China expands consumer trade-in programme to revive consumer spending

With billions in subsidies, the initiative aims to attract new consumers, but experts are divided on whether it will drive lasting change or just provide a short-term economic boost

In an effort to spark economic recovery and revive consumer spending, China is ramping up its consumer trade-in programme, which is already showing results. As part of a broader strategy to combat sluggish demand in Chinese households, the government is expanding the list of eligible products for trade-in, including home appliances and digital gadgets, NDTV reported.

 

With billions of yuan set aside for subsidies, this initiative is poised to bring new consumers into the market. However, while the programme has generated enthusiasm, experts are divided over whether it will produce lasting change or simply offer a short-term boost.

 

The expansion will include a broader range of home appliances eligible for trade-ins and subsidies for digital products. New items such as microwave ovens, water purifiers, dishwashers, and rice cookers have been added to the list of eligible products.

Subsidies and eligible products

Consumers participating in the scheme can receive subsidies ranging from 15 per cent to 20 per cent for trading in old items. Digital products, including cell phones, tablets, smartwatches, and fitness bracelets priced under 6,000 yuan, will also be eligible for a 15 per cent subsidy. The government has earmarked 81 billion yuan ($11 billion) for the programme in 2025, the NDTV report mentioned.

 

Originally launched in March 2024 with a budget of 150 billion yuan funded by special government bonds, the scheme was embraced by 36 million consumers. It resulted in 240 billion yuan worth of home appliance purchases and contributed to 920 billion yuan in car sales.

 

While China’s top economic planning body has reported positive results from the programme, including increased consumer spending, some economists remain skeptical. Goldman Sachs’ Chief China Economist, Hui Shan, warned that the policy could only ‘pull forward future demand’, meaning it may not lead to sustainable long-term demand increases, the news report said.

Short-term boost, long-term uncertainty

The trade-in scheme shares similarities with former US President Barack Obama’s ‘Cash for Clunkers’ programme, which allowed consumers to exchange old cars for new ones following the 2008 global financial crisis. However, experts like Frederic Neumann, Chief Asia Economist at HSBC, argue that while such trade-in initiatives may provide short-term benefits, they are insufficient for driving long-term consumption growth, as reported by NDTV.

Economic challenges

The expansion of the trade-in programme comes as China grapples with weak consumer demand and an ongoing property crisis. In December, China’s leadership emphasised the need for vigorous actions to boost consumer spending. As China prepares to release its 2024 economic growth figures next week, the government anticipates a growth rate of around 5 per cent, the news report mentioned.