Despite doubling down, China’s trade-in push may offer only a short-term lift to consumption. One analyst likened it to “getting the bonfire to burn with wood that is really wet”.
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25 Mar 2025 06:01AM (Updated: 25 Mar 2025 10:11AM)
SINGAPORE: Zhu Nan had been riding his trusty electric bike for more than five years, clinging to it even as its frame flaked with rust and battery wheezed through each ride.
Wear and tear was a problem, the 25-year-old Shanghai resident said – but what ultimately swayed him to upgrade was an official consumer goods trade-in programme he had recently heard about on TV.
A brand new e-bike would cost around 3,000 yuan (US$413), Zhu said, but under the scheme, he received a substantial discount of 1,000 yuan.
“This economic stimulation programme is literally giving money to us,” Zhu said.
“So I thought, why not take the chance and say goodbye to something I want to renew?”
HUGE NATIONWIDE PUSH
In a bid to bolster spending and revive its recovering economy, China launched an official consumer goods trade-in programme in March 2024 – a nationwide scheme encouraging its citizens to exchange their used electronics and household products like washing machines and refrigerators for discounts and rebates on new ones.
Chinese officials say the initiative has worked in boosting consumption significantly, generating 920 billion yuan in automobile sales and 240 billion yuan in appliance sales in 2024.
Equipment purchases also rose 15.7 per cent during that period while retail sales of home appliances increased 12.3 per cent.
The government is doubling down.
On Mar 16, it announced an expanded “Special Action Plan to Boost Consumption”, backing this year’s programme with 300 billion yuan in funding from ultra-long special treasury bonds – twice as much as last year.
The scheme has also expanded to include smartphones, tablets, smartwatches and bracelets under 6,000 yuan – which could be eligible for subsidies of up to 15 per cent.
And officials say early results have been promising.
In the first two months of this year, retail sales of new energy passenger vehicles nationwide reached about 1.34 million units, and sales revenue for home appliances meeting primary energy efficiency standards reached 24.1 billion yuan – up 26 per cent and 36 per cent year-on-year, respectively.
This year’s policy “has been both strengthened and broadened”, said Li Chunlin, vice chairman of the National Development and Reform Commission (NDRC), at a press conference in Beijing on Mar 17.
Since early January, the first batch of funds worth 81 billion yuan, has already been distributed to local governments to help coordinate their efforts, Li said.
But he adds that there is still “considerable work to be done to stimulate consumption, expand domestic demand, and better meet the people’s aspiration for a better life”.
Questions also remain over whether these government subsidies can genuinely revive consumer spending – or if they are simply frontloading future consumption.
“I think it’s one step that can create some spending, but (as presented) in the special action plan, they also need to improve incomes, transfers, get more money in the pockets of the Chinese through child care subsidies and other kinds of things,” said Allan von Mehren, chief analyst and China economist at Danske Bank.
“So it has to also be seen in a bigger picture, one tool (to boost consumption) in a toolbox out of many.”
TRADE-IN SCHEME TAKES OFF
First-tier Chinese cities such as Beijing and Shanghai launched early comprehensive campaigns to get consumers to trade in their old and used products.
Partnering with e-commerce giants like JD.com and Tmall, Beijing raised auto subsidies to 20,000 yuan for new energy vehicles (NEVs) and 15,000 yuan for fuel-efficient cars.
In Shanghai, targeted incentives included subsidies of 15,000 yuan for electric vehicles during promotional periods.
Quasi-first-tier cities like Hangzhou and Chengdu enhanced provincial incentives. Hangzhou provided digital coupons of up to 20 per cent off energy-efficient appliances, capped at 16,000 yuan per household.
Officials in the eastern Zhejiang province introduced tiered vehicle subsidies, significantly broadening consumer eligibility.
Third and fourth-tier cities including Luoyang in Henan province and Yichun in Jiangxi, prioritised essentials like refrigerators, washing machines, and older vehicles.
For scores of consumers in rural provinces, grassroots trade-in fairs and rebates at local stores were implemented.
Experts have noted various challenges, such as uneven implementation across China’s vast cities and provinces.
“In China, there is always a challenge to really get the implementation and get it all the way through,” von Mehren said, highlighting concerns over potential corruption and regional disparities that would impact the overall programme.
“There is some uncertainty around how much does it actually filter through, and does it filter through equally in all areas,” he added.
On Mar 17, China’s National Bureau of Statistics reported a modest but noteworthy four per cent year-on-year growth in retail sales for January and February.
Analysts, however, say it still falls short of forecasts and highlights the lingering challenge of truly invigorating domestic consumption.
“Four per cent is not really enough for consumption to really be a growth engine in China,” said von Mehren, who acknowledged short-term gains but also expressed doubts about their durability.
He argued that consumer confidence remains subdued, partly due to a sluggish housing market especially in lower-tier Chinese cities. “It still seems that consumers are cautious (and) holding back a bit.”
“SAVING MONEY IS THE MOST IMPORTANT THING”
But on the ground, consumer sentiment about the trade-in programme remains mixed.
While delighted with his new e-bike, Zhu sees the subsidy as a temporary opportunity rather than a lasting catalyst.
“I have felt tangible benefits and a sense of novelty,” Zhu said.
“This policy made me taste some sweetness, but I won’t change my spending habits,” Zhu added. “I’m still going to follow my parents’ ‘save as u can’ habit.”
Emma Fang, a 21-year-old student in Beijing, agrees that “saving money is the most important thing”.
While tempted by the programme’s generous subsidies, she instead opted to repair her existing iPhone 13 by replacing its broken screen, spending just 340 yuan instead of trading it in.
But she says the national subsidies still offer substantial value. “The lure is still quite enticing … (and) can certainly drive consumption.”
There are green perks too, especially among eco-conscious younger Gen Z consumers, Fang adds.
“Trading in old items allows idle equipment to be reused and repurposed … knowing that you are contributing to environmental protection.”
TEMPORARY BOOST OR SUSTAINABLE GROWTH?
Huang Tianlei, a research fellow at the Peterson Institute for International Economics, argues that China’s consumer trade-in programme merely provides a temporary boost.
“It’s just front-loading future consumption,” Huang told CNA. “It is simply buying policymakers more time until they can find more sustainable and structural ways to permanently raise private consumption.”
He also stressed the need for structural reforms to raise household incomes and lower precautionary savings, noting a key shift in mindset among policymakers during this year’s Two Sessions – “investing in people” rather than just infrastructure.
“(The Chinese government) now understands the importance of investing more in people in raising domestic demand, especially consumption and rebalancing the economy.”
“This mindset shift will probably take time to translate into more concrete measures,” he added.
Current stimulus measures, while positive, still aren’t sufficient to instil lasting confidence, von Mehren said, stressing the need for broader reforms in areas like housing and welfare policies.
“The goal is to have this measure together with many other measures … Eventually, you don’t need all these subsidies because (the nation will see) a better job market and more optimism back in Chinese society.”
While the government has been careful to avoid fostering dependency on handouts, China is “far from welfarism”, von Mehren says and believes it could afford to be “a bit bolder” in spending on welfare.
“They need to move towards another point where they have a little more welfare so that people can start spending more of their own money and (China) can have a more consumer-driven economy.”
“My concern is still that they do many of the right things, but that it’s not big enough,” von Mehren added, likening the current stimulus to “getting the bonfire to burn with wood that is really wet” – requiring more substantial interventions to ignite lasting economic revival.
“There are some signs that things are moving in the right direction. But it’s still too early to say if we are really at a turning point.”
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