Opportunities for China’s Home Appliance Industry Under RCEP

Written by Zhao Yali/ Translated by Wei Yingling

F rom nascence to expansion,from industry “reshuffling” to transforming and upgrading,China’s home appliance industry has undergone several leaps and bounds from growing out of nothing to mastery of proprietary sophisticated technology and gradually levelled off since 2010.Since 2020,China’s home appliance industry has faced many challenges,such as weak domestic market demand,soaring prices of bulk raw materials,surging international logistics costs,and supply chain disruptions due to the COVID-19 pandemic and the complex international situation.

The tough grass survives the strong wind and the real gold smelt in the strong fire.Facing the challenges,China’s home appliance industry is moving forward despite the hardships,showing the resilience of Chinese manufacturing.With RCEP officially entered into force in January 2022,the establishment of the world’s largest Free Trade Area (FTA) shows China’s home appliance companies new opportunities for development,and those who seize the opportunities will have confidence and courage to grow stronger on the world stage.

China’s home appliance enterprises are making steady progress

After more than a decade of development and competition,China’s home appliance industry has formed a relatively complete industrial system consisting of production,operation,research,testing,and training,etc.

Since the COVID-19 pandemic swept across the world,global home appliance companies have been hit,and the market was once in a supply crunch.With China being one of the first countries to contain the outbreak,domestic home appliance companies,soon seized the export opportunities,driving growth in product exports amid the pandemic.According to the General Administration of Customs of China,China’s home appliance exports amounted to US$ 98.72 billion in 2021,up 22.3% year-on-year.Based on the data of China Chamber of Commerce for Import and Export of Mechanical and Electrical Products,the cumulative annual exports of China’s home appliances (white goods) in 2021 were US$ 118.45 billion,up 26.4% and 48.4% respectively from that in 2020 and 2019,with both the export scale and growth rate hitting a new high in the past decade.

Behind China’s home appliances that moved forward in the face of adversity is actually the groundwork of Chinese home appliance companies in the global industry chain over the years.

China’s home appliances have long been the major part of Chinese brands selling abroad.Hisense,as one of the first Chinese home appliance companies that implements overseas strategy,has been paving its way to overseas markets since 1985.After persistent adherence to the overseas brand strategy,Hisense has formed a whole industrial chain system of R&D,production,and sales,which ensures Hisense can advance in overseas markets.Up to now,Hisense has set up 55 overseas companies and offices,20 R&D facilities,29 industrial parks and production bases around the world,and the whole platform has been tested for nearly 20 years.

Ot her Ch i nese home applia nce magnates,such as Midea,Haier,and TCL,are also thinking globally and taking the initiative to implement overseas strategies.Among countries and regions around the world,ASEAN is the “second island chain” for the overseas operation of China’s home appliance industry.TCL has entered the Vietnamese market for more than 20 years,and in 2018,its local sales in Vietnam increased by 50% year-on-year,becoming the fourth-largest TV brand in Vietnam.In 2019,TCL responded to the Belt and Road Initiative,expanding its investment in Vietnam for a second time to build a new factory and create a digital production base featuring production and sales integration.

All in all,China’s home appliance industry has made steady strides in recent years in going out.It has incorporated GE,Toshiba,Zojirushi,Granger,and other top brands in the world through investments and acquisitions,gradually becoming a leader in the competition and having a certain inf luence and status in international market.The global network of industry and supply chains has enabled Chinese home appliances to break out of the pandemic and contribute to the security of the global supply chains while securing their own overseas businesses.

RCEP opens a “new window” for Chinese home appliances

The external environment is essential to the development of a business.The entry into force of RCEP has created a favorable free trade environment for enterprises and is expected to open a “new window” for China’s home appliance industry.

In terms of industry and supply chain cooperation as a whole,the preferential policies of origin will cover more countries and regions.It could be an unparalleled opportunity for Chinese home appliance companies.For example,a domestic brand refrigerator with the price of Korean-made parts exceeding 60% of the whole machine could not enjoy tariff preferences if it wants to export to ASEAN countries,but after RCEP came into effect,only a certificate of origin is required to enjoy the preferences.

In terms of tariff reduction,the decline in tariffs on some raw materials and resource products will provide more space for enterprise production to develop.In addition,RCEP has a corresponding tariff cut for the import of complete appliances too.For example,Brunei has made a commitment to zero-tariffproducts for electric fans,air conditioners,refrigerators,washing machines,and televisions on the basis of the China-ASEAN FTA,which will bring more benefits to the export of China’s home appliances.

And the optimization of investment environment and the convenience of people flows in RCEP will contribute to the layout of the home appliance industry chain.The chapter of investment in the RCEP agreement contains investment protection provisions such as fair and equitable treatment,compensation for damages,and investment facilitation provisions such as complaint mediation.The chapter of temporary movement of natural persons will facilitate the movement of all types of business people by providing them with visas.

In addition,cross-border e-commerce,as a new mode of international trade,has the advantages of low threshold,few links,and low cost,which can help enterprises reduce the cost of international trade and carry out international trade more conveniently.In recent years,cross-border e-commerce has also become an important path for Chinese home appliance companies,especially SMEs,to explore overseas markets.

RCEP has unified high-level e-commerce rules for the member countries in the region,actively promoted paperless trade,electronic authentication,and electronic signatures,and reached a basic consensus in cross-border information storage and digitalization,greatly facilitating the development of e-commerce in the region.Undoubtedly,it will also bring new opportunities for Chinese small and medium-sized home appliance companies to go global.

High-end and green development become the new driving force

GfK,a leading global market consultancy,has released its 2021 Appliance Market Trends and 2022 Market Opportunities Insight Report,showing that the global market for large household appliances (white home appliances,kitchen appliances,etc.)and TV sets have achieved a year-on-year growth of 13% and 6% respectively in sales in 2021.GfK believes that Chinese brands are set to play a more important role in the global home appliance market following the trend of “green” and “high-end”,a great opportunity in global development.In view of this,how should Chinese home appliance companies take the next step?

It will be a sustainable development path to seize market opportunities such as RCEP tariff reduction and cost reduction,solve the bottleneck problems,strive to build a global supply chain,and focus on quality improvement.In recent years,although Chinese home appliance enterprises have accelerated their international layout,the share of local brands is still low,and the export mode of small and medium-sized enterprises is almost FOB (free on board),making export prices only half of the terminal selling price or even less.Such situation requires Chinese enterprises to climb up to the high end of the industrial chain.Li Dongsheng,Founder and Chairman of TCL,called on during the 2022 two sessions that Chinese companies are still at the middle and lower end of the global value chain,and the manufacturing sector should be more proactive in the face of global competition.

Liu Bin,Vice President of Hisense International Marketing Company,said that in 2022 Hisense would continue to make efforts on its overseas flagship products high-definition ULED TVs,and launch high-end products such as 8K and thousandlevel partitioning through R&D-driven product upgrades,to achieve the growth of high-end product sales of more than 40%year-on-year.

In addition,low-carbon,electrification,and intelligence are the future trend of green home appliances.Chinese home appliance brands should actively transform their products to become green and intelligent.Among the products,the smart home ecological scene that takes comfort and livability as the core is becoming a trend;Intelligent air conditioners that “know when it’s warm or cold” and intelligent toilets that are “warm in winter and cool in summer” have stepped in people’s lives;the innovative smart home experience service launched by Midea under the concept of “full-link smart life” is bringing a new wave of thinking to the whole industry.

Ding Shaojiang,Industrial Economic Observer and Founder of Dingkeji,said that for the overall green development of the home appliance industry,the “green product” only serves as a small part,while the advanced “green technology” is the fundamental underpinning for the “green product”.Enterprises as a whole need energy saving and emission reduction to achieve“green production”.Moreover,enterprises should enhance product restructuring and be prepared in various aspects such as technology and channels,to meet the needs of diversified market demands that stimulated by policies.

Seizing the new opportunities of RCEP,looking forward to a broad new future,and bearing the keywords of high-end and green in mind,China’s home appliances will take a more resounding step in the march from “Made in China” to “Wisdom in China”.