Subsidizing China's Home Appliance Market

          In an effort to raise consumption in the Middle Kingdom, the Ministry of Finance (MOF) has been subsidizing the home appliances market since 2009, especially in rural areas. Already over 585.5 billion RMB (~$92 bln USD) has been spent to keep China's home appliance business (the largest in the world, at least for refrigerators) surging (China Daily: "China rural subsidy program drives home appliance sales"). According to another article in China Daily, back in 2011, the industry already provided well over 400,000 jobs to mostly rural and migrant workers, and through the expanding of the project to include 6 major home appliances and an old-for-new trade-in deal, Chinese consumers have greatly improved their home energy efficiency and standard of living. Because of the project, consumers can save up to 13% in purchasing these new models, while producers get to increase their production, meaning both parties can be happy, and not to mention the Chinese government can breathe a little lighter (as  tough as that may be in Beijing) due to the decrease in energy use, subsequent decrease in pollution, and increase in rural area living standards and employment (China Daily: "Rural subsidy program spurs home appliance sales").

          This brings up the question that I did not address as well in my last blog post about the Chevy Volt, which is that as opposed to limiting foreign competition and dealing a loss to consumers as Coughlin et al. would suggest, can subsidies benefit producers, consumers, and society as a whole? Would subsidizing the production of more efficient and environmentally friendly goods, which would normally be uncompetitively costly for the producer be a bad thing for the wider economy?

          Perhaps, these industries could be likened to infant industries in that the subsidies provide a way to get over the barrier of researching and developing cost competitive products for a new segment of the market (e.g. hybrid and electric cars in the auto industry, energy efficient home appliances in the home appliance industry).  More importantly, however, these goods provide a benefit that other goods normally do not in that they deal inherently with the negative externalities. Instead of paying an environmental tax or emissions fee, these eco-friendly, yet costlier products deal with the negative externality of pollution themselves.