Consumer electronics spending in China is forecast to continue strong growth as vendors capitalise on low device penetration in key categories such as smartphones and PCs to achieve strong volume growth. We expect the market value will grow by around 10% in 2013 and we expect growth momentum will be maintained over the medium term. As incomes rise in China, consumers will spend an increasing proportion on consumer electronics devices, a trend which is occurring at the same time as declining prices for tablets, TVs and smartphones within BMI's forecast period from 2013 to 2017.
Additionally, 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. As consumption shifts to lower priced tablets unit growth will be sustained, but increases in market value will fail to keep pace.
- AV sales: US$77.5bn in 2012 to US$84.7bn in 2013, +9.3% in US dollar terms. The main opportunity is in the market for smart and flat-panel TV sets, however an area of interest is the games console market following the removal of the ban on the sale of devices.
- 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.
Key Trends & Developments
The Chinese smartphone market is booming across the country, but this boom is partly driven by steep declines in average selling prices meaning there is pressure on margins for vendors. Local vendors including Xiaomi, Lenovo, ZTE and Huawei have made significant inroads in terms of market share through locally customised Android smartphones with strong specifications and attractive designs. They often undercut global leaders, some flagship smartphones from Chinese vendors are available for as little as half the price of flagship products from international vendors. Apple has responded to this threat in 2013 with a cheaper iPhone and there are rumours of a shift in supply chain for devices to come direct from Foxconn factories to decrease time to market and avoid import taxes. Apple's measures in 2013 are indicative of the pressure it faces from domestic competition, and at the time of writing there is little evidence of a major change in the Californian giant's fortunes in China, judging from its policies.
Another area of some uncertainty in China is the AV market after the government was reported to be revoking 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 individual 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.