Steps Afoot to Spur Domestic Demand in China

A car involved in a trade-in program attracts potential buyers during an expo in Nanning, Guangxi Zhuang autonomous region. (PENG HUAN/FOR CHINA DAILY)

In an effort to stimulate domestic demand, China is implementing robust measures to encourage upgrades of large-scale equipment and support trade-ins for consumer goods. This initiative comes as the country’s economy, the second-largest globally, faces both internal and external challenges this year, according to officials and experts.

The Chinese government is significantly increasing funding through ultra-long term treasury bonds, which will extend the coverage of eligible items under these programs. This is expected to enhance business investment and consumption, allowing more households and businesses to benefit, ultimately aiding the country's economic recovery.

Last year’s initiatives showed effectiveness, notably in pushing consumer demand, promoting investment growth, facilitating industrial upgrades, and aiding in the green transformation of the economy. Zhao Chenxin, deputy head of the National Development and Reform Commission, highlighted this during a recent news conference in Beijing.

In 2024, retail sales of new energy passenger vehicles reached 11 million units, and significant upgrades in key industrial sectors are anticipated to exceed 20 million units, as reported by the commission, which serves as the main economic regulator in China.

With the return of US president-elect Donald Trump, who has been vocal about imposing tariffs on Chinese goods, China aims to ramp up domestic demand—both through heightened investment and consumer spending—to cushion against potential external impacts. Zhang Yongjun, secretary-general of the China Center for International Economic Exchanges, emphasized the need for fostering strong domestic demand not just to address immediate challenges but also to support China's long-term advancement and modernization goals.

This year’s plans also expand the equipment upgrade program, emphasizing high-end, intelligent, and eco-friendly solutions. Additionally, the government is allocating funds to provide loan interest subsidies to help lower financing costs for businesses. Dong Yu, executive vice-president of the China Institute for Development Planning at Tsinghua University, remarked that replacing outdated equipment with advanced alternatives will boost investment effectiveness while enhancing operational efficiency and competitiveness across industries.

Furthermore, there has been an increase in support for consumer goods trade-ins. More products, including mobile phones, tablets, and smartwatches, are now eligible for subsidies as per the latest guidelines.

The 150 billion yuan (approximately $20.5 billion) allocated last year from ultra-long term treasury bonds for the trade-in scheme has seen great success, resulting in a 2.5-fold surge in new consumption. Looking ahead, the funding for the current year is set to double, reaching 300 billion yuan. According to Wang Qing, chief macroeconomic analyst at Golden Credit Rating International, this increase in funding could lead to an estimated 750 billion yuan in new consumer spending, boosting the year-on-year growth rate for retail sales of consumer goods by 1.5 percentage points in 2025.

To kickstart the consumer goods trade-in program, the central government has already allocated 81 billion yuan in funding for 2025, as mentioned by Fu Jinling from the Ministry of Finance. Funding allocations will take various factors into consideration, including demographics, regional GDP, household ownership of automobiles and home appliances, as well as the previous year's trade-in program performance, ensuring that successful regions receive prioritized funding.

China, demand, economy