Photo: JADE GAO/AFP/Getty Images
Trustee Chair in Chinese Business and Economics > Trustee China Hand
While developed economies around the world have spent their pandemic recovery periods dealing with a surge in inflation, in China the government is confronted with the opposite problem – persistently low prices and weak demand. This has pushed China’s economic policy towards one key question – how can we get people to spend more of what they earn? One of the policy tools the government has utilized to get consumers back in stores has been a series of trade-in programs (known in Chinese in as 以旧换新). These programs offer cash subsidies for consumers who replace old appliances, vehicles, and electronics. The government’s enthusiasm towards this consumer-oriented policy represents a tangible shift towards what many Chinese and outside observers have long considered a key goal: moving China’s economy to a model driven more by domestic consumption than investment, which has been the primary driver of growth for the past two decades.
The timing of this shift is not surprising. Throughout the post-pandemic period, China has suffered from low consumer confidence and has flirted with deflation – a telltale symptom of weak demand. While China’s consumer price index (CPI) has stayed just above zero for most of the last year, it has consistently been lower than the government’s official target of around 2-3 percent and most recently in February 2025 decreased 0.7 year on year. Other measures suggest the situation is more dire than the CPI alone may suggest. The producer price index is already in a deflationary state, and the country’s GDP deflator, which measures the changes in prices of all goods in an economy including exports, has been negative for the past two years (See Figure 1). Perhaps most consequentially this has also come at a time when China’s growth itself is beginning to slow as a structural decline in real estate’s contribution to growth plays out. This has led to concerns that China may be slipping into a deflationary spiral that would mirror Japan’s economic stagnation in the 1990s while having failed to reach Japan’s level of income and development – the fear of getting old before becoming rich.
China’s leaders have traditionally focused explicitly on the supply side of the economy, directing state credit to real estate, infrastructure, and increasingly high-tech industrial sectors it now hopes will galvanize growth. There has also historically been a real aversion to consumer-oriented policies. The most explicit encapsulation of this attitude is that China must avoid the “welfarism trap” (福利主义陷阱) that in Beijing’s mind plagues Western governments, and that if not careful the government could end up “raising lazy people” (养懒汉). It seems that many provincial governments have become accustomed to this mode of thinking. In these policymakers’ minds, after all, how can increasing a 70-year-old grandmother’s pension compare to building a bridge when it comes to juicing up the economy?
Times change. The real estate crisis and the broader need to find new sources of growth apart from investment have made direct consumer-oriented policy, if not explicitly attractive, than at least more palatable. While this view isn’t new in China – concerns over weak demand have persisted for nearly a decade – its urgency has grown. Mentions of both “internal demand” and “consumption” increased markedly in the recent Government Work Report of the 2025 session of the National People’s Congress when compared to previous reports released during Xi’s presidency (See Figure 2).
The trade-in-programs look to solve China’s consumption woes by enticing consumers into spending on big-ticket items. These include home appliances, electric bikes, and electric vehicles. Recently the programs have expanded into other areas such as kitchen lighting fixtures and “smart home” devices as well as smartphones and other consumer electronics. Subsidy amounts vary depending on the product and consumers are incentivized to shop across categories (See Table 1). For example, the home appliance trade-in program offers a maximum of RMB 2000 per category and a maximum credit of RMB 24,000. This program initially allowed consumers to receive subsidies on purchases across 8 different categories, but this was most recently expanded to 12. Someone looking to remodel their kitchen would be a prime beneficiary.
Trade-in programs are of course commonplace in many parts of the world and are by no means a completely novel policy in China. In the aftermath of the 2008 financial crisis China implemented its “Home Appliances to the Countryside” policy which aimed to incentivize rural households to purchase new home appliances by offering 10-13 percent discounts. Auto trade-in schemes are also not without precedent. In 2009 the government launched an auto trade-in program – its own cash for clunkers so-to-speak – that provided qualified buyers with anywhere from RMB 3000-6000 subsidies. More recently, local governments launched pilot trade-in schemes in 2019 and 2020 prior to and during the pandemic that served as inspiration for this most recent policy movement.
However, the current wave of consumer trade-in programs seems unique in its scale. In 2024 the central government announced over RMB 150 billion in funding for trade-in programs using the proceeds of ultra-long-term special government bonds. In the recently published Government Work Report, the central government announced a further RMB 300 billion in bonds issuance for consumer trade-in programs. For comparison the “Home Appliances to the Countryside” program began in the aftermath of the global financial crisis and ended by 2013. The Ministry of Commerce said at the end of September 2012 that the program had provided over RMB 76.5 billion in total subsidies. In 2009 the NDRC said it had allocated a total of RMB 5 billion in funding for that period’s auto trade-in program. In other words, the scale of the recent policies shows the government has pivoted to these programs with a level of enthusiasm previously unseen.
On the implementation side, policymakers have also shown they are willing to meet consumers where they’re at. Prospective buyers are able to apply for credit through ubiquitous payment apps like WeChat and Alipay and find information about eligible products on popular ecommerce sites (See Figure 3).
Figure 3: Walking Through the Process
Source: MOFCOM
Note: These portions of a Shanghai city government online flyer give consumers info on what products are covered and directions on how to apply for the subsidy on their preferred payment app.
So far, the policies have generated noticeable results. The government has highlighted over 6.8 million auto trade-ins in 2024 and claims that over 37 million consumers made purchases of home appliances in 2024. This shift bears out in the data, with sales of household appliances in particular increasing by over 38 percent year-on-year in the fourth quarter of 2024. Auto sales and general retail sales are also up, but by more modest amounts (See Figure 4).
Despite their relative success, these policies are ultimately only effective in how they can bring forward consumption. In other words, a family may expedite its refrigerator purchase because of the trade-in policies, but the policies cannot credibly claim to significantly alter the way people consume in the long-term. They provide some cash infusion to participating households but are not as long-lasting when compared to enduring policy changes such as reforms to social services. This is one of the reasons why policymakers have sought to expand the number of qualifying products – someone is unlikely to buy another washer in 2025 if they already bought one in 2024.
Trade-in programs also serve as a convenient compromise between an old way of doing policy in China and a new, more demand-oriented one. After all, unlike direct-cash stimulus programs implemented in the United States, trade-in programs are an inherently directed form of support. They focus on incentivizing the right kind of consumption – one that benefits certain producers. It's not surprising then that the programs implemented thus far have focused on industrial goods – not necessarily high-tech ones. Trade-in policies give leaders a sense of control that consumers will be buying goods that somewhat fit within broader policy goals. These include non-economic goals. Trade-in programs for electric vehicles, for example, feed into the larger effort to both support the flourishing EV sector and decarbonize the economy. Trade-in programs for home appliances similarly require new appliances to meet energy efficiency standards. This ability to direct consumption makes the trade-in programs an attractive tool more closely aligned with China’s political economy than the sort of direct cash stimulus used in the United States.
It would be a mistake to assume that this wave of policy was just directed at households, however. The consumer trade-in policies are part of what is known as the “Two News” (两新)- the other “new” being large scale equipment upgrading programs that look to incentivize firms to replace old equipment and machinery. The “Two News” policy initiative was developed gradually over the course of 2024, with the first major mention of the trade-in programs in the Central Economic Work Conference held at the end of 2023 followed by a series of more detailed announcements from various ministries (See Table 2).
This dual focus on consumers and firms is much more in line with a typical, supply-side oriented model of policy making, one that has become very familiar for outside observers of China’s economy. It’s also part of a broader pattern.
While increasing domestic demand – a common refrain in Chinese policy documents these days – may be read at first glance as focused largely on consumption, in most cases the phrase is accompanied by language that focuses on consumers and businesses. Take language from the recently published Government Work Report: “[We must] greatly stimulate consumption, increase investment efficiency, and comprehensively expand domestic demand” (大力提振消费、提高投资效益,全方位扩大国内需求). This explicit dual focus on consumers and investment is also reflected in the “Two News” policy itself.
In 2024 the government announced that over RMB 150 billion in ultra-long-term special government bond proceeds had been allocated towards supporting industrial, energy, and transportation upgrading for over 4600 individual projects. This mirrors the RMB 150 billion in bond proceeds for the consumer trade-in programs, showing that – at least in the first year of the program’s implementation – the central government viewed this more investment-oriented policy as having equal weight with the consumer side of the “Two News”.
Similarly, while touting increased consumer sales, the government has also been touting increased purchases of equipment and tools, saying that in 2024 purchases increased 15.7 percent with a contribution of 67.6 percent towards total investment. Targeted items are just as diverse as those incentivized by the consumer programs. When discussing the program’s success, the National Development and Reform Commission (NDRC) cited firms replacing old commercial trucks, new energy buses, and agricultural equipment. As the property market flounders, it seems that Beijing views this type of investment as a potential stopgap measure and one that is supposed to also support purchases of goods produced in China, aiding “domestic circulation” beyond just what consumers may purchase.
Like the consumer side of the policy, trade-in programs for firms also contribute to other policy goals beyond just rebalancing growth – including increasing energy efficiency and encouraging firms to make investments that could boost productivity. Given China is set to miss its energy efficiency target in 2025 these kinds of levers can make the trade-in programs into “two birds one stone” instruments. Therefore, the supply-side of the “Two News” also gives policymakers several levers of control and direction that say blanket subsidies or corporate tax cuts would not.
The recent wave of trade-in programs shows that the Chinese government is clearly thinking about the need to increase consumption’s contribution to economic growth. However, the “Two News” program and its dual focus on both consumers and businesses reveals a mindset that has more continuity with the supply-side oriented policy direction Beijing has long favored than might appear on the surface.
Any policy to support consumers and rebalancing of China’s economy is a welcome one and there are signs that this “Two News” wave of policymaking may be an antecedent to more meaningful reforms. In mid-March the Central Committee of the CCP alongside the State Council released the “Special Action Plan to Boost Consumption.” Typical of these sorts of central policy documents, the plan was not a fully fleshed out and implementable policy agenda, but rather a signal about what direction Party leadership is looking to take the country.
Still, the plan names several constructive approaches to increasing consumption alongside the trade-in programs discussed here. The most striking of the sections included is the one focused on increasing “consumption capacity” which includes measures like expanding access to education, healthcare, and child benefits – long awaited reforms that are most necessary if China truly wants to make consumption into a central driver of future growth. Crucially, the policy also explicitly lays out the need to protect the “right to rest and leisure” and calls for greater worker protections. There are still elements of a supply-side mindset, however. For example, the document starts off by also citing the need to use “high-quality supply to create effective demand” which seems to echo broader efforts to move up the manufacturing value chain.
There are also reasons to be skeptical of how far implementation of social service reforms will go. Many of these policies are things the government has advocated for in principle for a long time. The landmark “Decisions of CCP Central Committee on Several Major Issues Concerning Comprehensively Deepening Reform” that came out of the Third Plenum of the 18th Party Congress held early on in during Xi’s leadership in 2013 also highlighted the importance of social services with one point being “the establishment of a more equitable social safety system.” Regardless, a stand-alone policy document of this kind is an important signal that the government is thinking hard about how to boost consumption and create enduring change.
Whether or not the government follows through on some of the more substantive social service reforms will be of great consequence for China’s people and its economy. The country can no longer rely on the investment-led model that propelled its economy to such heights in the 21st century and an increasingly strained relationship with its trading partners puts into doubt China’s ability to export its way out of domestic malaise. There are also serious questions about whether China has the fiscal space to back this policy shift as local governments are faced with declining revenue from land sales and aggregate fiscal revenues are likely to decline in 2025. For now, at least, Chinese consumers can enjoy their shiny new fridges.
Related Trustee Chair Activity
“Top Takeaways from China’s Two Sessions,” Trustee China Hand Blog, March 14, 2025.
Ilaria Mazzocco and Scott Kennedy, Is it Me or the Economic System? Changing Evaluations of Inequality in China, Big Data China Feature, July 9, 2024.
Qin (Maya) Mei, Scott Kennedy, and Ilaria Mazzocco, China is Growing Old Before it Becomes Rich: Does it Matter?, Big Data China Microfeature, September 21, 2023.
Qin (Maya) Mei, “Why China’s Long-Awaited “Revenge Spending” Boom Has Not Arrived,” Trustee China Hand Blog, June 1, 2023.
