China Consumer Electronics Report Q4 2012

BMI expects the China consumer electronics market will grow by around 11% in 2012, higher thanpreviously forecast, but still a moderation compared with 2011. Despite the global economic headwinds,Chinese retailers appeared to be optimistic about the outlook for increased sales of flat-screen TV sets andother consumer electronic products in 2012.Vendors will look to newer technologies such as Smart TVs;LED TV sets, which were expected to comprise around 50% of flat-panel sales in 2011; and 3D TV sets,forecast at around 10-20%, to drive sales. A second phase of the government’s rural consumer electronicssubsidy programme drove sales of computers, flat-screen TV sets and other products in H211. Electronicsvendors and retailers were expanding and adjusting strategies to take advantage of this opportunity.

Headline Expenditure Projections

Computer hardware sales: US$72.6bn in 2011 to US$81.3bn in 2012, +11% in US dollar terms. Forecastupwardly revised in US dollar terms due to macroeconomic factors, with smaller towns and rural areasdriving growth, and the arrival of the Windows 8 operating system and Ivy Bridge processor expected toprovide a boost in H212. AV sales: US$70.9bn in 2011 to US$78.5bn in 2012, +9% in US dollar terms.Forecast in US dollar terms unchanged, with the main driver being demand for flat-screen TV sets.Handset sales: US$39.2bn in 2011 to US$42.4bn in 2012, +8% in US dollar terms. Forecast in US dollarterms upwardly revised, with strong underlying growth rate of mobile subscribers.

Risk/Reward Ratings: China’s score was 61 out of 100.0. China took 5th place in our latest RRR table,but due to its vast market and rising penetration has potential to rise over time.

Key Trends & Developments

By the end of BMI's five-year forecast period, the rural PC and notebook market could accountfor as much as 35-40% of total China computer sales. The subsidy programme will continue toboost demand from the vast, under-penetrated rural areas. The lower-tier city and towns areexpected to be the fastest growing segment of the PC market in 2012, although this has placedpressure on prices.

After two years of robust growth in the TV market, vendors will also look to third- and fourthtiercities and rural areas to sustain demand for TV sets, after lower sales in major cities were themain cause of negative growth in H111. About 58% of LCD TV s are now sold through retailchannels, with sales strongest during holiday peak shopping periods.The second phase of thegovernment’s household electronics products subsidy for rural residents also continued to be animportant market driver in 2011.

The tastes of Chinese consumers with regards to handsets also appears to be growing moresophisticated, with China now a key engine driving the global smartphone market. ChinaMobile forecasts sales of smartphones could reach 100mn units by 2013, while BMI projectsthat sales could pass 500m units by 2016. Vendors such as Samsung expect that China will beamong their most important markets for smartphones.