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. An additional boost is the package of economic and social reforms announced by the government in late 2013, which should boost consumption. We expect the market value will grow by 12.9% in 2014 and we expect growth momentum will be maintained over the medium term with a CAGR of 8.3% 2014-2018. 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.
Headline Expenditure Projections
- Computer hardware sales: US$86.7bn in 2013 to US$95.5bn in 2014, +10.2% 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$82.7bn in 2013 to US$92.0bn in 2014, +11.3% in US dollar terms. Flat-panel TV set sales are expected to continue strong growth, however an area of interest is the games console market following the removal of the ban on the sale of devices.
- Handset sales: US$49.1bn in 2013 to US$59.2bn in 2014, +20.5% in US dollar terms. Declining prices for smartphones, particularly from local vendors, are driving up the share of smartphones in the sales mix and supporting strong growth in market value.
Key Trends & Developments
The Chinese smartphone expanded rapidly in 2013, with total sales estimated at 199mn, an increase of 29% from 2012. Local vendors including Lenovo, Coolpad, Xiaomi, ZTE and Huawei have been the main drivers of this expansion through low-cost strategies. They undercut global leaders, with some flagship smartphones from Chinese vendors available for as little as half the price of flagship products from international vendors. The outlook for 2014 is bright, and BMI expects local vendors will continue to capture a larger share of growth, leveraging cost and branding advantages, as well as their localisation of services. Meanwhile, global vendors will face strong competition and smaller players will continue to leave the market, following Sharp's decision in November 2013 to end a partnership with Hon Hai Precision Industry under which the two companies would have jointly developed and manufactured smartphones for the Chinese market.
Another area of opportunity is in the gaming market, where a games console ban has been lifted. 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, but this is unlikely to be a major issue, with Nintendo already using Foxconn, Microsoft Flextronics and Sony using a range of local suppliers and assemblers. Of more significance is the challenge from low-cost Android powered consoles, which could gain traction given the recent experience of gamers is in using tablets and PCs, rather than consoles.