China is expanding its consumer trade-in scheme to revive demand in the sluggish domestic sector. The move includes adding more home appliances to the list of products eligible for trade-in and offering subsidies for digital goods. Microwave ovens, water purifiers, dish-washing machines and rice cookers are among the new ones added to the scheme.
Consumers trading in old goods will get a subsidy of 15-20%. Cellphones, tablet computers, smart watches and bracelets priced below 6,000 yuan will also be eligible for a 15% subsidy. The government has allocated 81 billion yuan ($11 billion) for the program through 2025.
The trade-in scheme was initially launched last March, with a budget of 150 billion yuan financed through special government bonds. The program was used by 36 million consumers to purchase home appliances worth 240 billion yuan, generating car sales of 920 billion yuan.
China’s top economic planning body said the plans have already made a “visible impact” in boosting consumer spending. However, some economists have questioned whether these plans will be enough to significantly increase consumer demand.
“The downside of such a policy is that you are only pushing future demand forward,” said Hui Shan, chief China economist at Goldman Sachs. “If I’m going to replace my air conditioner once every 10 years, (you’re) pulling the next few years of demand into right now.”
The trade-in scheme is also reminiscent of former US President Barack Obama’s “Cash for Clunkers” initiative, through which consumers could trade used cars for new ones following the 2008 global financial crisis.
However, HSBC chief Asia economist Frederick Newman said such trade-in programs are only helpful for short-term goals and said China would need more policies that would support consumption for a sustainable shift.
The expansion of the trade-in scheme comes as China faces challenges such as weak consumer demand and a deepening asset crisis. In December, a key meeting of China’s leaders stressed the need for “vigorous” efforts to boost consumer spending. China is due to announce its 2024 economic growth figures next week, which Beijing expects to be around 5%.
