TrendForce: China energy subsidy helps domestic market

On May 16th, the policies for promoting consumptions of products such as energy saving home appliances have been studied during the Executive Meeting of China’s State Council, and it has been determined to allocate 26.5 billion RMB of financial subsidy to launch the promotion of air-conditioner, Flat-Panel TV, refrigerator, washing machine, and water heater meeting energy saving standard for one year. Based on the statistics by China’s Ministry of Commerce, home appliance products have accounted for a rather significant portion of total social retailed sales at around 5%, such that the policy-driven consumption promotion can lead to significant result. After approval by the State Council, the “Implementation Rules for Promoting High Efficiency Flat-Panel TV Based on People Benefitting Project of Energy Saving Products” was officially promulgated on May 29th, and the “Enterprise Directory of Promotion of High Efficiency Flat-Panel TV Based on People Benefitting Project of Energy Saving Products” (First Batch) and “Directory of Promotion of High Efficiency Flat-Panel TV Based on People Benefitting Project of Energy Saving Products” (First Batch) were announced on June 1st with the implementation period from June 1st to May 31st of next year. Based on the observation by WitsView, a research division of TrendForce, chinese domestic brands have accounted for 2/3 of the 15 enterprises selected with a total of 1399 types of LCD TV models meeting energy efficiency regulations and only 61 types of PDP TV. The ratio of LCD TV promotional models accounted for by major Chinese TV makers has reached 92.5%, while the foreign brands have only accounted for 7.5%. With the mediocre sales performances of domestic market during Lunar New Year and May Day Holidays in the first half of the year, the implementation of this energy saving subsidy program is undoubtedly a shot in the arm for domestic market at the current stage of traditional off season. A further analysis has indicated that this time the regulations by Chinese government with respect to products qualified for energy saving subsidy can contribute to the further enhancement of LED TV penetration rate into the Chinese market. The difference between the retailed prices of 26”/32”/40”/42” LED TV and CCFL TV with Energy Efficiency Index (EEI)≧1.7 will be less than 20%, while the price gap for such products with Energy Efficiency Index (EEI)≧1.9 (except for 55” products) will be less than 15%, while some LED TV may even be cheaper than CCFL TV. In addition, based on the further analysis of 1399 types of LCD TV models participating in this tendering, the 32” model has accounted for the largest share at 22.7%, indicating that China still has to protect the development of domestic panel makers with the bullish market-driven policy. The 42” model has also accounted for a large share at 20% simply because the 42” is listed in the category of size ≧42 with the subsidy of roughly 100 RMB more than the adjacent size of 40”, making it more attractive to customers and making LGD, AUO, and CMI big winners. The share accounted for by the models of size <32” is ranked third at around 12%. The share accounted for by the 39” product (which has been actively pursued by Taiwanese makers recently) is around 8% at the fourth place. The supply of panels for 50” product at current stage remains rather limited such that it has only accounted for 4.6% share. With global economy falling into the quagmire of Europe debt crisis leading to the lack of market confidence and the weak consumption, the uncertainty of global market in Q3 remains rather high. The domestic market in China has been facing the similar challenge of slower growth such that in order to achieve the target of GDP growth above 7.5%, the Chinese government must continue to push forth incentive policies to stimulate the weak domestic market at the current stage. However, the time frame between the formulation and the promulgation of energy saving subsidy policy is too short such that most home appliance makers are still adjusting the production plan of their production lines. They would like to start enhancing the promotion effort before the Dragon Boat Festival to gradually digest current inventory at hand as the preparation for hot season in Q4 for domestic/export sales. Therefore, WitsView believes that under the premises of gloomy global economy, even though the demands for LCD TV panels from downstream customers will undergo short-term adjustment after May Day Holidays, we can still expect strong support for panel price based on the premises of panel makers committed to profit improvement in Q2.