Tech firms look to cash in on rural China

Doug Young

HONG KONG: Makers of cellphones, TVs and computers are rolling out low-priced wares for China's rural poor, squeezing profit margins in an attempt to tap a huge potential market for electronic goods.

Most rural dwellers earn less than $30 per month, but at 60 percent of China's 1.3 billion population they offer a growth opportunity for manufacturers facing increasingly saturated markets in cities.

"That's probably the only way they can maintain growth going forward," said Goldman Sachs computer analyst Henry King.

Skyworth Digital Holdings Ltd., China's fourth-largest television maker, is planning to launch a line of sets targeted at rural customers by the end of the year.

The new line, which has yet to be named, will feature medium-sized colour TVs with large, brightly coloured casings to make them appear much bigger than the screen, said spokeswoman Maggie Mai.

"The penetration rate (for TVs) in major cities is 120 percent," she said. "In rural areas, it averages 40-50 percent. We want to catch up with consumption growth in rural areas."

U.S. mobile phone maker Motorola Inc. has launched a series of handsets with basic features specifically aimed at the mid- to low-end of the market.

"The low-end market, mostly in rural and developing cities, has very high potential and is part of Motorola's strategy to maintain its market leadership in China," said spokeswoman Mary Lamb.

Chinese technology conglomerate TCL Corp. derives about 30 percent of its cellphone revenues from models costing 1,000 yuan ($122) or less, a spokesman said, and has phones costing as little as 800 yuan to counter a growing threat from the market for used handsets.

"In the future, prices could get as low as 600 yuan," he said. "But these phones will be very simple."

MASS MARKETING

The mobile phone sector has been aggressively pursuing the mass market, with the nation's two carriers, China Mobile (Hong Kong) Ltd. - the world's largest mobile carrier by subscribers -- and China Unicom Ltd. offering rural users cheap calling plans.

An estimated 300 million Chinese now subscribe to a mobile phone service, with another 50 million using low-end wireless services offered by the country's two fixed-line carriers, China Telecom Corp. and China Netcom.

Beijing has let the pair undercut state guidelines to compete on price and bring service to all levels of society, despite investor gripes about falling revenues per user.

Earlier this year, China Mobile launched the Shenzhouxing brand, aimed at low-end users, many of them rural.

The brand offers plans with heavy roaming restrictions that cost as little as 0.2 yuan per minute, a price rural residents, most of whom rarely travel, are willing to pay. The low-end, wireless services from Netcom and China Telecom -- also with restricted roaming -- are comparably priced.

"Given that many recent new subscribers in China are low usage, low spending users, the company has increased its efforts in promoting the Shenzhouxing sub-brand since early this year to better satisfy their needs," a China Mobile spokesman said.

Personal computer makers are also looking to the countryside, having sold a relatively modest 13 million units last year in China, the world's second-largest market.

Hong Kong's Culturecom Holdings Ltd. recently teamed up with U.S. tech giant IBM in an "e-town" initiative, in which rural governments bought low-end computing systems to bring the Internet and computing to outlying areas.

Hewlett-Packard Co. now lists PC models for as little as 4,799 yuan ($580) on its Web site. The nation's biggest PC maker, Lenovo Group Ltd., advertises a 4,999 yuan model.

In its drive to cut prices, Lenovo ended a long-standing exclusive arrangement with Intel Corp. earlier this year and began buying central processing units (CPUs) from lower-priced rival Advanced Micro Devices.