Subsidies Squeeze Power Supplies

China plans new incentives for appliance sales.
An analysis By Michael Lelyveld
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Chinese customers select home appliances at a shop in Zouping, east China's Shandong province, Dec. 17, 2011.
Chinese customers select home appliances at a shop in Zouping, east China's Shandong province, Dec. 17, 2011.

As China pledges to curb power consumption and air pollution, it is finding old subsidy habits hard to break.

Soon after ending a two-and-a-half year stimulus program for electric appliance makers, officials announced plans to replace it with new subsidies to "boost consumption," the official English-language China Daily reported on Jan. 4.

"The Ministry of Commerce has drafted a proposal to continue the stimulus programs in coming years, but in different ways," said Huang Hai, a former assistant minister and member of an economic and trade consulting committee.

Subsidies are likely for appliances in affordable housing and car sales, said Huang.

The breaks for power-consuming appliances would tap a market of 10 million affordable housing units started in construction last year. The government plans seven million more in 2012.

The new incentives surfaced days after the head of the Shanghai Household Appliances Association told China Daily that manufacturers expected a slowdown because the government had halted its earlier subsidies at the end of 2011.

The previous program of subsidized trade-ins proved wildly popular, generating sales of 92.5 million TV sets and other appliances for 342 billion yuan (U.S $54.3 billion) last year, the official Xinhua news agency said.

The government has spent 30 billion yuan (U.S. $4.75 billion) on subsidies since mid-2009 to offer 10-percent discounts on new gadgets, including refrigerators, washing machines, air conditioners and computers.

Counting tax rebate pilot programs since late 2007, the program spurred sales of over 200 million appliances by November, the Ministry of Commerce said.

Last month, consumers rushed to take advantage of the discounts before they expired, buying even more machines.

Leading retailer Gome Electrical Appliances said sales soared over 200 percent last month, keeping stores open extra hours.

The trade-in scheme is separate from subsidized discounts for rural dwellers that generated sales of another 103 million appliances valued at 264 billion yuan last year, the Ministry of Commerce said.


Like many government initiatives, the price deals have more than one goal.

In 2010, for example, Xinhua explained that subsidies for items including electric cookers, microwave ovens and DVD players were intended "to spur rural consumption and buoy the nation's economic growth amid the global economic downturn."

The ministry claimed the trade-in program saved 5.1 billion kilowatt-hours of electricity because it replaced older appliances. But the estimate does not appear to include the energy used to manufacture new machines.

"If you want to make more air conditioners, then you need more factories using more energy to make more air conditioners," said Philip Andrews-Speed, a China energy expert at the German Marshall Fund of the United States. "All the way down the line, you're using more energy."

On Jan. 5, Commerce Minister Chen Deming said the new subsidy policies would support "consumption of energy-saving and environmental-products" with recycling of used electronics and vehicles.

But Andrews-Speed said the environmental labels on the programs ignore the "rebound effect" of using new devices more than the old ones they replace.

"People get a bigger air conditioner and they use it more.

It may be more efficient, they may have gotten it a bit cheaper, but if their electricity prices aren't rising significantly, it doesn't do much for saving energy," he told RFA.


Most often, the promotions for perhaps a half-billion new power-consuming appliances have seemed at odds with government campaigns to cut energy waste, which led to blackouts of whole neighborhoods at the end of 2010.

Since then, the drive for energy savings has suffered increasingly from economic slowdown fears.

"Energy efficiency seems to have dropped down in the order of priorities and boosting consumption seems to have moved up," Andrews-Speed said.

In 2010, the government fell slightly short of its plan to cut 20 percent of energy use per unit of gross domestic product (GDP) from 2005, reporting a five-year reduction of 19.1 percent.

Under the current five-year plan, the government has pledged a 16-percent drop in "energy intensity" by 2015, but the National Development and Reform Commission (NDRC) said in December that the goal for last year was "hard to achieve" because of poor efficiency results.

Since the energy index is only proportional to GDP, power use has continued to grow at double-digit rates, even though energy intensity has declined. Last year, electricity consumption rose 11.7 percent, while State Council economists have estimated GDP growth at slightly over 9 percent.

Public pressure

Heavy smog in China's cities has raised public pressure over pollution and forced the government to adopt more accurate measurement of soot particles, or particulates, this year.

The controversy has boosted awareness of the effects of relying on coal for over 70 percent of power generation, but the public has yet to make the link to subsidized appliance sales as a contributing cause.

"The environmental awareness in China is there, but I don't think enough connection is made," Andrews-Speed said.

Aside from conflicts with pollution control and conservation, the appliance subsidies also clash with efforts to ease power shortfalls.

China Southern Grid Power Co. has predicted "severe" shortages this year, ranging from eight to 14 gigawatts, with the worst problems forecast for Guangdong province in the spring, China Daily reported on Jan. 4.

Price jump

The NDRC has tried to deal with the problem by ordering moderate rate hikes and caps on coal prices. But coal traders "are evading the rules" and withholding supplies, the paper said, predicting prices will jump when the controls expire.

The government appears to be pulling in different directions on economic, energy and environmental policies.

On the same day that the Ministry of Commerce outlined the new appliance subsidies, for example, Ministry of Finance officials announced the government may impose a carbon tax to help control energy consumption and emissions by 2015.

"It is time to let people know they have to pay for what they use," said Su Ming, deputy director of the ministry's Fiscal Science Research Center, according to a separate China Daily report.

Liu Tienan, director of the National Energy Administration (NEA), said the government will establish an "integrated system" to control energy use of the under the current five-year plan, state media reported. The NEA has provided few details, but steps are said to include consumption limits for provinces.

While pollution and power problems may bring pressure on the government, officials appear to believe that subsidies for modern conveniences will win public support.

But it is unclear whether the public has perceived the contradictions in the policies.

"It's an interesting question," said Andrews-Speed. "Are the people who are complaining about the environment the same ones who are rushing out and buying fancy cars and air conditioners?"





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