China's home appliance demand remains weak, but a compensatory rebound in air conditioners and healthy inventory reduce the risk of channel deterioration

Overview

Based on an expert interview with an offline home appliance retailer in Shandong, the report assesses Chinese home appliance demand, inventory, promotions, subsidies, and brand competition. The overall conclusion is balanced: demand is not strong, and the improvement in July mainly reflected seasonal catch-up demand for air conditioners, but healthy inventory and orderly price competition reduce the probability of channels entering a destructive destocking cycle.

Core views

The research sample is a regional offline retail chain covering 13 cities in Shandong Province, and the expert has more than 20 years of experience in China's home appliance market. Nearly 100% of the channel's sales are offline, with B2C retail accounting for approximately 95% and the B2B property channel serving new-home renovations accounting for approximately 5%. Its product mix is tilted toward the mid-to-premium segment, and it mainly carries brands including Haier, Midea, Gree, Xiaomi, and Hisense, with annual sales of approximately RMB2.8 billion to RMB3.1 billion. The report therefore defines its conclusions as reflecting the perspective of Shandong's regional offline channels rather than being directly representative of China's entire home appliance market. Demand remains weak, but the July rebound in air conditioners rescued the full-year growth trajectory. The channel set a revenue growth budget of 5%-8% at the beginning of the year and now expects full-year growth of approximately 5%; both the expert and JPMorgan believe this remains significantly ahead of most industry peers. From March through June, sales remained weaker than expected despite promotions and the "618" shopping festival. Sustained extreme heat in July then significantly boosted retail air-conditioner sales, narrowing the gap between actual performance and the budget. The report therefore concludes that some demand was delayed by the weather rather than lost entirely, and compensatory purchases in July reduced the downside risk of the channel failing to meet its full-year target. Air conditioners are the most important recent source of volatility, but the improvement is closer to demand catch-up than a structural recovery. Air-conditioner sales were weak in the spring and June because hot weather arrived later than usual. July's hot weather released pent-up seasonal demand and stabilized the overall pace of channel activity. High temperatures also supported water heaters through greater usage frequency and washing machines through more frequent washing and demand for upgrades to front-loading and washer-dryer products. Refrigerators and kitchen appliances remained weak, so the recovery is concentrated in only certain categories and has not yet broadened into a comprehensive upcycle in home appliance demand. Inventory discipline is the key reason weak demand has not yet evolved into channel pressure. The report states that air-conditioner channel inventory is at its healthiest level in three years. As of the end of August, industry inventory was approximately 30%, still within the normal range. Both manufacturers and dealers have exercised restraint this year: weaker weather in June made dealers more cautious, while cash-flow pressure also limited excessive stocking. Refrigerators and washing machines likewise showed no serious inventory issues, reducing the risk of destructive year-end destocking. Promotions have been substantial, but leading brands have largely protected their blended average selling prices through product-mix management. Air-conditioner promotions have been particularly intense throughout the year, and actual prices of low- and mid-end models could have fallen approximately 10% year over year in July. Premium model prices, however, declined only slightly, leaving the blended average selling prices of leading brands broadly stable. The report therefore characterizes the current competition as promotions targeted at specific price bands rather than indiscriminate price cuts across entire product lines, with the premium product mix remaining an important margin buffer. Subsidies remain an important source of demand support, but current consumption does not appear to have been excessively pulled forward. Consumers are relatively rational and increasingly expect subsidies may continue through 2027. This expectation reduces the urgency to purchase immediately and also implies that current policies have not substantially depleted future demand. The main risk is policy dependence in 2027: the expert believes demand could be significantly weaker if subsidies are withdrawn than if they continue. JPMorgan also emphasizes that this is only the expert's channel-level assessment, not its own base-case scenario. Dealer profitability is structurally highly dependent on brand rebates. The expert estimates that the average brand rebates received by dealers nationwide typically account for 10%-18% of sales, while net margins after all costs are only approximately 2%-6%. This means rebates are not an additional reward but a necessary component of the channel's profit model; without rebates, many dealers could incur losses. Brand policies, year-end rebate arrangements, and channel incentives therefore directly affect dealers' capital allocation and sales behavior. The direction of Midea's channel reform is positive, but the competitive transition may cause short-term volatility. Midea is seeking to move away from the traditional model of prepayments and channel loading toward small-batch, rapid-turnover orders and stricter retail sales management. Dealers generally welcome this change because it can reduce working-capital pressure. However, if competitors such as Gree continue to offer aggressive prepayment incentives, dealers may redirect funds toward those brands, creating short-term pressure on Midea's cash collection, shipment momentum, and market share. The expert therefore believes the reform is strategically significant but difficult to execute smoothly during a highly competitive transition year. Xiaomi's long-term threat comes not only from value for money but also from its mindshare among younger consumers. Xiaomi's current impact is mainly concentrated in small appliances; in major appliances, its scale and procurement advantages still lag Midea, Haier, and Gree. However, Xiaomi has strong appeal among younger consumers, particularly Generation Z, due to its design and ecosystem familiarity. As these consumers form households and become the next generation of major-appliance buyers, Xiaomi could become a more significant competitive force over the next 3-5 years.

Analysis framework

Based on an expert interview with a regional retailer, the report first defines the sample's geography, channel, and product positioning, and then assesses demand strength and weather-driven timing mismatches through the annual sales budget and monthly changes. It subsequently compares the breadth of recovery across categories and evaluates channel pressure using inventory, pricing, and product mix. Finally, the report analyzes how policy and brand competition affect cash collection, shipments, and market share through subsidy expectations, dealer rebate economics, Midea's channel reform, and Xiaomi's consumer mindshare. The report explicitly cautions that the sample reflects a regional offline perspective and cannot directly represent the nationwide market.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Combined analysis of demand, inventory, and promotions

  The report places end demand, channel inventory, and manufacturer promotions within the same framework: although demand is weak, inventory has not accumulated excessively and competition remains orderly, so weak demand has not yet triggered large-scale destocking.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Decomposition of volume recovery, price changes, and product mix

  The report separately examines the July rebound in air-conditioner sales volume, the approximately 10% year-over-year price decline for low- and mid-end models, and the price resilience of premium models to show that volume improvement and stable blended average selling prices were driven by different factors.

• Industry/Sector Analysis FrameworkUpstream-Midstream-Downstream Industry Chain Transmission

  Transmission of brand policies to dealer funding and sales behavior

  Through brand rebates, prepayment incentives, and order models, the report explains how manufacturers' policies affect dealer profitability, working-capital allocation, brand shipments, and market share.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Midea

  The shift from prepayments and channel loading toward small-batch, rapid-turnover orders should improve retail sales discipline and reduce dealers' funding pressure.

  Strengths

  The reform direction is recognized by dealers and aims to improve turnover efficiency and the quality of retail sales.

  Weaknesses

  If competitors maintain more aggressive prepayment incentives, the reform may weaken dealers' funding commitment during the transition period.

  Comparison

  Compared with Gree, which may continue using aggressive prepayment incentives, Midea has chosen a channel model with lighter inventory and faster turnover.

  Risks

  It may face short-term pressure on cash collection, shipment momentum, and market share.

• Gree

  Its prepayment incentives may attract greater dealer funding and create competitive pressure on Midea's channel reform.

  Strengths

  Stronger prepayment incentives may secure dealer capital allocation in the short term.

  Comparison

  The report contrasts its potential prepayment strategy with Midea's reform direction of small-batch, rapid-turnover orders.

• Xiaomi

  Its current impact is mainly concentrated in small appliances, but it may expand into the major-appliance market in the future.

  Strengths

  It has mindshare advantages in design and ecosystem among younger consumers, particularly Generation Z.

  Weaknesses

  Its scale and procurement advantages in major appliances still lag Midea, Haier, and Gree.

  Comparison

  Its current competitiveness in major appliances is weaker than that of traditional leaders, but its younger consumer base may reshape the future competitive landscape.

  Risks

  Its long-term competitiveness depends on whether it can convert consumer mindshare into major-appliance purchases over the next 3-5 years.

Key data

• Expert's industry experienceMore than 20 yearsThe expert has extensive experience operating in China's home appliance market.
• Regional coverage13 cities in Shandong ProvinceThe conclusions mainly represent regional offline retail channels.
• Channel structureNearly 100% offline; B2C approximately 95%, B2B property channel approximately 5%The product mix is tilted toward the mid-to-premium segment.
• Annual channel salesApproximately RMB2.8 billion to RMB3.1 billionCovers major brands including Haier, Midea, Gree, Xiaomi, and Hisense.
• Revenue growth budget at the beginning of the year5%-8%The regional retailer's budget at the beginning of the year.
• Current full-year revenue growth expectationApproximately 5%The July rebound in air conditioners helped narrow the gap with the budget, and growth remains ahead of most industry peers.
• Air-conditioner industry inventory levelApproximately 30% as of the end of AugustWithin the normal range and considered the healthiest level in three years.
• Price change for low- and mid-end air conditionersActual prices declined approximately 10% year over year in JulyPremium model prices declined only slightly, leaving the blended average selling prices of leading brands broadly stable.
• Brand rebates as a share of dealer sales10%-18%The expert's estimate of the nationwide dealer average.
• Dealer net marginApproximately 2%-6%This is after all costs, indicating that channel profitability is highly dependent on rebates.
• Potential period of Xiaomi's competitive impactOver the next 3-5 yearsAs younger consumers form households, Xiaomi could pose a more visible threat to major home appliance brands.

Impact & implications

The report believes China's home appliance channels currently resemble an orderly adjustment amid weak demand rather than an impending inventory breakdown or comprehensive price war. The weather-driven rebound in air conditioners can ease growth pressure in 2026, but refrigerators and kitchen appliances remain weak, so a broad recovery cannot yet be confirmed. Brands' premium product mix, rebate policies, and channel reforms will continue to determine blended selling prices, dealer fund flows, and short-term market share. Over the medium to long term, competition will depend on whether Xiaomi can convert its mindshare among younger consumers into major-appliance sales.

Risks

• Overall demand remains weak, while refrigerators and kitchen appliances are underperforming, so the current improvement has not yet developed into a broad demand recovery.
• If subsidies are not extended through 2027, the expert believes demand could be significantly weaker than under a subsidy-continuation scenario, but this is not JPMorgan's base case.
• Dealer profitability is highly dependent on brand rebates; if rebates decline, many dealers may become loss-making.
• Competitors' aggressive prepayment incentives may cause short-term volatility in Midea's cash collection, shipments, and market share during its channel reform.
• Xiaomi's appeal among younger consumers could translate into a more visible competitive threat to major home appliance leaders over the next 3-5 years.

What to watch

• Monitor whether the compensatory air-conditioner demand seen in July can continue and support approximately 5% full-year revenue growth for regional channels.
• Monitor whether the approximately 30% air-conditioner inventory level as of the end of August remains within the normal range through year-end.
• Monitor whether refrigerators and kitchen appliances improve to determine whether the recovery is broadening from air conditioners to more categories.
• Monitor whether subsidies are extended through 2027 and how this affects the timing of consumer purchases.
• Monitor brands' year-end rebates and channel incentive arrangements because they directly affect dealer profitability and capital allocation.
• Monitor cash collection, shipment momentum, and market share during Midea's reform, as well as the prepayment policies of competitors such as Gree.
• Monitor Xiaomi's scale, procurement capabilities, and penetration among young households in major appliances over the next 3-5 years.