We have a bright outlook for China's consumer electronics market as low device penetration in key categories such as smartphones and PCs will combine with rising incomes to drive sales growth. Lower prices are a major driver of demand growth in AV and smartphone segments, with average smartphone prices projected to fall below RMB1,200 within BMI's forecast period from 2013 to 2017. We expect market value will grow by around 10% in 2013 and we expect growth momentum will be maintained over the medium term. The government's rural consumer electronics subsidy programme should continue to drive sales of flat-screen TV sets and other products, and electronic vendors and retailers are expanding and adjusting strategies to take advantage of this opportunity.
Headline Expenditure Projections
- Computer hardware sales: US$81.8bn in 2012 to US$91.4bn in 2013, +8.6% in US dollar terms. Forecast revised downwards slightly as consumption shifts to lower priced tablets, affecting market value but not unit growth.
- AV sales: US$77.5bn in 2012 to US$84.7bn in 2013, +9.3% in US dollar terms. Forecast in US dollar terms unchanged, with the main profits opportunity being demand for smart, flat-panel TV sets. Removal of the ban on sale of games consoles presents medium term upside.
- Handset sales: US$42.4bn in 2012 to US$45.1bn in 2013, +6.4% in US dollar terms. Strong volume growth of smartphones and increasing competition between operating systems, but this is leading to steep declines in average selling price.
China's score was 61.8 out of 100. China was in fifth place in our latest RRR table, but due to its vast market and rising penetration, it has the potential to rise over time.
Key Trends & Developments
China's PC market remains robust when considered in a global and regional perspective, with strong fundamentals including low PC penetration, rising incomes and declining device prices driving sales. However, the trend of consumers increasingly adopting lower priced tablets, particularly in the upgrade/ replacement market, is limiting market value growth even as unit growth remains strong. This is because consumers are less likely in 2013 to opt for Apple's relatively expensive iPad and are instead opting for lower priced Android based tablets, primarily from domestic vendors.
A similar dynamic is at play in the smartphone market, where unit growth is booming, but there have been steep declines in average selling prices. Local vendors including Xiaomi, Lenovo and Huawei are the primary drivers of this trend as they release locally customised Android smartphones with strong specifications and attractive designs at prices that are available for as little as half the price of flagship products from international vendors. Nokia is now pushing its Lumia 625 device, and other mid-range handsets, while Apple is reportedly set to launch a plastic iPhone targeting mass market in emerging economies such as China. The extent to which this strategy will work against local vendors is uncertain now the technological gap has narrowed, making price and branding key.
The AV market has lacked the dynamism of the PC and handset markets in recent years but could be set to receive a boost following reports that the government is set to revoke its ban on games consoles. Games consoles had been banned since 2000 as the government feared the impact on children. While the lifting of the ban is unquestionably good news for Sony, Microsoft and Nintendo they will still need approval from the culture ministry to release devices, while games will also be subject to censorship to ensure that they are not too violent or politically sensitive. Furthermore, it was reported that all consoles and associated equipment must be produced domestically, specifically in the Shanghai free trade zone. The requirement to produce domestically is unlikely to be a major issue, with Nintendo already using Foxconn, Microsoft Flextronics and Sony using a range of local suppliers and assemblers.