Very little of this innovation comes from Chinese companies. What does come from China is legislation to force product and service improvements. The shift, for instance, to digital TV will force many consumers to either invest in a set-top box (STB) to sit with their existing TV, or buy a new TV. For many consumers who have only recently bought a large-screen analogue TV, the cheapest and least painful option is the STB.
The way Chinese consumers use their electronics products is also having an effect on growth patterns. MP3 players, until recently one of the fastest growing volume sectors, is now seeing decline. The reason is that many Chinese consumers are now buying combined mobile phone-cameras with built-in MP3 players. The industry's own convergence is therefore responsible for creating consumer demand that is undermining growth in the consumer electronics industry's own sectors.
However, such "traditional" sectors do continue to see market growth. Home entertainment systems, what used to be called Hi-Fi units, are seeing continued growth in rural areas, where even tape cassette sales are hanging on, despite the dominance of audio CDs. But CDs are in decline now, thanks to MP3 Internet and mobile phone downloads, and the widespread availability of pirate copies of popular music. A similar story has become apparent with DVD players and DVDs. Both are suffering from increased Internet bandwidths and wider availability of more downloadable video media from the internet.
What is clear from our current review of the market is that it is a market undergoing fundamental structural change, just as the domestic consumer market in China is shifting in its emphasis. Gone are the days of an export manufacturing or assembling-based economy and coming is the development of an economy based on domestic consumption. Current government planning and funding is based upon allowing low-value industries to die, and to promote higher value ones to thrive, whilst building up the rural economy through investment in modernization of the agricultural sector. Meanwhile, investment in new social security soft infrastructure, it is hoped, will help consumers to feel confident enough to save less and spend more.
We are therefore entering a period of emphasis shift in the way Chinese consumers and consumption will develop, while the consumer electronics market is morphing into something with significantly different product structures from what went before. This certainly makes doing any forecast predictions a lot more difficult, as the variables and unknowns are almost completely replacing the familiar predictable. What will be almost certainly true is that the rate that rural China comes on-line as a significant part of the consumer population will be crucial to the rate of growth in the consumer electronics sector in years to come. This will mean that, in order to drive new business growth, companies will have to move out of their comfort zones in the main urban centers of China, and will increasingly have to reach out into China's rural hinterland to win rural consumer interest. This will mean retooling both products and marketing attitudes to suit a very different demographic from that which they have been used to.
