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Abrand-new color TV set stands in Shi Yunguos house. “The set cost me RMB 1,350, and the government gave me an RMB 175 subsidy,” said Shi Yunguo, a farmer in Linyi, Shandong Province. Beginning in February 2009, Chinese farmers qualify for a 13 percent government subsidy on TV, mobile phone, refrigerator and washing machine purchases.

The “Home Electrical Appliances to Rural Areas” policy runs for four years, during which 480 million household electrical appliances are expected to sell in the countryside, generating consumption worth RMB 920 billion. “The government wants to stimulate consumption in rural areas and simultaneously clear surplus home electrical appliances,” said Zeng Xiaoan, vice director of the Ministry of Finances Department of Economic Development.

Home Electrical

Appliances Affordable

to Farmers

The “Home Electrical Appliances to Rural Areas” scheme has been operating on an experimental basis for one year. Subsidies have been allocated to farmers in the provinces of Shandong, Henan and Sichuan since December 2007, and 3.5 million home appliance sales have been made in these provinces since the end of October 2008, according to Ministry of Finance statistics.

Shi Yunguo was just one of the farmers who bought their TV sets under the scheme.

The Chinese government has invited tenders for the contract to produce the appliances in accordance with related regulations. No single item is to exceed RMB 2,500 in price.

China is now the worlds largest home electrical appliance producer. The export volume of color TVs, refrigerators, washing machines and mobile phones in 2007 reached US $57.9 billion, and constitutes a main source of Chinas large trade surplus.

Export growth has made great contributions to Chinas economic development in the past decades, but is dwindling under the current economic crisis. Popularizing home electrical appliances in rural areas, however, offsets the falling export volume, according to Zeng Xiaoan.But this means nothing to 54-year-old Shi Yunguo, who lives in a remote mountainous area, and whose two sons have gone to the city to do manual labor, nowadays a main source of income for rural dwellers.

Shi Yunguo remembers how 20 years ago there was only one Hitachi television in the whole village. “We had to borrow heavily to buy a television at that time,” he recalls. Chinas first color TV production line was set up in 1978. Until 1994, Japanese brands had the lions share of the Chinese television market, but sets are scarce in rural areas.

Getting married is a grand affair in rural areas. Shi Yunguo bought his first color TV in 1992 as a wedding gift to his eldest son.

There are 900 million rural residents of China whose lifestyle does not match that to be expected of such a rapidly developing economy. Home electrical appliances are hence far less common in the countryside than in the city. A State Statistics Bureau survey shows that more than 200 million rural families would need to buy 168 million TV sets over the next ten years to equal the 1996 urban rate of popularization.

The huge market potential of Chinas rural areas has focused the attention of both domestic and overseas home electrical appliance companies. Haier produces wider voltage water-proof TV sets to meet the demands of rural consumers, and Siemens has also invested heavily in promoting its products in the countryside. Companies that win the rural market will be the market leaders of the future, according to vice director of China Home Electrical Appliance Association Jiang Feng.

Country Cash

Commercial concerns have neglected the rural market in the past owing to the sluggish countryside economy. Chen Xiwen, deputy director of the Office of Central Rural Work Leading Group, believes that whenever a crisis such as the present global financial crisis hits, the focus of Chinese business shifts to the rural market. And as President Hu Jintao stated: “We need to increase domestic demand and take diverse measures to boost the economy and counter the risks of global economy.”

The 13 percent subsidy, however, is a paltry saving for most low-income farmers. The cheapest refrigerator costs RMB 1,090, so even with the RMB 141 subsidy there is still a balance of RMB 949 to pay, which is no small sum taking into account that the average annual income of a rural family in 2007 was RMB 10,000, according to Ministry of Agriculture statistics. Also, “Few young people are willing to do farm work now because they can earn more by doing manual labor in the city,” according to a publicity department official in Linyi, Shandong Province.

A large proportion of rural surplus labor force moved to cities in the 1990s. But the countryside is now regarded as a huge consumption market just waiting to be exploited. Farmers, however, are thrifty by nature. Shi Yunguo, for example, regards spending RMB 1,000 on a TV as a luxury, with or without the subsidy. Apart from farming, Shi also runs a small village grocery.He earns around RMB 10,000 a year. The most expensive appliance his household has ever owned is a RMB 4,000 electric tricycle. “We seldom spend cash,” Shi says. Most farmers in China save their money to pay for their offsprings tuition and provide for their old age. As there is no pension for retired farmers, they must look after their own interests. The worst dread for both rural and urban residents is that of unexpected ill health. As Shi says, “Minor ailments are no problem because the government gives subsidies through the rural medical and health care system. But any major surgery is far beyond our means.”

Farmers hence see no great need for home electrical appliance, and would think very hard before making such a purchase. As Wang Yiguo from Hunan Province, who does manual work in Beijing to earn his daughters tuition fee, says, “Its good to have a subsidy when buying a refrigerator, but we just dont need it.”

Harsh Reality

All merchandise in Beijings Gome and Suning home electrical appliance chains is on sale in these days. “Home electrical appliance factories are under tremendous strain because of the present downturn,” a Gome employee said.

Electrical appliance shops in Linyi, Shandong Province distributed publicity literature on the “Home Appliances to the Countryside” policy hoping to attract more consumers. But Yang Hong of the Shenglong Home Electrical Appliance Company was disappointed: “It attracted people at first, but now almost no one comes to buy.”

Farmer Gao Wansheng wanted to buy a refrigerator. But on the two occasions he tried to make the purchase he was told the model he wanted was out of stock. This is because there is a narrow profit margin on such appliances. Another deterrent is the complex procedure involved in obtaining the subsidy. It requires submitting the receipt for the merchandise, ID, purchasers bankbook and various other documents to the local finance department. The application must then be approved at various levels. The subsidy is eventually deposited to the farmers bank account. Yang Hong believes more farmers would be willing to take advantage of the policy if the procedure was simplified.

According to government regulations, electrical appliances must be delivered to farmers homes, especially those in remote mountainous villages. But repairs prove to be a big problem. “A TV set or washing machine that has broken down can be only fixed in the town. But I live 15 km away from the town and transporting a

TV set that distance on dirt country roads is a major inconvenience,” Shi Yunguo said.

Most villagers in Shis village have mobile phones and TV sets. But few have purchased refrigerators or air conditioners because, “They are expensive and useless.”