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May 14 2009	Full PDF Version

Rural Stimulus - Handset Boost

The Chinese government extended the home-appliance subsidy program earlier this year to all 31 mainland provinces and to 10 categories of home appliances, including mobile phones. To date the program has involved 396 models from 34 handset vendors. However, the sales of subsidized handsets have been poor, accounting for only a single digit percentage of total sales of subsidized home appliances in Q1 2009. ? Competition from gray market handsets is the most important reason why the sales performance of subsidized handsets has been well below expectations. Rural buyers find gray market phones more attractive in terms of features and price than subsidized handsets. ? A second factor limiting the impact of the subsidy program is that most chain stores and independent retailers have shown little interest in the handset subsidy program given the limited number of subsidized models and have failed to cut prices or actively market subsidized handsets. ? Another factor depressing sales of subsidized handsets is the complicated and time-consuming application process, which dramatically increases total purchasing costs for rural buyers and negates the benefit of the subsidy. ? Given the problems outlined above, BDA believes the handset subsidy program is very unlikely to give a major boost to domestic handset sales in 2009. Nevertheless, we see operators playing an increasing role in the sales of subsidized handsets and we believe this will help promote the program in the longer term.

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