What's Happening in China's Market Today? Part 3

Global Watch 3 of 7

Against a Backdrop of Environment Concern, China’s High-Tech Market Increases Potential

The Chinese economy has maintained momentum of rapid development for over the past two decades, averaging 9% annual growth rate, however, China is facing worsening environmental pollution. China’s new leaders are more aware of the necessity for a shift of its economic growth pattern than ever, and are now prioritizing energy saving and emission reduction as challenges of critical importance that have to be addressed by solid, nationwide efforts. The country’s 12th Five-Year Plan underlines that its economic development must be linked with environment protection, and industrial focus must be oriented toward the development of key technologies, products, and services that pursue efficient energy conservation.

A city in China faced with deteriorating environmental pollution

A city in China faced with
deteriorating environmental pollution

In the context of increasing pressure from the environmental challenges, domestic and international companies are now seeking chances to make the most of a series of investment opportunities in China’s market.

Life Services: Ever-increasing need for environmental cleanup products

There is much-heralded PM 2.5 polluted air in most cities in the country. Amid aggravating air and water pollution, Chinese consumers are putting more and more importance on health problems attributed to the environmental pollution. The concern is contributing to rapid market expansion of air and water purification among others in the life services.

According to the provisional estimates by Zhong Yi Kang (中怡康; Zhōngyíkāng) (*1), a market research company, China’s markets for air purifiers and water purifiers in 2013 are estimated at 2.4 million and 4.28 million units respectively, reaching 90.5% and 64.6% increases over 2012 during which about 1.26 million air purifiers and 2.6 million water purifiers were sold (Fig.1). From the figures of the year-to-year monthly increases in the first quarter of this year, we can see that sales of air purifiers from January through March increased by 48.26%, 145.17%, and 153.08% each on the year-to-year comparison while sales of water purifiers also increased 29.45%, 22.61%, and 43.40%, indicating sales surges of both appliances.

Photo2: Air-purifiers showed surge in sales along with aggravating air pollution

Air-purifiers showed surge in sales
along with aggravating air pollution

Fig.1 Provisional Data for China’s Consumer Market for Purifiers

Fig.1 Provisional Data for
China’s Consumer Market for Purifiers

On the other hand, China-made air and water purifying products currently available on the market have many issues to be addressed. In addition to the lack of legitimate criteria for performance certificates established by a state level independent organization, most products do not include a component that serves as a purification indicator, making it difficult for consumers to know the extent of purification each product offers. Furthermore, advertisements trying to exaggerate product performance confuse consumers when they select products.

When looking at these products from the perspective of appearance, power consumption, noise-reduction, and user-friendly design that enables easy maintenance, they are still several steps away from sufficiently meeting consumers’ needs. Despite soaring sales of air purifiers and water purifiers, they are still priced relatively high, deterring widespread use at ordinary households. In the first quarter of this year, air purifiers and water purifiers averaged 2,798 (approx. US$462) and 2,337 yuan (approx. US$386) per unit respectively, exceeding those for common, small home appliances, and have come close to average unit prices for major appliances.

Consumers are confused due to advertisements trying to exaggerate product performance  certification criteria

Consumers are confused due to
advertisements trying to exaggerate
product performance certification
criteria

China’s purifying appliance market has huge potential. It is demanding products that satisfy the demand for purifiers that are priced reasonably and come with enhanced functions such as displaying purification level and detecting polluted air or water automatically.

Industrial Manufacturing Sectors: Environment monitoring benefits monitoring and measurement instruments industry

China’s Ministry of Environmental Protection has announced that they will carry out an across-the-board crackdown on companies that have been illegally discharging pollutants, and audit coal-fired units belonging to power companies and dust precipitators, flue-gas desulfurization systems, and coal boilers operated by manufacturers of steel and cement, so as to press hard on local governments not taking thorough countermeasures to control such enterprises. Backed by the powerful environmental policy, applications of environmental monitoring instruments in industrial manufacturing sectors will be seen to expand, an analyst watching the industry says.

Environmental monitoring instruments make up a major portion of monitoring instruments. Because of their capability for identifying pollutant sources and grasping the actual status of contamination, these instruments are used for analyses by professionals on site. The Chinese government viewed the year 2013 as a year to foster development of environmental monitoring instruments and devices. To kick off a state-led special project to develop critical scientific instruments, it allocated as much as 150 million yuan (approx. US$24.7 Million) from the central governmental budget for the year. However, monitoring polluting factors in its early stage compared to developed countries means that the country needs to tighten atmospheric, heavy metal, and aquatic monitoring in particular. Assuming this, it is projected that the potential for development of environmental monitoring instruments will last for 5 to 10 years ahead. Industrial Research Team of Environmental Instrument at Qian Zhan Industrial Research Institute estimates that the industries for environmental monitoring instruments and systems will enjoy around 20% increase during the period of the 12th Five-Year Plan, and the market size will surpass 15 billion yuan in 2013 and further, 24 billion yuan in 2015 (Fig. 2).

Fig. 2 Estimated Changes in Environmental Monitoring Instrument Market in China Unit: Market Size (Million Yuan) and Growth Rate (%)

Souce: "Report on Production and Sales Needs and Analysis of Investment Prediction for Environmental Monitoring Instruments in China 2012 through 2016", Qian Zhan Industrial Research Institute

Fig. 2 Estimated Changes in Environmental Monitoring Instrument Market in China Units: Market Size (Million Yuan) and Growth Rate (%) (predicted values are shown for 2013 onwards)

Although China has a high level of need for environmental monitoring instruments and devices, they leave a number of technological challenges and lag behind instruments marketed across the globe. Problems with environmental monitoring instruments made in China that bubbled up to the surface include the following: low technological level, unsatisfactory product quality, unstable performance, insufficient consistency, short lifetimes, high failure rates, inadequate development capability, low production capacity for online monitoring instruments, and lineup limited to middle/low-end products manufactured by middle and small enterprises.

Therefore, the potential of the industry in China is gathering attention from foreign capital or globally known manufactures in this field. The future field of environment monitoring systems is moving in a trend toward the fusion of technologies including precision machinery, electronics, computer technology, automation, and artificial intelligence, based on conventional technologies such as optics, electron chemistry, chromatography, and mass spectrometry.

As China’s industrial structure enters a correction phase and technological levels heighten, it is foreseen that demand for optimized monitoring systems capable of handling “higher rates of energy and material consumption, and higher degree of pollution” will increase. To bring about a recycle-oriented economy and meet the need for energy conservation and emission reduction, it is expected that demand for environmental monitoring systems from manufacturers in steel, petrochemistry, electrical power, and non-ferrous metal will further increase.

Construction of New Cities: Energy conservation and emission reduction accelerate growth of the market where applications using smart technologies bloom.

Energy conservation and emission reduction in government-led city construction can be regarded as efforts to prevent future pollution while environmental measures in consumer life and industrial manufacturing are to remedy the polluted environment.

As China’s economy develops, issues arising from urbanization and industrialization are becoming more visible, posing immediate pressing need to solve housing and contamination problems. Smart communities or smart buildings that provide not only cozy comfortable spaces but also reduced power consumption represent legitimate options that can be taken to bring low carbon urban life to fruition. A survey of CO2 emission factors (from IPCC) revealed carbon emission from buildings accounts for about 30% of total carbon emission in industrialized countries. In China, buildings are often high-rise and high-density; therefore, they have high floor area ratios, accounting for as much as about 50% of the country’s carbon emissions, largely attributed to major emission sources, namely air conditioners, lightings, and server rooms that consume a lot of electricity. In consequence, smart buildings represent an indispensable solution to keeping China’s economy growing. The building of smart cities has to pursue the following: creating quality life environments in limited spaces, taking advantage of technologies including the Internet of Things and cloud computing to establish systems based on smart processing and cyclic use, drastically improving and increasing efficiency and effectiveness of city operations, and creating residential environments that are high quality, healthy, conformable, safe, and energy saving. These goals are legitimate ways by which local economies strive for energy conservation and emission reduction.

Image of a Smart Building

Image of a Smart Building

Smart communities and smart, low-carbon buildings have been being built one after another in major cities like Shanghai, Beijing, Dalian, Chengdu, and Hangzhou over the past years. They have received gradual acceptance and people have come to know the systems that can provide solar power generation and energy saving lighting, as well as analysis and control of energy consumption. In the near future, IT will serve as the base of energy conservation and environmental innovation, and make a significant contribution to smart city construction. Needs for software and services will be mammoth. Because of the scale of the needs, China will turn into a growing market for application suppliers playing in the IT field.

Environment protection drives new opportunities.

The demand for environmental cleanup products in life services, the expanding environmental monitoring market, and government-led construction of energy saving cities, energy conservation and emission reduction, and environment protection, all these are becoming increasingly more emphasized than ever. Behind the pressure to go green is an enormous investment market. As the government beefs up its support for energy conservation and emission reduction, unprecedented environmental needs are spurred. Huge chances now lie in front of domestic and global businesses that are considering entry to the Chinese market.

Moves That Are Driving What Comes Next

Grasping the true picture of moves in China's market and business oppotunities that are expected to burgeon out from the moves. We take a look at the social challenges and changing consumption trends for China's dramatically developing economy.