Small electrical appliances are outselling their large counterparts in China's ever-expanding market.

A survey conducted by the National Bureau of Statistics indicates the potential market for small electrical appliances will be worth about 350 billion yuan (US$42 billion) over the next decade.

As demand for small electrical appliances is expected to increase more than 30 per cent annually over the next 10 years, analysts widely consider the next two or three years as a golden period for the development of China's small electrical appliances.

It appears small electrical appliances, which have traditionally sold well in China, are still popular.

Consumers' demands for small electrical appliances continue to increase, as people's living standards continue to improve.

As a result, several factories that manufactured large electrical appliances have begun producing small electrical appliances.

Between January and November last year, the production volumes of microwave ovens, electric cookers, grease pumps, water heaters, vacuum cleaners, dishwashers and electric heaters surpassed those from the previous year by 49.9 per cent, 44.5 per cent, 13.6 per cent, 33.9 per cent, 36 per cent, 150 per cent and 57 per cent, respectively.

Small electrical appliances, in contrast with large electrical appliances, despite having lower per-unit costs, have greater profit margins.

Small electrical appliances sold in China generate gross profits in excess of 30 per cent; larger electrical appliances, less than 5 per cent.

Foreign companies have rushed to get their small electrical appliances into China's market since 2001, when China joined the World Trade Organization.

Statistics indicate there are nearly 200 kinds of small electrical appliances in developed countries, and that each family owns between 30 and 40 of these household goods.

In China, however, there are fewer than 100 types of small electrical appliances, and each family owns just a few of these items.

This indicates there is great potential for the market to grow.

Small electrical appliances generally have a lifespan of about six years.

That means most of the small electrical appliances will have to be replaced in the near future, which will result in a purchasing frenzy.

In terms of the market, what will be the situation in China this year?

In large, provincial-level cities, people are most interested in brand-name small electrical appliances.

Due to their advanced technologies, international brands - such as Philips, of the Netherlands, Panasonic, of Japan, and Braun of Germany - are dominant, even though they sometimes cost three times more than domestic brands.

Fewer domestic brands that copy famous international products are entering the local market. Previously, more than 20 such items entered the market annually. That figure has fallen to seven.

Also, due to the enormous market potential, many of China's manufacturers of large electrical appliances have begun making small electrical appliances.

Consumption of domestically made small electrical appliances has grown rapidly.

As a result, production of water coolers, household dishwashers and household sterilizers have soared more than 40 per cent annually in the past few years.

But imported small electrical appliances are more popular.

Philips, Panasonic and Braun have solidified their foothold in China due largely to their advanced technologies and their products' attractive appearance.

There is tremendous need in western China for small electrical appliances, and that need is growing. Those markets could be exploited.

Statistics indicate nearly 37 per cent of the small electrical appliances in western China were purchased between five and eight years ago. They will soon need to be replaced.

On the other hand, new products - such as water coolers, microwaves, DVD players and sterilizers - are desired by most families.

Statistics indicate more than 25 per cent of Chinese families plan to purchase such products this year.

As for traditional products - such as electric cookers, electric fans and electric irons - domestic products remain popular in western China.

Consumers think highly of domestic brands Medi, Haier and Kelong.

More than 69 per cent of consumers in western China know about the firms that produce water coolers, sterilizers or dishwashers.

In China's coastal areas, that number falls to 43 per cent.

Despite the great prospects, some negative issues warrant attention:

Less competitive

In spite of its increasingly large volume, few small electrical appliance factories have taken shape.

The bureau's survey indicates there are fewer than 50 competitive enterprises.

Inferior technology

Instead of producing competitive products, some domestic enterprises have to fight each other, in terms of pricing, for market share.

As a result, profit margins of China's small electrical appliance manufacturers have declined - to less than 10 per cent.

However, well-known brands continue selling for significantly more money.

For example, an electric razor made by a Chinese firm sells for about 30 yuan (US$3.60), while a razor by Braun costs at least 200 yuan (US$24).

Improper management

In terms of functions, small electrical appliances can be used in kitchens such as microwave oven, electric cooker and family sterilizer, and for the family, such as the electric fan, vacuum cleaner and electric heater, and for personal applications such as the electric razor, electric iron and electric tooth brush.

Presently, China's appliance manufacturers are mainly concentrating on products to be used in both the kitchen and for family applications.

The author is a senior statistician with the National Bureau of Statistics.

(Business Weekly 01/13/2004 page2)