year, price caps on eligible products were raised to broaden the selection. The limit for television sets doubled to 7,000 yuan, and gas stoves, electric cookers and DVD players were included.

Wei Jiushan, who farms a 0.8-acre cornfield in Hebei province outside Beijing, said he would continue taking advantage of the program after buying his family’s first washing machine. His father bought a subsidized, 650-yuan Hisense Electric Co. refrigerator in March.

“A television is definitely next on my list,” Wei said, mentioning a 22-inch LCD model. “I will buy the appliances in stages and getting some subsidy is better than nothing.”

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