Chinas home appliance exports have continued to grow for 18 consecutive months. Enterprises are accelerating the layout of production capacity and going global

According to data released by the General Administration of Customs in September, in US dollars, household appliances continued to maintain double-digit growth in the first eight months of 2024, with a year-on-year increase of 14.7%, in contrast to traditional labor-intensive industries such as clothing, shoes, ceramics, and toys that showed a slowdown.

Meanwhile, compared to the annual growth rate of 3.8% in 2023, the export growth of household appliances in the first eight months of 2024 increased by 10.9 percentage points. Exploring the reasons behind high growth, in addition to the cyclical factors of external demand replenishment, the global layout of Chinese enterprises has also brought about more profound impacts.

Chinese factories are busy, Vietnamese factories are even busier

The overseas demand is good this year, and our factory's orders have been scheduled until the end of the year, "Chen Dehuan, the brand manager of Ningbo Haozuan Technology Co., Ltd., told First Financial. The company's exports increased by 23% in the first half of this year.

On one side are busy factories, and on the other side are sales teams that have already started intensive autumn exhibitions. Chen Dehuan revealed that, excluding domestic exhibitions such as the Canton Fair, they have participated in more than ten exhibitions abroad since the beginning of this year. As a small home appliance manufacturer and trader in Ningbo, their efforts to innovate in recent years have enabled them, with Europe and America as their main markets, to continue to achieve growth of over 20%.

The head of another small and medium-sized home appliance manufacturing enterprise in Ningbo also told First Financial that the external demand growth this year is stronger than last year, and is basically the same as last year. It is expected to achieve double-digit growth this year.

The production pace of domestic factories is normal, while Vietnamese factories are busier and continue to increase production capacity. Xu Ning, Chairman of Guangdong Bangze Chuangke, told First Financial that the company's operating revenue exceeded 700 million yuan in the first half of this year, a year-on-year increase of about 37%, and a net profit of nearly 70 million yuan, a year-on-year increase of about 86%. Benefiting from the replenishment cycle in overseas markets this year, he believes that the company's core growth driver comes from its factory established in Vietnam - a factory established in Vietnam six years ago to cope with trade frictions, which has risen to a higher strategic level this year. This enabled them to receive more global orders and achieve their annual growth targets as planned.

Unlike the timeline for Chinese textile and clothing companies to expand their overseas production capacity earlier, home appliance manufacturing with higher technological content has only truly taken this step in recent years.

The semi annual reports released by multiple home appliance manufacturing and export companies at the end of August showed a trend of dual growth in revenue and profit, and the companies have also accelerated their pace of going global in the post pandemic era.

A-share home appliance leader Haier Smart Home disclosed its 2024 semi annual report, stating that in the first half of 2024, the company achieved a revenue of 135.623 billion yuan, a year-on-year increase of 3.03%; The net profit attributable to the parent company was 10.42 billion yuan, a year-on-year increase of 16.26%, with the profit growth rate exceeding the revenue growth rate. From the perspective of revenue sources, Haier Smart Home continues the trend of overseas revenue accounting for more than half, and in the first half of 2024, overseas market revenue exceeded the growth rate of the domestic market.

According to the 2024 semi annual report released by Xinbao Co., Ltd. (002705. SZ), a leading exporter of small household appliances, the company achieved a total operating revenue of 7.723 billion yuan in the first half of the year, a year-on-year increase of 21.53%, and a net profit attributable to the parent company of 442 million yuan, a year-on-year increase of 11.95%. Among them, the revenue in the second quarter increased by 20.51% year-on-year, and the net profit attributable to the parent company increased by 5.06% year-on-year. Export revenue accounts for over 70% of the company's operating income, with products mainly sold to the Americas and Europe.

Although the exemption period for some home appliance categories from tariffs imposed on US exports continues to extend, the industry is highly concerned about the US election and changes in trade policies, and cannot help but worry. On September 13th, the Office of the United States Trade Representative issued a statement regarding the final measures of the 301 tariffs on China, announcing that it will increase the 301 tariffs on some Chinese goods.

Against this backdrop, Chinese home appliance companies have increased their overseas expansion this year. In May of this year, Haier Egypt Ecological Park opened with a total designed production capacity of over 1.5 million units, mainly targeting the Egyptian and Middle Eastern markets; In July, Haier Smart Home announced its intention to acquire Electrolux's water heater business in South Africa; In August, Haier Smart Home held a groundbreaking ceremony at its factory in Thailand, which will become the largest air conditioning production base for Chinese brands in Thailand and Southeast Asia after completion. Xinbao Group established its first overseas factory in Indonesia last year, and the order volume has steadily increased, becoming a new tentacles for this Chinese enterprise from OEM to brand manufacturing to enter the global market.

In Xu Ning's view, home appliance export enterprises that have not established factories overseas and only produce domestically will face the challenge of "getting harder year by year". "The orders in the fourth quarter support Christmas, and some peers have already felt that the market is weaker than the same period last year".

Since last year, executives of Chen Dehuan's company have also begun to inspect factory construction and overseas warehouses in Southeast Asia and Latin America. "This year, our boss has visited Southeast Asia and Mexico several times," he said.

Shi Yonghong, Vice President of the China Chamber of Commerce for Import and Export of Machinery and Electronics, told First Financial reporters during the 2024 High Quality Export Work Conference of the electronic home appliance industry that the direct export growth of Chinese home appliances to the European and American markets was not significant in the first half of the year, and even showed negative growth. However, exports to major developing country markets continued to grow, especially in places where Chinese home appliance companies invested, such as Vietnam, India, and Mexico. The export of intermediate products of Chinese household appliances to these regions is relatively high and growing rapidly, usually assembled locally and exported to European and American markets.

Factors affecting peak season

For the home appliance industry, as of August this year, it has achieved 18 consecutive months of year-on-year positive export growth. At the same time, the foreign trade business of the home appliance industry in the second half of the year is generally better than that in the first half, but it is still inevitably affected by the overall economic environment and industry inventory cycle.

Starting from September, China has ushered in the traditional peak season for foreign trade. However, facing the pressure of the global economic downturn, most foreign traders have felt the change of shorter and more concentrated peak seasons compared to previous years.

The consolidation industry, which saw a significant price increase since May due to the escalation of the Red Sea crisis, began to decline in July. The price increase plan planned by shipping companies in August fell through in September, indicating to some extent the relative weakness of the demand side. On September 13th, the Shanghai Shipping Exchange released the Shanghai Export Container Comprehensive Freight Index at 2510.95 points, a decrease of 7.9% from the previous period. This is a further decline based on an 8.0% decrease from the previous period on September 6th.

According to an analysis by the Shanghai Shipping Exchange, for European routes, Sentix's September Eurozone Investor Confidence Index was -15.4, lower than expected and previous values, indicating that the outlook for the European economy is not optimistic. At present, the capacity of air routes is at a relatively high level, and the traditional peak season of air routes tends to end early. This week, the market cargo volume declined, and most airlines began to implement price reduction and cargo acquisition strategies, intensifying market competition. From the perspective of North American shipping routes, due to market expectations of port strikes in the United States, some shippers choose to ship as early as possible to avoid the impact. This week, the overall market demand remained stable, with a slight decline in cargo volume. The spot market booking prices fell, and the decline in the US East Coast route was more significant.

From the perspective of enterprises, Xu Ning believes that the home appliance market currently looks relatively normal, and the driving force of external demand for Chinese manufacturing exports may weaken. Currently, tariff risks and fluctuations in the Chinese yuan exchange rate are the factors they are most concerned about.

In terms of supply chain competitiveness, China's home appliance manufacturing is not only expanding its production capacity overseas, but also developing towards branding, intelligence, and greenness, driven by the booming development of artificial intelligence technology and smart homes.

Xing Jun, Secretary General of the Consumer Electrical Appliances Working Committee of the China Consumer Goods Quality and Safety Promotion Association, proposed that China has formed a complete industrial chain for raw materials, components, equipment, complete machines, distribution, and green recycling. From the perspective of integrity, progressiveness and security, the overall safety and stability of China's household appliance industry chain has promoted the development from the initial low-end manufacturing to high-end manufacturing, as well as intelligent and green equipment. The integrity of the industrial chain has also brought advantages in cost-effectiveness for Chinese products. However, home appliances belong to labor-intensive industries and have a high demand for labor. With the increase of domestic labor costs, home appliance companies tend to relocate their mid to low end production and manufacturing processes to areas with lower labor costs, while high value-added processes such as research and development centers continue to stay in the central and eastern regions of China.