MARKET WATCH

MARKET WATCH

OPINION

Appliance Chain Effect

Costs inflation and withdrawal of policy incentives are casting an ominous shadow over China’s home appliance market, raising worries over the survival of small fi rms.

In June 2009, the Chinese Government initiated a nationwide program to stimulate domestic demand and withstand the ripple effect of the fi nancial crisis. Under the program,consumers selling their old appliances to designated recycling companies are eligible for a 10-percent discount on the purchase of new appliances.

The powerful incentives effectively released the potential of China’s rural consumer market, and laid a solid floor for growth despite the slowing economy. More broadly,they played a key role in invigorating the appliance market.

The favorable policies brought numerous potential buyers onto the table, and paved the way for the entire industry to move up the value chain and sharpen its competitiveness.Related businesses, such as raw material and parts suppliers, also burst with vitality.

While Western markets suffered setbacks,China’s appliance industry held up well,providing a stabilizing force for the world’s receding electronics sector.

The biggest beneficiaries were the large manufacturers that took advantage of the favorable policies to expand their market shares and strengthen their resilience to economic downturns.

The leading companies experienced a sales boom in small cities and rural areas.As a result, they gained an opportunity to strengthen marketing networks and aftersale services in those regions. Many of them established a number of franchised stores and maintenance stations in those newly explored markets.

They were more able to innovate with their business model, such as improving products to meet customer demands and forge closer tie-ups with component suppliers.Those improvements enabled them to save production costs and reduce vulnerability to market fl uctuations.

But the trade-in program was stopped at the end of 2011. Meanwhile, the scheme to subsidize rural buyers of home appliances is also expected to come to an end this year.

Those small companies are expected to receive a heavy blow from the phase-out of the favorable policies and even face the risk of a prolonged downturn. The far-reaching implication may be felt in the following two ways.

First, many small brands will be marginalized or even forced out of market due to withering demands. Their networks, which dramatically expanded during the boom times,will become a heavy burden. Meanwhile,some foreign brands may also face shrinking market shares.

Second, vicious price wars may reoccur in domestic markets. Due to severe overcapacity and piling inventory, many fi rms would have to significantly lower prices to make ends meet.

The European debt crisis has showed no signs of abating, adding fuel to concerns over the prospects of the global appliance sector.

In order to find way out of the gloom,Chinese appliance companies are supposed to take effective measures to boost pro fi tability.They must shift their business model to focus on creation of new demands.

In addition, it is necessary to enhance technological progress and product innovation. Only innovative services and products can bring more added value.

THE MARKETS

Baidu Fares Well

China’s largest search engine Baidu said its pro fi t in the fourth quarter of last year surged 77 percent year on year to 2.05 billion yuan($326.3 million) as advertisers increased spending on online marketing.

Baidu, which controls a 73-percent share of China’s search engine market, reported revenue of 4.47 billion yuan ($709.5 million)in the fourth quarter, surging 83 percent.

In a conference call with investors,Baidu’s CEO Robin Li said profits were driven by a growing number of customers and their willingness to allocate more funds to online advertising.

Baidu’s active online marketing customers rose 12.7 percent over a year earlier to 311,000. Revenue per customer rose 61.8 percent to 14,400 yuan ($2,288).

Li said the company would continue to explore long-term international opportunities and was seeking to begin monetizing mobile search traf fi c.

“Mobile will represent an ever larger percentage of our local traf fi c, and starting from this year, we make greater efforts to better serve our customers on the mobile platform,” he said.

Mining Acquisition

The China Minmetals Corp. said it has completed its acquisition of Anvil Mining Ltd., a Canadian copper producer with assets in the Democratic Republic of Congo.

Minmetals Resources, a subsidiary of China Minmetals, paid around $1.33 billion for a 90-percent stake in Anvil.

Andrew Michelmore, CEO of Minmetals Resources, said the move represents a solid step for the fi rm in global expansion, adding that the acquisition will help the group develop its overseas copper business.

The acquisition will also help increase Minmetals’ global copper and cobalt supplies and ease China’s metal shortages, he said.