Maybe not everyone in China’s countryside wants a washing machine or a microwave, but apparently most need a mobile phone. Since January, the Chinese government has been offering rural consumers a 13% rebate on purchases of TVs, washing machines, refrigerators, and mobile phones in an effort to boost domestic consumption.
Response to the subsidy programme, however, has been lukewarm at best. Or purchases have been made but not quite for what the appliance manufacturers intended: in some cases washing machines are being used to store rice and refrigerators are doubling as closets, the Apple Daily reports.
Nonetheless, China Mobile, the country’s largest mobile operator by subscribers, has provided one bright spot for the government’s subsidy scheme. Amid a world of slumping sales, China Mobile said its 2008 net profit rose 30% from a year earlier thanks to strong subscriber growth. After years of work upgrading its rural networks, the strategy seems to be starting to pay off – only 30 million people, or 2% of the country’s population, remain out of reach in network coverage terms. Last year the mobile carrier signed up 88 million new subscribers (equivalent to the population of Germany), half of which were from the rural areas.
Although spending power in the countryside doesn’t match that in the cities, it shouldn’t be dismissed out of hand. A recent survey from Suning, the electrical appliance retailer, found that one third of rural families have an annual income above Rmb20,000 ($2,920); and 40% have incomes between Rmb5,000 and Rmb20,000. Besides which, what rural residents lack in cash they make up for in volume.
Boasting over 60% of the country’s population, the countryside accounts for 737 million residents. At an academic forum last weekend, Wang Jianzhou, chairman and chief executive of China Mobile reckoned that the potential for further sales in the countryside is huge as only 30% of the rural population are mobile service subscribers at present. That’s why Lenovo, the mainland’s personal computer maker, has also recently announced plans to open 700 retail outlets in the countryside to take advantage of low computer penetration (and Suning will open 1,000 stores in rural areas, according to its president, Sun Weimin) .
Unlike computers, the mobile phone is much cheaper and easier to use. Many farmers who haven’t purchased other white-goods are saving up for their first mobile phone, said Straits News. Men similar to Lin Yibo, a farmer who doesn’t own a refrigerator or washing machine, but has bought a mobile phone to keep in touch with his children, who live in another town.
Analysts believe that rural communities will contribute to more stable market share as competition between telecom providers in urban cities increases.
To cope with the growth in rural markets, the company has budgeted 24% of this year’s expenditure for expanding its 2G network in the countryside; the rest has been earmarked for its 3G operation, the homegrown technology TD-SCDMA (see WiC3).
There is a downside. The analyst community likes to use average revenue per user as a benchmark. Unfortunately, that number trends down with each rural addition, because average countryside monthly spend is so much lower than those of city subscribers. Hence the company’s average monthly revenue per user (ARPU) slipped in 2008 to Rmb83 from Rmb89, a 6.7% decrease year-on-year. The mobile carrier forecasts that the figure will fall again this year.
Paradoxically, this falling ARPU could be interpreted as a mark of the firm’s success in the countryside. The more successful China Mobile’s rural push, the more the ARPU may fall.
The firm cannot afford to let up in its campaign to ‘mobilise’ the countryside. With competition in the cities fierce, rural consumers offer a budding avenue of growth.
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