KUNMING - Multinational electronics manufacturer Hon Hai Precision Industry Co is investing one billion yuan ($152 million) to open a CyberMart-branded store in Kunming to test the water in digital retailing.

The company signed a contract with the city government on Thursday to open a 17,500-square-meter store in 2012 in the capital of Southwest China's Yunnan province.

"Demand for digital products is expected to rise in Kunming because per capita purchasing power has gradually risen in the city over the past few years," said Terry Guo, founder and owner of Hon Hai Precision Industry.

The individual annual disposable income of Kunming residents reached 20,000 yuan ($3,041) in 2010, according to the city government. The Kunming-based Spring City Evening News has reported that gross incomes could increase by 10 percent annually in the next five years.

CyberMart International, a digital products retailer that Hon Hai established in 1999, is to be the vehicle for Hon Hai's transformation from a manufacturer to a company operating over the whole electronics business chain, insiders said. CyberMart operates more than 30 branded-stores around China.

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But experts have expressed doubts about Hon Hai's prospects in electronics retail, especially in an area where Gome Electrical Appliance Holdings Ltd and Suning Appliance Co Ltd dominate the market share.

Cao Fei, an analyst from Analysys International, was quoted by the Southern Metropolis Weekly as saying that Hon Hai will have difficulty growing quickly as a retail chain operator because it lacks retail experience.

CyberMart, Gome and Sunning "have their unique features", said Chen Can, an analyst from Analysys International.

"Hon Hai can support CyberMart and it has control over the manufacturing. Their targeted customers are well defined and they can develop products to suit consumers' needs," she said. "Gome and Sunning have control over the product suppliers, so they can expand quickly, even if the profit margin is not high."

The Party Secretary of Kunming Qiu He said he hopes the presence of CyberMart will promote the development of the electronic retail industry in the city and that more companies will invest.

BuyNow, another electronics retailer, has plans to open a store in Kunming with annual sales of 1.5 billion yuan.