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In a rare and unexpected move, China's state planning agency announced it will utilize long-term treasury bonds to fund a consumer trade-in program. The agency will allocate approximately CNY 150 billion ($20.7 billion) from the CNY 1 trillion raised through special debt issuance this year to subsidize the replacement of household appliances, cars, bicycles, and other items, according to Reuters.

Individual consumers will be provided with trade-in subsidies for eight types of household appliances, including refrigerators, washing machines, televisions, air conditioners, computers, water heaters, household stoves, and range hoods, all of which must meet energy efficiency or water efficiency standards of level 2 or above. The subsidy will cover 15% of the product's sales price, with an additional 5% subsidy for products meeting level 1 energy or water efficiency standards.

While the CNY 150 billion allocation represents 0.12% of China's economic output and 0.3% of retail sales in 2023, experts caution that this amount is insufficient to significantly shift the economy towards consumption.

“But this is an important change. The most striking problem facing the economy is weak demand, so expanding domestic demand will become a more significant policy option,” commented one analyst.

The announcement has generated mixed reactions. Some view it as a necessary intervention to stimulate the sluggish economy, while others express skepticism about its potential impact given the relatively small scale of the funds allocated.

Economists predict that additional stimulus measures could be announced during a Politburo meeting later this month if economic growth continues to lag. This move underscores the government’s recognition of weak domestic demand as a critical issue and its willingness to explore unconventional methods to address it.

Written by: Rochelle Nguyen

Country
China