Program aims to promote energy efficiency in China’s home appliances

China’s status as the world’s largest home appliance market and its huge demand for electricity are key factors driving the country’s introduction of a new program to improve energy efficiency across high-energy-consuming industries, including the home appliances sector, according to IHS Technology (NYSE: IHS).

The Implementation Scheme of Energy-Efficiency Leader System, introduced in December, strives to establish a long-term mechanism to promote energy savings in Chinese-made appliances and reduce carbon emissions from inefficient gadgets. The program involves seven Chinese government agencies, including the National Development and Reform Commission, the Ministry of Finance, and the Ministry of Industry and Information Technology.

A key component of the program is the designation of so-called energy-efficient “leaders”—i.e., manufacturers and brands that meet or exceed specific energy-efficiency benchmarks. To qualify, leaders must abide by energy-efficiency standards higher than those currently set by the China Energy Label, a tag that informs Chinese consumers of the degree of energy efficiency of a designated product.

With the biggest population of any country on the planet, China also has the world’s largest home appliances market. And because old appliances and other energy hogs are still used in many Chinese households across the country, the combined drain on the country’s energy resources is prodigious.

However, the new program signifies a shift, and if successful, could become a key driver of growth within China’s home appliances industry.

“The establishment of the program will have a snowball effect, promoting conservation in other segments of the market, such as increasing the use of energy-efficient motors in home appliances,” said Dinesh Kithany, senior analyst for home appliances at IHS. “The program will also promote greater use of sensors, better displays and touch-control capabilities, and will pave the way for the quicker adoption of smart home technology.”

China’s domestic home appliance market is especially strong in the white-goods sector. From 2008 to 2013, the five-year compound annual growth rate for shipments of air conditioners, washing machines and refrigerators ranged from 14 to 21 percent. This year, unit shipments for those three categories within the domestic market are projected to reach nearly 150 million units, up from 146 million in 2014. Shipments will expand to approximately 160 million units by 2019, as shown in the attached figure.

Among the products falling under the program are room air-conditioners, refrigerators, front-loading washing machines and flat-panel TVs that use inverterized technology. Equipped with adjustable variable-speed motors, appliances featuring inverterized technology help reduce energy consumption during their operation.

While complete details of the new program have not been announced, one possible scenario foresees the government introducing the most energy-efficient products of brands that are part of the program.

In contrast to the past when Beijing provided subsidies for new energy-efficient appliances to encourage consumer purchases, the new program provides no such incentives to consumers. And lacking a subsidy plan, IHS believes the Chinese white-goods market won’t benefit as much from this program.

“Given the high penetration rate of white goods in China’s urban areas, the market is dependent on product replacement among consumers,” said Horse Liu, principal analyst for home appliances at IHS. “This is where government subsidies can help in encouraging young and tech-savvy consumers to replace older, non-smart appliances with a new generation of smart products.”

The new program could also have the unintended effect of strengthening the hold on the market of the major Chinese home appliance makers. The big companies have the financial muscle to bring about changes needed in their product lines, such as the improved energy-efficiency standards sought by the new program. The smaller domestic manufacturers, in comparison, have more limited financial resources.

The top two Chinese brands for white goods last year were Gree and Midea, which together controlled more than 50 percent of unit shipments for air conditioners, washing machines and refrigerators within the domestic market. Together with Haier and Hisense, the third- and fourth-ranked brands, all four players are expected to maintain their dominance in the domestic Chinese white-goods market for the next five years, IHS projects.

About IHS (www.ihs.com)

IHS (NYSE: IHS) is the leading source of insight, analytics and expertise in critical areas that shape today’s business landscape. Businesses and governments in more than 150 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs about 8,800 people in 32 countries around the world.

IHS is a registered trademark of IHS Inc. All other company and product names may be trademarks of their respective owners. Copyright © 2015 IHS Inc. All rights reserved.

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