2019 China Heating Market Dynamics

China has by far the largest heating market in the world in terms of units manufactured and sold. In 2019, a little over 40,000,000 units, including, boilers, water heaters and heat pumps, were sold in China. The country also has the world’s largest network of pipes supplying gas for heating systems. China has been developing its gas network very actively over the last years and consequently the country’s total building area covered by gas pipework has more than doubled in the past 15 years. Growing accessibility of gas across the country, coupled with government’s efforts to tackle air pollution and green house gas emissions underlines the potential for continuous growth of heating in the country. To give it some perspective, the sales of gas domestic boilers have grown 10-fold in the last 11 years.

 

boilers6

Source:  BSRIA

 

Today, the heating market is shaped by three areas of sales impact, each having its own dynamic:

  1. Government policy represented mainly by “Coal to gas” and “Coal to electricity” projects

Coupled with expansion of the gas network, stronger governance, better product quality and more competitive gas prices this policy is continuing to strongly impact sales of gas fuelled products, in line with the Chinese government’s 5-year plan (2016-2020 – 3th 5-year plan.

The policy has also a strong impact on the progression of the heat pump market, mainly for water heating, although growth of heat pumps for both, heating and hot water provision has also grown in the recent years.

Compared with the vigorous “coal-to-gas” and “coal-to-electricity” projects in the domestic market, commercial boilers have higher requirements for large-scale, stable and constant fuel supply and corresponding infrastructure construction, which makes the transition from coal to cleaner energy more difficult. Nevertheless, a moderate growth was also seen in the commercial gas boiler and commercial heat pump markets.

  1. Regular project market (new build)

New build is currently driving sales of heating products thanks to the existing pre-decoration policy, which is currently supported by local government to deliver fully fitted buildings, with operational heating systems installed.

The importance of the new build market is significant in China as it delivered sales of some 1.5 million gas boilers and over 900 thousand heat pumps to the new residential dwellings.

  1. Retail market (replacement and high-end new build)

Retail distribution chain has a strong impact on sales of all heating products as it is the most common place of provision of products for clients. Those replacing old, inefficient appliances or willing to install the appliances of their own choice in the newly acquired dwellings source them in retail shops. This market is very sensitive to economic situation and changes quickly depending on the consumer confidence level. It represents a large opportunity as there are millions of heating systems in China, which are older than 10 years – the time after which replacement is normally considered. Similarly, in many new houses owners opt to have better quality heat systems than those installed by the contractor as part of the pre-decoration policy.

With regards to district heating, the market has accelerated in recent years as policies to deal with air quality have been promoted and investments have been made. There are currently more than 400 projects underway and nearly 100 enterprises engaged. The industry generally believes that the development of smart district heating projects opens attractive strategic opportunities.

However, China is in a period of low economic growth and dealing with the aftermath of COVID-19 implications. Both will have an impact on the performance of the country’s heating product sales this year.

BSRIA is preparing the updated view on 2020 market performance and short term forecast for boilers and heat pump markets that will be available in September 2020.


By Socrates Christidis, Research Manager Heating & Renewables,

BSRIA, World Wide Market Intelligence


Notes to editors:
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Thoughts on the COVID-19 impact on China’s HVAC industry

by Martin Li, BSRIA APAC

Some economic background data

After carrying out many conservative policies like Complete City Lock-down, China has started to recover from the COVID-19 related downturn. The economy has been opening since late March 2020 and is in wider re-opening stage by May 2020.

In the first two months of 2020, China’s total import and export value of goods trade reached 4.12 trillion RMB, a decrease of 9.6% comparing with the same period last year, with export, experiencing a particularly bad fall by 15.9%.

According to the latest statistics, both Manufacturing and non-Manufacturing PMIs slid down to the range far below 50% in February 2020, with 35.7% for manufacturing sector and 29.6% for non-manufacturing one. Manufacturing sector has been hit hard, and the central government is mobilizing companies returning to production to catch up with delays as soon as possible.

Construction industry represents a more mixed picture. According to Xinhua Finance, the total sales of residential housing by Top 100 developers dropped by 20.7% under the influence of the pandemic, but 24 among them, have achieved over 10 billion RMB sales, indicating that the competitive environment is going to become more concentrated in the coming months.. Another set of data from KERUIRC in its research on 27 Key Cities showed a decline of sales by 80%, and half of the cities in the sample pool supplied no new housing in February 2020.

2020 Prospects for China’s HVAC industry

Different impact in residential and commercial segment

Both global and domestic demand have fallen significantly in the first quarter of the year. Under severe lockdown rules, sales, installation, or integration work were not allowed and according to CICC, in January 2020, the entire domestic and overseas sales of AC fell by 34% and 28% respectively. The situation worsened in February and March, but the visible recovery has been noted in May.

Similar situation has been recorded in the domestic boiler market where during the first quarter 2020, sales remained heavily subdued with slow recovery noted from the April. Overall Chinese domestic heating sector shrank by 60% in the first quarter of the year.

HVAC products, like RAC-CAC or wall-hung boilers, belong to the “must have” category of products, hence market demand for those has mostly shifted and is expected to “make up”, in the coming months, for lost sales in the first quarter of the year. The whole year performance is expected to come close to the 2019’s sales levels, with the caveat, that there will be no second wave of the virus outbreak.

Commercial AC and Commercial/Industrial heating sectors have not been so severely affected by the pandemic, with many companies reporting successful achievement of their Q1 budget.

Strategic changes related to the offering and distribution business models

This pandemic seems to have forced transformation of conventional business activities. Owners of physical stores and off-line distributors have become acutely aware of the weakness of their business model. Many are now in the process of moving their operation to on-line platforms, which is likely to also accelerate their embrace of the global e-commerce.

From a product mix point of view, companies have become more aware of the importance of the variety of product offer and disadvantages of concentrating on sales of one product family type. An integrated shop/store, selling the idea of Comfort Home with a bunch of products delivering what is ultimately needed by the end user is expected to become a mainstream ideology. Integrating sales of Water, Air, Heating, Automation and Smart systems is where the industrial consensus is heading after the pandemic.

In summary, assuming the outbreak of COVID-19 can be contained and will not reappear in China, its impact on sales levels will possibly be limited in the overall year perspective. However, when debt, assets holding costs and opportunity costs will be considered, HVAC business owners will be looking for more options to mitigate unforeseeable risks in the future. In the short term some distribution and offering trends that have started to emerge before the pandemic will accelerate. In the longer-term higher market integration is likely.

Note to editors:

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Domestic boiler market grew again in 2019

 

While cooling is often mentioned in the context of the impact climate change might have on its rising demand and consequently on the energy demand that growth in cooling need is likely to cause, heating is often somewhat neglected in global discussions on changes that are needed to reduce the CO2 emission levels.

It is therefore worth having a closer look at the global heating markets performance as it provides a picture worth considering in further discussions about the net 0 Carbon future.

The latest release of BSRIA heating reports with global outreach reveals that the world domestic boiler market has grown by 6% year on year in 2019 and sales of non-condensing boilers accounted for 48% of total sales across the world.

 

condensing boilers
While condensing boilers dominate in the EU markets and are making stronger inroads in Turkey and the North American market, the non-condensing wall hung and floor standing boilers are prevalently sold in European countries outside the EU and across Asia.

Gas boilers, that account for the vast majority of sales worldwide, are still considered as good news in parts of the world, where coal has been a basic heating fuel not that long ago. Gas prices, that, with few exceptions, are usually lower than the price of electricity, help retaining consumers.

Out of the total of some 15.6 million units sold globally, 68% are sold as replacement of older units and 32% are still installed in the newly build dwellings.

Boilers are usually installed to provide both heating and domestic hot water – such units accounted for some 83% of the global market in 2019. They are a convenient solution for both, end users and installers.

So, what does the future hold for this market segment? Technologies that could displace boilers in homes are already available (heat pumps) and in some parts of the world policies are providing strong support for their uptake. Overall, heat pumps accounted for some 19% of the domestic heating market globally.

Research and development are intensifying to roll out green gas solutions, that includes the use of biogas and hydrogen, with some serious challenges still to overcome.

With strong regional differences in future performance, BSRIA has forecasted the overall global boiler market to remain broadly flat between 2019 and 2024, before taking the impact of COVID-19 pandemic into consideration. The latter is likely to cause strong disruption in 2020 which will be assessed by BSRIA team later in the year.

BSRIA global research programme on domestic and commercial boiler markets allows for analysis of the market dynamics on a global, regional and country levels, with country in-depth analysis available to support more strategic decision taking process.

The studies provide a full understanding of the latest market trends in terms of sales development by product type, price evolution, structure of the supply, long-term forecast and analysis of driving forces.

By Aline Breslauer, Research Consultant, BSRIA WMI.

 

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