Steps to Boost Domestic Demand in China

A car that is part of the trade-in program attracts potential buyers during an expo in Nanning, Guangxi Zhuang autonomous region. (PENG HUAN/FOR CHINA DAILY)

China is implementing stronger measures to enhance equipment upgrades and encourage consumer goods trade-ins. These steps are vital as the country seeks to increase domestic demand amidst both domestic and international challenges, according to officials and experts.

Significant funding from ultra-long-term treasury bonds and an expanded list of items eligible for trade-in will spur investments in businesses and stimulate consumption, allowing more households and enterprises to benefit. This approach is expected to provide a necessary boost to the country's economic recovery.

Past experiences suggest that these initiatives effectively drive consumer demand and investment growth while aiding industrial upgrades. Zhao Chenxin, deputy head of the National Development and Reform Commission, highlighted this during a news conference in Beijing.

In 2024, retail sales of new energy passenger vehicles reached 11 million units, while upgrades in critical equipment areas are predicted to surpass 20 million units, as reported by the commission, the top economic regulator.

With the return of US president-elect Donald Trump, who has indicated a potential increase in tariffs on Chinese goods, China aims to bolster domestic demand to offset potential external shocks, remarked Zhang Yongjun, secretary-general of the China Center for International Economic Exchanges.

"Enhancing domestic demand is more than just a response to immediate issues; it lays the groundwork for China's ongoing development and modernization goals," stated Zhang, emphasizing the significance of these initiatives.

This year, China has expanded its equipment upgrade program, focusing on high-end, intelligent, and environmentally-friendly applications. The government has allocated funds for loan interest subsidies to reduce financing costs for businesses, as outlined in guidelines released by the commission.

By encouraging the replacement of outdated equipment with advanced technologies, the government not only stimulates effective investment but also enhances the operational efficiency and competitiveness of various industries, according to Dong Yu, executive vice-president of the China Institute for Development Planning at Tsinghua University.

Furthermore, China has increased support for consumer goods trade-ins, broadening the categories eligible for subsidies to include mobile phones, tablets, and smartwatches.

The 150 billion yuan (approximately $20.5 billion) allocated from last year’s ultra-long-term treasury bonds for the trade-in initiative created a significant multiplier effect, resulting in a 2.5-fold increase in new consumer spending, as noted by Wang Qing, chief macroeconomic analyst at Golden Credit Rating International.

This year, funding for the initiative is expected to double to 300 billion yuan. Wang estimates that this funding boost could generate around 750 billion yuan in new consumption, potentially increasing the year-on-year growth rate of total retail sales of consumer goods by 1.5 percentage points in 2025.

Recently, the central government pre-allocated 81 billion yuan for the consumer goods trade-in program in 2025, according to Fu Jinling, an official at the Ministry of Finance.

Policymakers are considering various factors, including demographics, regional GDP, household ownership of cars and appliances, and the previous year's trade-in program success, to determine appropriate funding levels for each province. Fu highlighted that regions with successful consumer goods trade-ins last year would particularly benefit from additional funding.

China, demand, economy