China counts on rural markets to boost economy

China kicked off Monday a four-year scheme to subsidize the selling of household appliances to its massive rural market, as part of its effort to shore up domestic demand and ease the impact of global economic depression.

The stimulus plan, called "electronic products go down to villagers", is targeting more than 200 million rural households, and expected to generate 920 billion yuan in sales (US$131 billion) over four years.

This initiative has been on trial since late 2007 in the populous Shandong, Henan and Sichuan Provinces as well as Qingdao city. The 20% subsidies offered by the government have prompted a rise of 40% in sales in these areas. China plans to roll out the successful scheme in every rural area by February 2009, bringing with it a lower subsidised rate of 13%.

China's three decades of reform and opening-up has dramatically improved the lives of villagers. As a result, an average of 8 million impoverished people in China shook off the poverty annually from 1978 to 2007.

Purchasing power in rural China has gradually risen. Nowadays it is commonplace to see villagers using mobile phones and computers, and even driving cars. These luxurious goods were not at the top of their priority during the 1990s. What available cash they had was used to purchase color TVs, fridges and washing machines. The symbols of wealth among rural families in the 1980s were bicycles, sewing machine and watches.

Televisions have played a far more important role than other consumer white goods as it helps rural China get to know the outside world. When the first televisions arrived in rural parts of China in the mid 1970s, they created great excitement. Often, they were communal television sets, bringing audiences of excited villagers together to share a completely new experience. At that time, there was only one television set available for every 1,600 people in rural China.

Today, 95% of rural families possess a television. This contrasts with urban families, a third of which own more than one television; Urban ownership of fridges is three times that of rural communities; and the proportion of washing machine users is double.

The four-year national plan aims to increase the use of household appliances in rural China to the 2000 level in urban areas.

China-brand manufacturers have actively engaged in the plan. Foreign brands like Siemens, Panasonic, Nokia and LG also set to join their Chinese counterparts and explore the vast business opportunities in China's rural areas.

The knock-down effect of the financial crisis has taken a toll on China's economy, which relies heavily on exports of a large amount of household appliances. In one example, growth of its colour TV exports alone during the 3rd quarter of this year were pulled back by 11% from a year earlier.

The national export prospects for the last quarter of 2008 are looking bleak, as demands in the West are not thought to be as strong this Christmas.

Some 60% China’s exports are destined for the United States, the EU and Japan, all of which are suffering from serious economic recession.

China forecasts that its 2008 foreign trade will rise by 20% from the 2007 level, reaching US$2.6 trillion. However, the country lowers down its foreign trade growth expectation for 2009 to 8.5%.

The UN World Economic Situation and Prospects 2009 report has warned of the biggest contraction of global economy in 2009 ever since the 1930s.

It also highlights that the globalization has left developing countries to face higher borrowing costs and lower export growth from a crisis started in the developed world.


The photo is from A partial history of television in China

Copyright Dongying Wang

For reproduction of this article, please email: wdy21century@gmail.com

China seesaws between economy & environment

The highly globalized world is witnessing a spillover of the US financial crisis into Europe, Asia and elsewhere. The UK has been warned against a more severe and deeper economic downturn than expected; and Japan has also entered its first depression since 2001.

Job-cutting news is making headlines across the media, and a rising number of businesses are at the risk of collapse, painting a bleak picture.

China fails to escape the donimo effect. Its year-on-year GDP growth for the first three quarters of 2008 displays a falling tendency from 10.7% through 10.1% to 9%. With an 11.9% GDP rise in 2007, China needs its economy to grow by 8%, in order to guarantee jobs and avoid sliding into the depths of a recession, said economy expert Ye Hang.

Official figures show that south China's Guangdong Province saw more than 7,100 enterprises shut down between January and September this year. The majority of them operated in the Pearl River Delta, a key manufacturing base in China's export market. Price rises in raw materials, appreciation in the Chinese currency (RMB) and fund-raising difficulties are the top reasons behind the closure of many companies, local authorities have said.

It is forecast that 1/3 of export-oriented factories in Guangdong will meet the same fate in the next three years. This will result in restructuring the industrial mix locally, and even reshaping the global supply chain.

In response, adoption of economic stimulus measures becomes unavoidably the only remedy, though it is not a panacea for all problems.

Following US' $700 billion banking bailout in October, China recently launched its own economic stimulus package, in which it intends to spend 4 trillion yuan (US$586 billion dollars) over the next two years. Rural infrastructure, water and rubbish treatment are among the 10 major industries which China will invest in heavily. Concerns are growing over whether sustainable conceptions and practices will be incorporated in this large-scale industrial expansion.

The environmental consideration is often the first to be given up when an economy faces difficulties, said Wang Jinnan, Vice President of the Chinese Academy for Environmental Planning of the Ministry of Environmental Protection (MEP).

His concerns are also expressed by environmental groups. Hannah Griffiths, corporates campaigner at Friends of the Earth, said that her organisation had always argued that regulation was needed because when the crunch came, profits would come first. "We always felt that companies do not take CSR as seriously as they claim to and voluntary action does not work."

Wang added that the closure of businesses in Guangdong is helpful, in short term, for regional pollution control. However, he strongly suggested the government implement green practices in the vast national investment, to make the country achieve green GDP growth.

Shen Xiaoyue, Director of the Regulation Office of the Policy Research Centre for Environment and Economy of the MEP, said that there will be an urgent and heavy workload in the assessment of the environmental impact of new projects which are to be launched under the incentive plan.

Opinions are also split when it comes to the impact of the economic crisis upon China's companies involved in green industries.

The global crisis will present more opportunities than challenges for China's green industries, said Shen, which she believes will become a key strength for economic growth in China. She also highlighted that the middle and small-sized green companies should learn from overseas counterparts, and the government should grant them more favourable policies, especially in fund raising, to enable them to fly higher.

Companies, such as those involved in clean energy, wind power and solar photovoltaic industries will slow down as a result of the economic crisis, said Wen Yibo , Chairman of the Board of Beijing-based Sound Group, one of China's largest private green companies specialising in water and waste treatment.

Economic stimulus can only serve as a supplementary solution under such special circumstances, and it won't solve the fundamental problems. On top of funding, support of policies and the public is critical for green industries' development, Wen pointed out.

Over the five years up to 2011, China's investment in environmental protection is expect to reach 1.53 trillion yuan (US$225 billion), accounting for 1.36% of its GDP, a proportion believed to be amongst the highest in the developing world.

Copyright Dongying Wang