China doubles down on trade-ins to boost sluggish consumption

Shanghai — Authorities in China have pledged to “vigorously boost consumption” and “expand domestic demand in all directions” as they seek to cushion the impact of weak external demand amid an escalating global trade war.

While they did not release detailed plans and budgets on Sunday for most of the measures, one exception was a consumer trade-in scheme — a Chinese version of a “cash for clunkers” programme, with officials announcing a considerable expansion of subsidies and the categories of products covered.

Initially, China’s government announced subsidies for eight household products — refrigerators, washing machines, televisions, air conditioners, computers, water heaters, domestic stoves and hoods for range cookers.

Purchasers of these products are eligible for subsidies equivalent to 15%-20% of their sales price, capped at 2,000 yuan (about R5,000) for each item.

Microwave ovens, water purifiers, dishwashers and rice cookers were added to the home appliance trade-in scheme this year, according to a document issued by China’s top state planner and the finance ministry in January.

Cellphones, tablet computers, smartwatches and bracelets under 6,000 yuan could also get 15% subsidies.

Cars are also eligible for the scheme, with subsidies for EVs and plug-in hybrids doubling to 20,000 yuan since first being announced in 2024, and conventional fuel vehicles also eligible for subsidies of up to 15,000 yuan.

Last March, China’s cabinet issued its initial plan to support large-scale equipment upgrades and consumer goods trade-ins, in a bid to boost investment and consumption amid a shaky economic recovery.

In 2024, 150-billion yuan in ultra-long treasury bonds were allocated to support trade-ins of consumer goods, effectively providing the funds to cash-strapped local governments to subsidise consumers.

In most cases, the subsidies are applied at the checkout when consumers buy eligible products.

During the annual meeting of China’s parliament earlier this month, plans were announced to double the government’s investment in the programme to 300bn yuan ($41.45bn) this year.

The trade-in scheme boosted last year’s consumption growth by more than 1 percentage point, vice-commerce minister Sheng Qiuping said at a news conference in January.

The campaign resulted in 920bn yuan in auto sales and 240bn yuan of home appliance sales in 2024, Li Gang, an official from the commerce ministry, said at a press conference.

Data released on Monday showed retail sales rose 4.0% in January-February, compared with 3.7% in December. In 2024, China’s retail sales grew 3.5% year-on-year.

While trade-in programmes encourage households to spend more in the short-term, they can also ultimately reduce expenses on unsubsidised goods and services, analysts and economists say.

They can also cut into future spending as consumers may not replace their cars and appliances for several years.

“It could be harmful from the perspective of a five-to-six-year cycle,” said Xing Zhaopeng, ANZ’s senior China strategist.

Reuters