Chinese consumer products trade-in program put consumption growth on faster track

Chinese consumer market growth has underperformed since the reopening in 2023, but there was some improvement in the second half of 2024 thanks to the consumer goods trade-in program. This policy is likely to continue, with the aim of building on its success in 2024, expanding in terms of subsidized percentages, consumer products categories and the population coverage.

• In March 2024, the State Council issued the “Action Plan for Promoting Large-scale Equipment Renewal and Consumer Goods Trade-in”, which proposed the implementation of a consumer goods trade-in program, including the trade-in of automobiles and household appliances and encouraged other home renovations.
• In July, the National Development and Reform Commission and the Ministry of Finance issued detailed instruction policies in three aspects: total funds, capital structure and subsidy scope, and arranged about 150 billion yuan of ultra-long-term special treasury bond funds to support this program.

Data from the Ministry of Commerce as of December 13, 2024, shows that:

• The sales of passenger cars driven by car trade-in program exceeded 5.2 million units, of which more than 2.51 million were scrapped and renewed, and more than 2.72 million were replaced.
• The trade-in of household appliances drove sales in eight categories of products (refrigerators, washing machines, TVs, air conditioners, computers, water heaters, household stoves and kitchen hoods) to exceed 49 million units.
• The “renewal” of home decor, kitchens and bathrooms has increased sales of related products to exceed 51 million pieces.
• Electric bicycle trade-ins drove sales of nearly 900,000 new e-bikes and scooters.

In October 2024, the policy’s effects and its release of pent-up consumption accelerated. It took 79 days for national household appliance trade-in sales to exceed 100 billion yuan, but only 40 days to increase from 100 billion yuan in sales to 200 billion yuan.

• The year-on-year growth in household appliance consumption in October and November was 39.2% and 22.2% respectively, significantly faster than the growth rate in the first three quarters (4.4%) and the growth rate in 2023 (0.3% and 0.6%).
• Year-on-year growth in automobile consumption in October and November was 3.7% and 6.6%, respectively, which was also significantly faster than the growth rate in the first three quarters (-2.1%).

Although the current trade-in policy for consumer goods was launched in March 2024, it had little impact initially due to the lack of support funds in the early stages and financial pressures on local governments. The timing for large-scale promotion and major effects from the policy was mainly seen after September. There is still plenty of room for improvement in 2025 in terms of extending the subsidy time frame, increasing financial support, expanding the list of subsidized goods and relaxing the threshold for enterprise participation, especially when considering that Chinese exports will be facing greater pressure under the Trump administration and that it will take time for the real estate market to stabilize.

The current round of government subsidies for the trade-in program has almost been exhausted, but the central government has reiterated its intent to continue this policy in 2025 with a higher fund pool from the new issuance of special government bonds and wider coverage of products categories and provinces involved. Apart from this program, the Central Economic Work Conference in December has given other relatively specific arrangements to boost consumption in 2025, with detailed policies possibly to be announced during the “Two Sessions” in March, including:

• increasing incomes and reducing the burden of low- and middle-income groups, and improving consumption willingness and capacity.
• raising the social safety net, including pensions and financial subsidies for medical insurance for urban and rural residents.
• innovating diversified consumption scenarios in service consumption, and promoting the development of cultural tourism.
• developing the emerging economy, the ice and snow industry, and the elder-group economy.

Although in our experience there will be some lag in detailed policies, we expect that the scale and scope of the ultra-long-term special treasury bonds used to subsidize the new stimulus will be expanded in 2025 or even possibly 2026 as well.

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