Gome Electrical Appliances Holding Ltd., China's largest household appliance retailer, has launched its installment plan at its 330 stores in 88 cities across the country.

Gome has been testing the installment plan in 11 cities, including Beijing, Shanghai, Tianjin, Guangzhou and Shenzhen, since May. About 25,000 customers have bought household appliances worth about 150 million yuan (US$16.5 million) on installments from the company's chain stores. The sales on installment accounted for about 5 percent of Gome's total sales in those 11 cities during the past four months, said Ding Donghua, vice director of Gome's financial center.

According to an agreement Gome signed last week with China Merchants Bank and CITIC Industrial Bank, credit card holders of both lenders can buy household appliances worth more than 3,000 yuan apiece on the installment scheme.

Customers will pay for goods, worth between 3,000 and 50,000 yuan, on installment schemes of either six months' or 12 months' duration without paying any interest. The banks will charge a commission of 350 yuan for goods worth more than 6,000 yuan, and carrying a payment term of 12 months. But goods worth between 3,000 and 6,000 yuan can be bought only on installment schemes of six months' duration.

"As for installments, our target customers are mainly young people such as college students and those who have just bought their apartments," said a spokesman in Gome's Shenzhen office.

Zhou Yafei, director of Gome's financial center, expected the installment scheme to boost sales of household appliances, which, he said, is expected to reach more than 20 billion yuan in the second half of this year. But in Shenzhen, Gome’s main rivals Sundan and Suning showed little interest in following suit. Both Sundan and Suning said customers in Shenzhen had a great deal of purchasing power and did not need any installment scheme.

"Our target customers are from the middle and higher classes. Installment means nothing to them. We had introduced installment schemes before, but few of our customers showed interest in it and we are not considering launching installment in the near future," said a Sundan spokesman.

The idea of using mortgages in home and consumer goods purchase had been a complete novelty in China before 1998, though it started to gain wide popularity in the 1980s in the West. Personal mortgage loans in China have totaled 2 trillion yuan, accounting for 10 percent of the country's bank loans, according to official figures.

Most Chinese, however, mainly use installments in the purchase of properties and vehicles rather than household appliances. Several years ago, household appliances industry tried to offer installment schemes, but it got a lukewarm response from customers because of its complicated procedures.

"The promotion of installments can bring benefits to both Gome and the two banks," said Lu Renbo, vice director of market consulting center in Development Research Center of the State Council.

(Shenzhen Daily September 7, 2005)