Government Incentives Need Better Standards, More Predictability: Appliance Chief

The head of one of China’s largest TV and home-appliance makers took the chance at this year’s annual meeting of the National People Congress to critique government incentives aimed at spurring sales for the sector.

Previous incentive programs, such as subsidies to farmers, made home appliances such as washing machines and refrigerators affordable for a time in villages, but eventually the market slumped, said Zhao Yong, chairman of Sichuan Changhong Electric Co. Ltd. in a panel discussion Wednesday.

“The nonmarket measures may promote consumption for a certain period of time, but the momentum will fade later after incentives are phased out,” he said.

Zhao’s comments came as Beijing pushes for a new round of incentives to spur consumers spending. The incentives, announced at the end of November, put greater emphasis on unleashing the spending power of rural households. The latest plan is seen as a signal of a second campaign to bring more major consumer goods, including electric appliances and automobiles, to the countryside.

Still, if there has to be an incentive package for rural people, Zhao said, then clear regulations and standards should be implemented to ensure an equal playing field for everyone. For example, he said, some companies tend to take advantage of insufficient rules to defraud the government.

Zhao didn’t elaborate on how companies do it. But China’s electric-vehicle industry provides one well-known example. The government has handed out an enormous amount of subsidies over the last decade for the industry, which has helped China become the world’s largest producer of electric vehicles.

The government is now phasing out the subsidies by 2020, in part due to widespread fraud as some companies employed a range of tricks to qualify for the incentives, including producing substandard vehicles and passing off conventional vehicles as those that run on electricity.

Zhao also advised policymakers to set a clear timeframe for how long incentive programs will last and always inform the market about any extensions.

“For many big corporations, predictability is crucial,” he said. “It is risky for them not to know how a policy will evolve.”

Contact reporter Mo Yelin (yelinmo@caixin.com)