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The 2024 European Cup and the Copa America are set to commence in mid-June.

This is a feast for football fans and an opportunity for Chinese home appliance companies. Hisense and TCL have once again become the official sponsors of the European Cup and Copa America, respectively, hoping to enhance their brand influence. These two Chinese companies, which rank among the top three in global TV shipments, were once behind two South Korean companies a decade ago. Now they have surpassed LG and are catching up with Samsung, challenging for the industry-leading position.

The past decade has been one where trade frictions have profoundly influenced the restructuring of industries. Amid the tide of anti-globalization, China's home appliance industry has been moving towards the global stage. In countries such as Mexico, Vietnam, Thailand, and even Egypt, Chinese enterprises have taken deep roots. The overall exports of China's home appliance industry have increased their share in the global market; many leading Chinese home appliance companies have doubled their revenue over the past decade, growing increasingly into global corporations.

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In the face of trade frictions, the full industry chain advantage of Chinese companies has not been lost but has instead been strengthened. The next step for Chinese companies is not only to provide high cost-performance products to the world but more importantly, to achieve a brand leap. "Chinese brands are at a critical moment of transformation in the global home appliance market," said Lu Yan, Managing Director of GfK China, to reporters from First Financial Daily.

Has trade friction hurt China's home appliance industry?

Like the offensive and defensive battles in a football match, the globalization process of China's home appliance industry is equally gripping.

TCL is one of the earliest Chinese home appliance companies to promote globalization, establishing its first overseas color TV factory in Vietnam 25 years ago, transitioning from OEM to its own brand; 20 years ago, it acquired the color TV business of France's Thomson, advancing into the developed markets of Europe and America, but almost encountered a Waterloo due to the transition from CRT to flat-panel TVs; 15 years ago, it entered the liquid crystal panel field, opened up the upstream industry chain of televisions, and expanded its production capacity overseas.

At the same time, Chinese home appliance companies such as Hisense Group and Haier Group have successively gone global. However, this process has not been smooth sailing, with the biggest change being the trade friction between China and the United States.

In the past decade, starting around 2013 when the United States banned Huawei and ZTE from participating in the bidding for communication equipment, global trade protectionism has been on the rise. Since 2017, trade frictions between China and the United States have intensified, and since 2019, the United States has increased tariffs on Chinese exported color TVs from the original 3.9% to 11.4%.

The United States is a major consumer country, and changes in its trade policy have caused the restructuring of the industrial chain. However, these production capacities will not directly flow back to the United States."The comparative advantage of China in the consumer electronics industry is hard to shake, and the possibility of the industry returning to the United States is almost zero," TCL founder and chairman Li Dongsheng analyzed in 2020.

Due to the zero-tariff on color TVs exported from Mexico to the United States, TCL has increased its investment in Mexico. The company acquired Sanyo Electric's Mexican color TV factory in 2014 and expanded the material warehouse and three large-size production lines in 2018. After the expansion, the annual production capacity of the double-shifted whole machine reached 3 million units. In Vietnam, in 2020, TCL's new base produced 3.78 million TVs, and the TV and monitor whole machine manufacturing base built in Quang Ninh province started production in April 2024.

Hisense also accelerated its layout, taking over Sharp's Mexican factory in 2016 and intelligently transforming the factory, increasing its annual output from 600,000 units to 2.5 million units, and further increasing to 8.5 million units in 2021. The color TVs exported by Hisense to the United States are basically output from the Mexican factory, and the core components of color TVs, liquid crystal panels, are mainly imported from Mainland China and the Taiwan region. Hisense also increased its overseas investment in white goods production. In 2022, Hisense completed the construction of a smart home appliance industrial park in the North American Huafushan Industrial Park in Mexico, with three factories for refrigerators, air conditioners, and kitchen appliances.

Hu Hai, chairman of the North American Huafushan Industrial Park, told the First Financial reporter on June 7, 2024, that China's direct investment in Mexico was lukewarm before, started to grow in 2020, and rapidly increased from 2021 to 2023. Currently, the growth rate has slowed down, but the invested factories have gradually formed production capacity and have begun to significantly drive Mexico's exports to the United States.

The supply chain of Chinese air conditioners exported to the United States has also undergone significant changes in the past five years. Currently, the tariff on air conditioners exported from China to the United States is about 25%, while the tariff on air conditioners exported from China to the United States was only 2.2%.

Under this prospect, Chinese air conditioner companies have transferred some of their production capacity to Southeast Asian countries such as Thailand and Indonesia. Currently, Thailand has become the world's second-largest air conditioner manufacturing base after China. The First Financial reporter learned that the proportion of air conditioners exported to the United States in Haier's Thai air conditioner factory accounts for more than 50% of its production capacity; Midea Group has added new air conditioner production capacity in Thailand and Indonesia overseas, and some of the air conditioners produced by its Southeast Asia will be sold locally in the future, and some will be sold to the European and American markets.

According to data provided by the Home Appliance Branch of the China Machinery and Electronic Products Import and Export Chamber of Commerce to the First Financial, from 2013 to 2023, China's share in the U.S. home appliance import market has dropped significantly from 36.9% to 26.5%, while Mexico's share has risen from 23.3% to 26.2%. According to this trend, Mexico will become the largest supplier in the U.S. home appliance import market next. At the same time, Thailand and Vietnam's shares in the U.S. home appliance import market over the past decade have increased from 1.4% to 5% and from 0.1% to 2.4%, respectively.

"Some production capacity has been transferred, but demand and competitiveness have not been transferred," said Zhou Nan, Secretary-General of the Home Appliance Branch of the China Machinery and Electronic Products Import and Export Chamber of Commerce, in an interview with the First Financial.

From 2018 to 2023, China's share of global home appliance exports increased from 50.3% to 66.2%. During the same period, China's exports have become more balanced, with the share of home appliance exports to the United States dropping from 18.8% to 14.7%. In the first four months of 2024, China's monthly export value of home appliances reached a historical high. Zhou Nan believes that the cost-effectiveness brought by the advantages of China's home appliance industry chain and supply chain, as well as the accumulation of domestic product innovation, are important reasons that cannot be ignored.

"China is still the world's largest home appliance manufacturing base," Wang Juan, Senior Product Manager of Industry Online, told the First Financial reporter. Taking the three major white goods as an example, the global production capacity in 2023 exceeded 900 million units, and China's production capacity of the three major white goods was nearly 600 million units, accounting for 65.5% of the global share. In addition to China, production is mostly concentrated in Asia, with the top three global production countries all in Asia, the second and third places being Thailand (5%) and India (4.5%). For kitchen appliances and small home appliances, China's production capacity also accounts for more than half of the global share. In the upstream supporting market, China's share is even higher, with China's manufacturing of the core components of the three major white goods, air conditioners, refrigerators, and washing machines, accounting for 95%, 87%, and 72% of the global share, respectively.Zhang Hong, Research Director of the TV Business Department at Zigmaintell Consulting, also told Yicai reporters that the overall global market share of China's major TV brands (excluding OEM quantities) has continued to rise over the past decade, increasing from 26.8% in 2014 to 31.8% in 2023, and is expected to further increase to 32.6% in 2024.

Racing towards the global market amidst the counter-currents of globalization

Over the past decade, Chinese home appliance companies have accelerated their global layout.

In Zhou Nan's view, the division line is roughly the 2019 increase of import tariffs on home appliances from China by the United States. In the first five years (from 2014 to 2019), the growth point of Chinese home appliance exports was mainly in the European and American markets, where leading companies broke through the bottleneck of entering the high-end European and American markets through a series of acquisitions; in the following five years (from 2019 to 2024), the growth point of Chinese home appliance exports was mainly in emerging markets, where leading companies further improved the layout of production bases in overseas emerging markets, seized the growth points of emerging markets, and avoided tariff barriers.

Chinese home appliance leading companies have long since started a "buy, buy, buy" rhythm globally. Haier Smart Home successively acquired the Japanese and Southeast Asian white goods business of Sanyo Electric, merged with GE Appliances in the United States, acquired Fisher & Paykel in New Zealand, and merged with Candy in Italy from 2011 to 2019.

Another white goods leader in China, Midea Group, has successively taken over the white goods business of Toshiba in Japan, the Italian central air conditioning company Clivet, the American vacuum cleaner company EUREKA, and the German KUKA Group. Hisense, which started with black goods business, has successively acquired the Toshiba TV business, the Slovenian home appliance manufacturer Gorenje, and controlled the Japanese Sanyo company.

After the United States increased import tariffs on home appliances from China, the focus of overseas layout of Chinese home appliance leading companies shifted to "nearshore" and "friendly shore" countries and regions in Europe and America. Zhou Nan believes that, firstly, it is to avoid trade protectionism in export markets, mainly to avoid the United States 301 tariffs; secondly, it is to avoid fluctuations in ocean freight costs, to be close to the target market, and the main investment is concentrated in ASEAN, Mexico, and Egypt, and investment has gradually extended upstream in the past two years.

In 2019, Chinese home appliance industry investment in Vietnam reached a new climax: TCL Vietnam's new base started construction in February and began production in November; Haier Smart Home's AQUA Vietnam drum washing machine factory started production in July; the main vacuum cleaner manufacturer, Lake Electric, started production at its Vietnam factory at the end of the year; Zhaochi shares announced in October that its wholly-owned subsidiary planned to establish Zhaochi (Vietnam) Co., Ltd. The three waves of investment enthusiasm of Chinese home appliance companies in Vietnam, the first wave was mainly aimed at Vietnam, the second wave was mainly aimed at the ASEAN market, and the third wave was mainly aimed at the European and American markets. "The primary factor of the new round of investment enthusiasm is the increase of tariffs by the United States," said Wang Cheng, COO of TCL Technology.

Vietnam has become an overseas gathering place for China's vacuum cleaner industry, with overseas factories of Lake, Aipu, Fujia, and Dechang all located near Ho Chi Minh City, Vietnam. In addition, Vietnam is also a gathering place for Chinese color TV OEM factories, with many leading TV OEM companies such as Maojia (under TCL), BOE Video, HuiKe, and Zhaochi all having factories in Vietnam.

In Thailand, air conditioning companies such as Haier, Midea, Aux, and Hisense all have assembly factories locally. Chinese upstream manufacturers have also increased their layout in Thailand. Due to Indonesia's implementation of certification for home appliances, many small home appliances not made in Indonesia will not be able to apply for certification. Companies such as Kaibo have begun to seek investment in Indonesia, and with the previous investments by Xinbao and Boling, Indonesia has become the preferred investment destination for Chinese small home appliance companies in ASEAN.In the Arab League region, Egypt is a hot spot for Chinese home appliance companies to invest, with the potential to cover markets in Africa, the Middle East, and Europe. The Haier Egypt Eco-Park was founded in 2023, with the first phase of the factory including production lines for air conditioners, washing machines, and televisions, which are expected to begin production in 2024. Once the second phase of the factory is operational, the overall annual production capacity will exceed one million units. In November 2023, Midea laid the foundation for its new refrigerator and washing machine base in Egypt, marking its third manufacturing base in the country, with an estimated start of production in 2025. Vanward Electric has also established a production base for water heaters in Egypt.

"Chinese home appliance companies have been investing in Egypt in recent years, considering several factors: first, the convenience of logistics, as Egypt's geographical location is favorable for access to Europe; second, the vast market potential, as Egypt can radiate to the Arab League market; third, Egypt has imposed tariffs on complete machine imports in recent years, encouraging foreign investment to develop the manufacturing industry locally. Additionally, Egypt is a pivotal country along the 'Belt and Road' initiative," said Zhou Nan.

Furthermore, in the Americas, Chinese companies' investment enthusiasm in Mexico remains undiminished and is beginning to extend upstream. Currently, the color TVs produced by Hisense and TCL in Mexico account for more than 20% of the color TVs Mexico sells to the United States, and the white goods produced by Hisense in Mexico account for 5-6% of the white goods Mexico sells to the United States. Haier has acquired 48.4% of the shares of the local home appliance company Mabe in Mexico, and Midea is also planning to invest in Mexico. Brazil is also a hot spot for Chinese companies' investment in the Americas in recent years, with TCL and Midea both increasing their investments in Brazil in 2023.

As the layout deepens, the growth drivers of Chinese home appliance exports have shifted.

During the "13th Five-Year Plan" period, the European and American markets drove growth; during the "14th Five-Year Plan" period, emerging markets are driving growth. According to data from the Home Appliance Branch of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, the year-on-year increase in China's home appliance exports to major overseas regions was 10.6% in Europe, 9.4% in North America, and 12.3% in ASEAN during the "13th Five-Year Plan" period; and 6.3% in Europe, 0.4% in North America, and 13.6% in ASEAN during the "14th Five-Year Plan" period.

A Critical Moment for Transformation

Cost-effectiveness has always been a sharp tool for Chinese home appliance companies.

According to GfK's overseas report, currently, cost-effective products are helping Chinese companies to continue to grow their market share. In the global home appliance market (excluding North America, China, Japan, and South Korea), the brand retail sales share saw South Korean brands decrease from 18.3% the previous year to 17.3% in 2023, Chinese brands increased from 5% the previous year to 5.7%, and Japanese brands decreased from 4.3% to 4%.

Although the export proportion in the production of Chinese black and white goods is high, the proportion of independent brands is relatively low, with Chinese independent black and white goods brand overseas home appliance market retail sales share accounting for about 11% in 2023. Due to the development of China's smart products being at the forefront of the world, some emerging smart brands in niche tracks have emerged, including sweeping robots, floor washing machines, etc., with the overseas home appliance market share of China's emerging categories accounting for about 8% in 2023.

"Chinese brands are facing a critical moment of transformation in the global home appliance market," Lu Yan believes. First, Chinese brands have a cost advantage, with the Chinese brand price index at 87% and the Korean brand price index at 113%, making Chinese brands still a more cost-effective choice; second, the influence of Chinese brands is gradually increasing, with some brands expanding through acquisitions and mergers; in addition, Chinese brands are enhancing their competitiveness in the overseas market by improving after-sales service, such as fast delivery and efficient repair.In the field of cleaning appliances, Ecovacs saw a year-on-year increase of 26% in overseas revenue in 2023, reaching 6.5 billion yuan, accounting for 42% of its total revenue. At the CES in early 2024, Qian Cheng, Vice Chairman of Ecovacs, stated that Chinese companies used to win with cost-effectiveness, but now they triumph with product design, product definition, and leading capabilities in core components. Another Chinese cleaning appliance company, Roborock Technology, has sold over 1 million units of its sweeping robot with a bionic mechanical arm globally since its launch in May last year.

"The opportunities in the overseas market are still vast, with the global home appliance market size nearing 400 billion US dollars, but there are only a few global players. In 2023, Midea's overseas home appliance business scale was over 120 billion yuan, with a market share of less than 5% overseas, indicating a significant room for growth," said Wang Jianguo, Vice President of Midea Group and President of Midea International, at this year's Midea shareholders' meeting. He added that in 2024, Midea will firmly promote the construction of overseas independent brands. Li Huagang, Chairman and President of Haier Smart Home, also revealed at the 2024 AWE that Haier produced and sold 126 million home appliances globally last year, and in the near future, its annual production and sales volume of home appliances worldwide will exceed 160 million units.

"Since the Sino-US trade friction, leading Chinese home appliance companies such as Haier, Midea, Hisense, and TCL have seen an increase in market share, product power, and consumer recognition of their own brands in both domestic and global markets. Tariffs have added challenges, but their global competitiveness has been enhanced," said Peng Xiandong, General Manager of GfK's Major Home Appliances Business Unit, to First Financial Daily reporters. He noted that trade frictions focus more on areas with higher technological content, such as chips, and have a smaller impact on the home appliance industry. Moreover, under the influence, companies have shifted their focus to brand enhancement, improving product energy efficiency standards, and perfecting the global industrial chain layout.

Will the supply chain's advantageous position of China be impacted as the upstream core component capacity moves outward with the整机产能?

Peng Xiandong believes that some overseas markets, such as India, may form a complete home appliance industry chain in the future. TCL CSOT has a module layout in India, but it is affected by local supporting industries, the capabilities of industrial chain workers, and the level of management talent. While Indian industrial workers are capable, there is a severe shortage of middle managers in India, and the backbone is recruited from mainland China and Taiwan, so it will take time for India to form a complete industry chain.

Over the past decade, the revenue scale of leading Chinese home appliance companies has doubled. TCL Group's total operating income was 85.3 billion yuan in 2013, which was later split into two major groups (TCL Industrial and TCL Technology), with a combined total operating income of 294.7 billion yuan in 2023. Hisense Group's black and white appliance businesses were 28.5 billion yuan and 24.4 billion yuan respectively in 2013, while Hisense Group's total revenue exceeded 200 billion yuan for the first time in 2023, with overseas revenue accounting for 42.6%. Haier Smart Home (formerly Qingdao Haier) had a revenue of 86.5 billion yuan in 2013, reaching 261.4 billion yuan in 2023, with overseas revenue accounting for 52%. Midea Group's revenue was 120.97 billion yuan in 2013, reaching 372 billion yuan in 2023, with overseas revenue accounting for 41%.

"The Chinese home appliance industry is ready to lead the world," said Zhou Nan. The structural adjustment of China's home appliance export market is evident; the global layout is going deep; it integrates into the world's industrial chain in various forms such as OEM (original equipment manufacturing), ODM (original design manufacturing), and OBM (own brand manufacturing); the cost-effectiveness advantage brought by production efficiency promotes the industry's development against the trend, and the global home appliance industry pattern is entering the Chinese era.