China has expanded a program to subsidize consumers who trade in old appliances such as air conditioners and washing machines as policymakers seek to curb weak spending in the world’s second-largest economy.
The policy initiative, which was launched last year to encourage purchases of cars and home appliances, will now also include microwave ovens, rice cookers, dishwashers and water purifiers, as well as smartphones and tablets costing less than Rmb6,000.
Consumers who trade in old goods will receive subsidies of 15-20 percent, the National Commission for Development and Reforms, Chinastate planner, told a press conference Wednesday in Beijing, where a finance ministry official said Rmb81 billion ($11 billion) would be allocated to the program in 2025.
The expansion of the scheme follows calls for Beijing to do more to support consumer spending as growth momentum has slowed and a weak property sector continues to weigh on consumer and investor confidence.
The government is “thinking about consumption and encouraging consumption,” said Hui Shan, chief China economist at Goldman Sachs, who added that the scheme had a “pretty clear impact” on sales volumes.
“The negative side of such a policy is that you are only withdrawing future demand,” she added. “If I’m going to replace my air conditioner every 10 years, [you’re] pull the next few years of demand into now.”
The trade-in scheme was originally launched last March with echoes of former US President Barack Obama’s “cash for jingle” initiative, which allowed consumers to trade in old cars for new ones after the 2008 global financial crisis. Officials said the 2024 budget of 150 billion Rmb, financed by special government bonds, was spent by the end of the year.
The Ministry of Commerce said that 36 million consumers used the scheme last year to buy home appliances worth Rmb240 billion, and that it led to car sales of Rmb920 billion.
In addition to household appliances and cars, the program also aimed to encourage companies to modernize industrial equipment and agricultural machinery.
Last month, the National Bureau of Statistics said retail sales in November were boosted by the program, citing a 22 percent year-on-year increase in sales of home appliances and audiovisual products such as televisions. Sales of construction and decorative materials, also included in the program, became positive for the first time since April.
But overall retail sales rose just 3 percent in November, below expectations rekindling concerns on the pace of consumption growth, while real estate data showed the largest year-on-year decline in new home prices since 2015 and a deepening decline in real estate investment.
China last September initiated measures to support stocks and the housing market, where sales have struggled to recover against the backdrop of a years-long housing slowdown. The authorities have also launched similar “replace old with new” programs for housing.
Last month, President Xi Jinping promised “vigorous” efforts to strengthen consumer demand this year.
Frederic Neumann, chief Asia economist at HSBC, said most analysts saw the swap programs as useful for building confidence in the short term, but suggested China needed more policies that promoted spending on a more sustainable basis.
Additional reporting by Wang Xueqiao in Shanghai
