China’s economy has faced several challenges in recent years, including the trade war in 2018, the real estate turndown in 2021, and, most severely, the COVID-19 pandemic. Although China’s GDP grew 5.2% in 2023, reflecting a strong post-COVID rebound and exceeding the 5% target set during the 2023 Two Sessions, the post-pandemic economic recovery is encountering some obstacles. In response, China’s Central Economic Work Conference, held on December 21st, 2023, outlined 9 key priorities. The second priority is placed on boosting domestic demand by stimulating potential consumption and increasing effective investment. This includes raising standards for technology, energy consumption, and emissions to drive large-scale equipment upgrades and trade-in programs for consumer goods.

In March, the Action Plan to Promote Large-scale Equipment Upgrades and Trade-in of Consumer Goods was issued, which emphasized taking action in 4 key areas: equipment renewal, trade-in of consumer goods, recycling, and standardization. Subsequently, several supporting policies have been released since April to provide more specific targets and deploy more detailed tasks to achieve the targets proposed in this Action Plan. As introduced by Zhao Chenxin, the Vice Chairman of the NDRC, in a press conference, China has achieved some progress in these 4 key areas. In the first half of this year, national investment in the purchase of equipment and tools increased by 17.3%. Meanwhile, the retail sales of home appliances and audiovisual equipment (merely included sales at retail enterprises with annual main business revenues of 5 million CNY or more) increased by 3.1%, accelerating by 2.1% compared to the same period last year. In terms of recycling, 3,160 new smart community recycling facilities have been added nationwide, and the volume of motor vehicle recycling reached 3.074 million units, marking a 24.8% year-on-year increase. 55 standards in key areas such as equipment energy efficiency and electric vehicles have already been published.

Despite these achievements, the implementation of these policies has faced several challenges. First, the economic incentives provided were not attractive. For small and medium-sized enterprises, equipment renewal requires substantial investment and may disrupt normal production, causing additional losses. Meanwhile, individual consumers that plan to purchase new appliances such as washing machines and refrigerators were offered only a 10% discount. Similarly, those who want to buy new electric vehicles received a subsidy of 10,000 CNY, merely 10% of less of the cost of the cheapest ones. Second, the trade-in restrictions for some products were too strict. In the automotive sector, it was estimated that only 113,000 vehicles met the subsidy requirements by June 25th, while the monthly car sales in China usually exceed 2 million. Third, local governments were expected to provide some subsidies in addition to those from the central government, while some of them were unable to do so due to significant economic pressures.

Consequently, The NDRC and MoF issued the Several Measures to Enhance Support for Large-scale Equipment Renewal and Trade-in of Consumer Goods on July 24th. Some key measures include: (1) allocate 300 billion CNY in ultra-long treasury bonds, with half directly distributed to local governments; (2) increase subsidies, e.g. provide a 15-20% discount for home appliance trade-ins; (3) lower and simplify application requirements and processes, for example, the requirement for a total investment exceeding 100 million CNY has been removed to encourage small and medium-sized enterprises to apply for subsidies for large-scale equipment renewal (4) expand coverage to include more types of large-scale equipment and consumer goods, such as aging elevators and electric bicycles.

In general, this policy primarily focuses on providing fiscal incentives but lacks measures to address other significant challenges. For instance, many companies may struggle with the adoption and effective use of high-end equipment, indicating a need for additional technical support and training. Additionally, this new policy seems insufficient to support the development of the waste recycling system. It merely mentions an allocation of 7.5 billion CNY for recycling waste electrical and electronic products. However, consumer reluctance to purchase new goods is also influenced by the challenges associated with disposing of old ones. The absence of unified pricing standards for old smart appliances, inefficient door-to-door recycling collection services, and high logistics costs for large items result in the low prices of second-hand goods. Some citizens have also complained about the difficulties in finding nearby recycling stations. Furthermore, as this policy aims to increase subsidies to boost demand, there are concerns that it may lead to overextend future consumption or higher precautionary savings, affecting the long-term effectiveness of this round of trade-in.